Physical Risk

Physical risks are risks associated with the physical impacts of a changing climate, including the risk of destruction of assets and/or disruption of operations, trade routes, supply trains, and markets. These risks can be event driven (acute) or associated with longer-term shifts in climate patterns (chronic), as described in Table 3.

Transition Risks: Risks related to the transition to a lower-carbon economy. [Read more]

Physical Risk Categories
Acute	Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, heat or cold waves, or floods.
Chronic	Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures, sea level rise, changing precipitation patterns) that may cause sea level rise or chronic heat waves.

Source: This table's content is reproduced from Recommendations of the Task Force on Climate-related Financial Disclosures

Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Organizations' financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organizations' premises, operations, supply chain, transport needs, and employee safety. Table 4 presents examples of climate-related physical risks and financial impacts.

Climate-related Physical Risks

Potential Financial Impacts

Acute Increased severity of extreme weather events such as cyclones and floods Chronic Changes in precipitation patterns and extreme variability in weather patterns Rising mean temperatures Rising sea levels

Reduced revenue from decreased production capacity (e.g., transport difficulties, supply chain interruptions) Reduced revenue and higher costs from negative impacts on workforce (e.g., health, safety, absenteeism) Write-offs and early retirement of existing assets (e.g., damage to property and assets in "high-risk" locations) Increased operating costs (e.g., inadequate water supply for hydroelectric plants or to cool nuclear and fossil fuel plants) Increased capital costs (e.g., damage to facilities) Reduced revenues from lower sales/output Increased insurance premiums and potential for reduced availability of insurance on assets in "high-risk" locations

Source: This table's content is reproduced from Recommendations of the Task Force on Climate-related Financial Disclosures