Climate risk assessment for global OEM and pharmaceutical contract manufacturer

Companies operating in Europe and the US are exposed to regulations requiring them to increase transparency around sustainability, enabling investors and other stakeholders to make informed decisions. Responding to the regulation and stakeholder demands remains a complicated exercise.

Ramboll was engaged by a client's global risk management team to deliver a governance-integrated assessment for climate disclosures, capital planning, and risk-informed strategy as they prepared to comply with potential EU and US regulations, such as the CSRD, which includes the responsibility to inform their stakeholders about material sustainability matters.

Though the company had previously completed a climate risk assessment focused on physical risks, they decided to also conduct a resilience and scenario-based approach to evaluate both physical (e.g., extreme weather, rising sea levels) and transition risks (e.g., policy shifts, market changes, technological advancements). This approach would allow them to understand the business impacts of climate change in the short, medium, and long term.

While the analysis was complicated due to the breadth of the analysis – global operations of the company across all business lines and geographies – the results of the analysis were similarly impactful. To start, our team assessed how climate risk is currently governed within the company from its integration within the Enterprise Risk Management System to its oversight by both the executive management and Board of the company. Throughout this process Ramboll identified gaps in the current practices, based on industry best practices, and recommended improvements for integration of climate risk into the operations, strategy, and risk management processes.

Evaluating risks through climate scenarios

We followed this initial review with identification of relevant physical and transition climate risks for the company. Using input from key business and operations stakeholders, we analyzed these risks and opportunities across two different climate scenarios to determine their potential materiality to the business over the short, medium, and long term. The scenario analysis, a widely used tool to stress test business plans, was conducted under one high-emissions scenario (where there is continued reliance on fossil fuels, higher global temperature rises, and increased likelihood of physical risk impacts) and one low-emissions scenario (a future with strong climate policy and widespread clean energy adoption leading to lower global temperature rises broadly and higher potential transition risk impacts) to determine how the company would be affected by climate change.

Under the high-emissions scenario, the business encountered fewer market and policy risks but was more likely to experience impacts to physical operations. In the low-emissions scenario, the company must more quickly adjust to changing regulatory and market conditions but is spared some of the physical risks.

A way forward

As a result of this project, the client gained a comprehensive understanding of their climate risks and opportunities over the short, medium, and long-term. This knowledge has enabled them to better:

• Integrate these risks into their enterprise risk management so that they can track these risks and make business decisions about how to best control them
• Integrate this information into executive- and board-level reporting, to ensure that business critical risks are being monitored by the highest levels of the company
• Prioritize resilience planning activities, knowing how changes in the climate may impact operations
• Integrate potential market and regulatory changes into their long-term corporate strategic planning process

Ramboll continues to work with this client to guide them in integrating climate risks and opportunities throughout their organization.