2.5 - Identification of transition risks and opportunities
What are the risks and opportunities for the organisation?
The low-carbon transition of our society and global warming are both sources of risks and opportunities for organisations. It is therefore necessary to integrate these notions into low-carbon transition strategies. For example, GHG emissions are both a risk (energy dependence, strong impact of new carbon taxes, vulnerability to regulatory changes, legal and reputational risk) and an opportunity (better business resilience, increased investments in lower-emission and more efficient solutions, a sectoral leadership position in terms of innovation, reputation gains following the implementation of reduction actions, etc.).
The risks and the opportunities related to climate change have been categorised and must ultimately be subject to analysis by the organisation. The requirements for this analysis vary according to the maturity level of the organisation.
The step of identifying transition risks and opportunities is necessary in a Bilan Carbone® approach. It takes place upstream of the accounting phase to add a strategic dimension to considerations of boundaries, Stakeholder engagement, data collection, etc.
The results obtained during the approach (the organisation's impact on the environment, notably the accounting of carbon impact, and potentially multi-criteria) are then used to feed the risk analysis (incidence of environmental degradation on the organisation), to make the link with the notion of double materiality.
Climate-related risks are subdivided into two main categories:
The transition risks, which are linked to societal developments and economic models
The transition risks, which are directly linked to the change in climate and the consequences caused by it
It is important not to lose sight of the fact that even if taking risks into account and adapting to them can be difficult and costly for the organisation, not acting could prove disastrous for it.
Transition risks
Transition risks are distributed across several categories:
Regulatory risks, which may in particular be related to an increase in the carbon tax, to greater reporting obligations or to legislation on certain products, services or activities of the organisation (examples include the EU taxonomy, the CSRD or the MACF).
Image and reputational risks, which may in particular be related to changes in behaviour among users, members or customers of the organisation, to investor concerns in the case of a company, or to stigmatisation in the media of the organisation's sector of activity. This also includes legal actions related to climate inaction. These image and reputational risks can also have consequences for the organisation's ability to recruit staff.
Market and technology risks, linked to uncertainty in raw material and energy prices on the markets or to competition from other organisations offering lower-carbon products and services.
Economic risks are transversal. The costs of inaction are intrinsically linked to the consequences of the other categories of risks.
Examples are available in the appendix.
Physical risks
Physical risks are distributed across several categories:
Risks related to natural disasters and extreme weather events becoming increasingly frequent and/or intense. These can disrupt operations or endanger the organisation's assets and staff. For example, natural disasters can lead to a local power outage.
Risks related to gradual changes in the climate, such as rising average temperatures, rising sea levels, changes in the frequency and/or intensity of rainfall, depending on the areas where the organisation's activities take place. These risks can have an impact on the organisation's staff and on some of its assets depending on its sector of activity. For example, more frequent and more intense heatwaves can lead to higher absenteeism within the organisation. If the organisation uses agricultural raw materials, these could become scarce if water resources were to run short, etc.
Physical risks set out the consequences of these first two categories of physical risks (extreme events or gradual changes), such as supply chain disruptions, link failures, transport blockages, health or geopolitical risks, etc.
Examples are available in the appendix.
Transition opportunities
The opportunities that ensure the organisation a place in the low-carbon world of tomorrow are of several types:
Resource consumption reduction: the organisation benefits from this reduction, whether in the form of cost savings, increased production of goods or services, etc. The organisation maintains its access to these resources in case they become scarce.
Reduction of GHG emissions: the organisation protects itself against changes in fossil fuel prices, the impact of future regulations and potentially participates in carbon markets.
Development of new products and services and innovations: the organisation gains access to new markets, new audiences, strengthens its position or becomes a market leader.
Regulatory and financial incentives: The organisation may obtain access to public funding, conditional subsidies or private financing targeting lower-environmental-impact activities.
Communication and image: the organisation communicates about its actions related to energy, climate, or its resilience, and improves its public image.
Adaptation: By adapting to climate change, the organisation also reduces its vulnerability to other hazards.
Examples are available in the appendix.
Requirements relating to the identification of risks and opportunities
Here are different requirements to be achieved in terms of identifying transition risks and opportunities for each of the 3 maturity levels.
Beginner level: criterion G1
A rapid identification of risks as part of Stakeholder engagement
The organisation lists the different risks (physical and transition) and the impacts these could have. The organisation also presents the opportunities and potential co-benefits of the approach.
