At Susteer, we are helping asset managers and developers to identify, assess and manage the physical and transitional risks of climate change. One of our early clients is an airport operator who has experienced the direct effects of extreme weather events and wants to understand how climate change may increase the likelihood of these events occurring in the future, and at what cost.
What we want to share in this post is to explain what Climate Risk Assessments are and why they are important to asset managers such as airport operators.
Understanding Climate Risk Assessments
A climate risk assessment is no different from the assessment of any other risks to a business. The first step is to define a risk event, understand its consequence, determine the likelihood of the event occurring and use the product of consequence and likelihood to assess the risk level, which is then used to decide if, when and how the risk is managed.
Let’s consider an extreme weather event (tropical nights) and sea level rise as two potential risk events for an airport. The first, when night time temperatures remain high, could impact the performance of the air conditioning system of a terminal building, requiring greater capacity for cooling. The second may not affect the airport itself but could necessitate major investment in local road infrastructure, potentially limiting surface access for passengers and staff. The financial materiality of the extreme weather event of tropical nights could be in the millions but in the billions for the longer term event of sea level rise. The likelihood of these events occurring will vary depending on how far into the future we look.
In the short term, say the next five years, we might consider the risk of either event occurring is so low there is no material financial impact. However, in the long term, say in 25 - 50 years, the likelihood may increase sufficiently for the risks to be very high and require management. These factors will not only affect how the risk is managed but also when. Upgrading an air conditioning system to increase its cooling capacity will require planning but could reasonably be completed within a few years. Upgrading a whole surface transport network may take decades to plan and provide.
There are many reasons why airports need to conduct these assessments, including:
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Resilience and adaptation: Airports are often major nodes within transportation networks and, as described above, climate change can affect them both directly and indirectly. By identifying potential risks and vulnerabilities, airports and their stakeholders can develop strategies to minimise disruptions and keep operations running smoothly.
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Regulatory compliance: These days, governments and international organisations are really starting to pay attention to climate change adaptation, and they're implementing policies and regulations to encourage businesses to assess and manage their climate risks. The aviation sector is committed to decarbonise, and is under pressure to do so, from investors, governments and customers. Conducting a climate risk assessment helps airports stay compliant with these ever-evolving requirements.
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Financial implications: We've shown how climate change can lead to physical impacts. Well, it can also affect the transition to a low-carbon economy, and both of these factors can have material financial implications for businesses. By doing a thorough risk assessment, airports can better understand these implications and make smart decisions on investments, insurance, and other financial matters.
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Reputation and stakeholder relations: Consumers want or like to see businesses that are proactive and responsible. By assessing and managing climate risks, airports can improve their reputation among passengers, investors, and other stakeholders, which can lead to increased business and investment opportunities, as well as stronger community support.
What Happens After You Receive the Assessment?
If you are one of those proactive airports that has commissioned an assessment and has the information in front of you, the next step involves developing strategies that will help your business adapt to the changing climate in a timely manner.
One initial step is to announce you have the results and are starting the process of implementing some processes. This will strengthen any application for incentives or financial support from government bodies or investors.
Sharing this assessment with the various business units inside the airport can be useful for those that make decisions on investments, insurance, and other financial matters, which ultimately helps ensure their long-term stability and growth and allows them to be informed and have better data to make better decisions.
And finally, being proactive in assessing and managing climate risks can lead to increased business and investment opportunities. When airports show that they're responsible and prepared, they foster strong community support, which is always a great thing!
If you are interested to find out more about how your airport can benefit from a climate risk assessment, contact us at Susteer.