Climate Risk Management

Climate risk refers to the potential negative impacts of climate change on an organization. This can include physical risks, which can be acute (e.g., extreme weather events like hurricanes, fires, and floods) or chronic (e.g., long-term changes and variability in precipitation, temperature, or sea-level). It can also include transition risks, which are risks associated with the transition to a low- or no-carbon economy.

Managing climate risk will be critical to ensuring the financial stability of the Nation. The Government Accountability Office added Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks to its “high risk” list in 2013 because changes in climate pose a significant fiscal risk to the goods, services, and assets agencies rely on to complete their missions. Items are added to this list due to their vulnerabilities to fraud, waste, abuse, and mismanagement, or if they need transformation. Agencies are also required by statue to safeguard Federal assets from waste, loss and misappropriation (31 USC §3512(c)(1)(B)).

Climate risk management activities are undertaken to ensure agencies can consistently and reliably complete their missions in changing climate conditions.

• Section 211 of Executive Order (EO) 14008, Tackling the Climate Crisis at Home and Abroad, requires federal agencies to develop Climate Action Plans “that describe steps the agency can take with regard to its facilities and operations to bolster adaptation and increase resilience to the impacts of climate change.
• In addition, EO 14030, Climate-Related Financial Risk, requires the development of a government-wide strategy regarding the “measurement, assessment, mitigation, and disclosure of climate-related financial risk to Federal Government programs, assets, and liabilities in order to increase the long-term stability of Federal operations.
• The Guiding Principles for Sustainable Federal Buildings also advise agencies to “avoid or mitigate the short- and long-term adverse impacts associated with projected climate changes and acute weather events, including storms, wildfires, droughts, and floods."

Multiple emergency management and continuity of government directives require Federal agencies to both prepare and manage these risks to avoid costly emergency responses spanning from flooding, extreme heat, wildfire and sustained drought in Federal facilities and supply chain.

Workshop Process

In an effort to identify and communicate facility and supply chain risks associated with observed and expected changes in climate, the General Services Administration (GSA) conducted several workshops. These workshops harnessed best practices from the National Aeronautics and Space Administration (NASA) and information and expertise from the National Oceanic and Atmospheric Administration (NOAA) and the U.S. Global Change Research Program (USGCRP). GSA’s initiative was based on NASA’s seven-step process for conducting similar workshops. It is just one option for conducting a workshop, and you may need to make modifications to this process to meet your organization’s needs.

The following workshop process combines best practices from the Federal community and can help users to identify risks and develop strategies to secure vulnerable real property investments and supply chains. The workshop process and its results can also help to create a feedback loop where new information discovered during the process can lead to better informed next steps, an important part of adaptive management.

When selecting participants for the workshop, be sure to invite people who either influence or control the affected assets (like asset, policy, or contract managers), as well as specialists who can help to point out vulnerabilities and answer any questions regarding observed and expected changes in climate and extreme weather. Incorporation of these risk factors into organizational processes is new to many, and this process can help to build the capacity, capability, and confidence in your team.

1. Conduct inventory of systems & assets

Step 1 consists of a scoping exercise to inventory the systems and assets you will focus on during the workshop. It is best to keep the scope small so the team can focus on developing strong strategies later in the process. For example, focus on a single critical site or facility and product or service that is critical to the activities performed at that location. “Critical” means that your organization’s operations would be compromised without access to the site, facility, product, and/or service. It is helpful to have a small team conduct this step prior to bringing the entire workshop team together.

2. Identify current and future climate hazards

The team identifies observed and expected changes in climate and extreme weather that currently are or could in the future impact the region where the selected assets are located. For example:

• Extreme heat
• Extreme precipitation
• Drought
• Sea level rise

As with Step 1, it is helpful to have a small team identify the hazards before the entire workshop team meets.

Figure 1: Climate-related impacts that have occured in each region since the Third National Climate Assessment in 2014 and response actions that are helping the region address related risks and costs.¹

3. Characterize risk of observed and expected changes in climate and extreme weather on systems and assets

There are two parts to Step 3. The first part involves establishing the baseline impacts of the  hazards (Step 2) on your selected assets (Step 1).

• What are the impacts on the assets? Focus on one climate variable at a time.
• Are there any critical thresholds of the asset? For example, might the asset fail once temperatures reach a certain point?
• Are there any current actions underway to manage these impacts?
• If there currently are actions underway, are they identified in any plans? If so, who is responsible for ensuring these actions are completed?

During the second part of this step, characterize the likelihood and magnitude of the impacts on the asset and identify the type of response that is necessary. Likelihood can range from low to virtually certain or already occurring:

The magnitude can range from low to moderate to high. An example is provided below for a critical service:

Once you identify the likelihood and magnitude, you can then determine the type of response needed using the matrix below:

Figure 2: Climate Impact.²

4. Develop initial strategies and approaches

Develop initial strategies that can manage the identified climate risks to your assets, focusing on the impacts. Consider the following:

• Characterizing the Asset/System
  • Is the asset/system already under stress (e.g., slow loss of habitat, aging infrastructure, etc.)?
  • How well can the asset accommodate observed and expected changes in climate? (e.g., is the infrastructure designed to address a range of future climate conditions?)
• Strategy Development
  • What type of strategy are you developing? Is it addressing the maintenance and operation of a facility, capital investment decisions, policy, or procurement and contracting activities?
  • If existing actions have been identified, are they viable long-term solutions to the impacts of observed and expected changes in climate?
  • Are there options that can be employed to accommodate the changes in climate? Are they costly? Would they take a long time?
  • How can you measure success and determine whether the strategies are successful over time?
• Strategy Implementation
  • What are the implementation steps for the strategies?
  • Who makes the decision whether to implement the strategy or not?
  • Who will be responsible for implementing the strategy?
  • Is there anything that needs to be completed before implementation can begin? Does any data need to be collected, research conducted, policies changed, or awareness training launched?
  • Will implementation involve several separate projects over multiple years? Would it be an add-on to something already underway?
  • Which stakeholders should be involved in the implementation process? Are there other stakeholders who will be impacted by implementation of the strategy?

5. Identify funding sources

Consider how much these strategies will cost to implement and what funding sources might be available.

• What is the estimated cost of each strategy? This could be as simple as identifying the potential cost range (e.g., $1-5 million).
• Do funding sources already exist, and if so, what is the process to request funding for the strategies?
• What other funding sources might be available internally or externally? What is the timing for requesting and receiving funds through these sources?

6. Identify opportunities for coordination

Consider what partnerships you can leverage for implementing the adaptation strategies. This could include both internal and external partnerships and might involve various levels of the government (e.g., federal, state, and local) and private sector partners. Potential partners may also include your customers.

7. Integrate into management and planning

Finally, figure out how you can integrate the strategies you developed into existing processes, plans, funding mechanisms or activities. The team should consider the integration process over various time scales:

• What can be done today to incorporate considerations of these risks and strategies?
• How can you integrate these risk considerations and the strategies you developed into future management and planning processes at your organization?

The team should also discuss institutional or policy barriers that could impede implementation of the strategies, identify opportunities to address these barriers, and consider any other internal or external partners that should be involved in the process.

IMPORTANT NOTE: As you integrate and implement strategies into your organization’s processes, you will need to monitor and assess whether the strategies are working and whether the strategies need tweaking based on any new information.

1: U.S. Global Change Research Program. Fourth National Climate Assessment. Figure 1.1: Americans Respond to the Impacts of Climate Change. https://nca2018.globalchange.gov/chapter/1/. Accessed October 13, 2021. 2: http://www.mwcog.org