The organisation may rely annex on a list of potential physical and transition risks.
As part of the Stakeholder engagement, a time for debate and exchange on these risks and their relevance within the organisation can be organised.
Intermediate level: criterion G2
Flow mapping incorporates risks relevant to the organisation
The organisation produces a map of the different risks relevant to its case and their impacts. Internal risks to the organisation and across the entire value chain must be considered. The organisation then maps all of these risks onto the flow mapping, in order to highlight the vulnerabilities to which it is exposed.
The organisation may rely annex on:
a list of potential physical and transition risks
on a risk analysis matrix aimed at considering risks that are specific to the organisation's activities
on an economic vulnerability simulator.
To report these conclusions, the same representation can be used for the risk map and the emission sources mapping. Thus, the organisation frames and vulnerabilises the flows that revolve around its activities.
As a result, the organisation's transition plan takes these vulnerabilities into account by integrating several Adaptation actions to climate change.
Advanced level: criterion G3
A comprehensive risk analysis is carried out and is an integral part of the organisation's decision-making processes
This maturity level implies that the organisation reasons in double materiality (measuring an organisation's impact on the environment, and the incidence of environmental degradation on that same organisation).
The organisation carries out or has carried out (as part of the Bilan Carbone® approach, or as part of a complementary approach, potentially pre-existing) a comprehensive analysis of climate-related risks and opportunities, the results of which are attached to the Bilan Carbone®. This analysis must be no more than 10 years old. Risks and opportunities must be considered internally to the organisation and across the entire value chain.
For this, six steps can be followed:
Step 1: Analysis of exposure and sensitivity past of the organisation to the different risks physical and transition. For example, a study of the past evolution of energy costs for the organisation, of the evolution of the public image of the organisation's sector, investments related to the energy-climate theme, and any other element relevant in this context for the organisation.
Step 2: Assessment of exposure present and future (short, medium and long term) of the organisation to the risks of transition. The organisation shall at minimum study different scenarios of energy price evolution, of regulatory evolution (carbon tax, regulation of products and services), of changes in the requirements of the various Stakeholders of the organisation (health, environment, societal engagement, etc.), of technology evolution (low carbon, etc.). The scenarios studied must include assumptions in which global warming is kept to 1.5°C under the Paris Agreement because transition risks will be higher in that case.
Step 3: Assessment of exposure present and future (short, medium and long term) of the organisation to physical risks physical. The organisation shall at minimum study different scenarios of evolution of extreme climatic events and of progressive climate changes. The scenarios studied must include high-warming assumptions (the “business as usual” scenario) because physical risks will be more intense and frequent in that case.
Step 4: Prioritisation and summary of these different risks. Qualification and quantification of the effects these risks may have on the organisation and its value chain. The organisation may rely annex on a list of potential physical and transition risks, on a risk analysis matrix and on an economic vulnerability simulator.
Step 5: Assessment of the organisation's present and future opportunities related to climate issues.
Step 6: Preparation of a report accounting for the various analyses carried out by the organisation. In addition, the organisation can map the risks in the same way as the emission sources mapping. Thus, the organisation frames and vulnerabilises the flows that revolve around its activities.
The organisation then integrates this risk and opportunity analysis into its strategic analysis. The decisions made by the organisation must systematically take this risk and opportunity analysis into account. The transition plan must include adaptation objectives, and multiple Adaptation actions to climate change, in order to limit the probability and impacts of physical and transition risks, and to seize the various opportunities that arise.
ℹ️ Given existing methods, and within the Bilan Carbone® framework, it is possible to have a more advanced analysis of physical risks than of transition risks; nevertheless the latter must exist, at least qualitatively. It is possible to have a more in-depth analysis of physical risks at the scale of'a site (considered as critical and representative). However, within the scope of CSRD reporting, this analysis must be extended to all sites.
🔎 The Bilan Carbone® Advanced level requirements regarding risks and opportunities are aligned with the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and make it possible to meet several DRs of the Corporate Sustainability Reporting Directive (CSRD).
🔎 The organisation may rely on the OCARA methodological guide.
All information on the operational boundary is documented and Do you have a comprehension question?Consult the FAQ . The method is living and therefore likely to evolve (clarifications, additions): find the.
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