What is Climate Risk?
There is a short version, and a long version. And they’re different.
The short version: a climate risk is the potential for something bad to happen because of climate change.
There’s a more technical (still short) way of putting it. A climate risk is a potential adverse consequence, comprising:
- hazard (a thing that might happen),
- exposure (what it might happen to), and
- vulnerability (susceptibility to damage or destruction).
Many climate risks can be easily envisioned. Wildfires; crop failure and famine; storm surges overtopping flood defences and seething through streets and homes; heatwaves melting infrastructure like chocolate. These are often referred to as physical climate risks.
Other climate risks are more abstract. A company might be caught out by new regulations, price changes due to new scarcities or carbon taxes, or changing consumer behaviour. These are called transition risks, or if they’re to do with legal action, liability risks.
Any given climate risk is probably entangled with other risks. Sometimes the concepts of compound risk and/or risk cascades are used to express this entanglement.
So there you go: that’s climate risk in a nutshell.
How risk came to rule
The long version? Well, first we need to step back and ask: how has risk come to play such a large role in how we understand climate change?
The prominence of risk is a deliberate and considered decision by the IPCC. The IPCC is the UN body responsible for collating and assessing climate change science. Over its past three reporting cycles, since about the year 2000, the IPCC has been developing risk into a kind of unifying framework for its presentation of climate change and climate action.
This is widely considered, on balance, a good thing. Why?
Well, firstly, almost everything the IPCC does is kind of a huge achievement just by the nature of the IPCC itself. When a giant scratches its nose, that’s momentous.
But more importantly, by framing climate change as a risk management problem, the IPCC is speaking the language of business, finance, and government.
For businesses, for example, environmental sustainability has a long association with communications and marketing departments. It was a way of making money from environmentally-conscious customers. Or it was a way of doing some real good, so long as it didn’t interfere with money-making. By contrast, risk management is already woven into businesses’ quality assurance, audit mechanisms, and reporting to investors. By expressing climate science in risk terms, the IPCC hopes it can be integrated more deeply into decision-making.
As for finance professionals — people who work for investment banks, pension funds, asset managers, and so on — risk is already their bread and butter. Even if you don’t work in finance, you will probably intuitively discount the present value of a future payment. That is, you might be willing to pay $100 to get $101 back right away, but not in a year’s time. Finance professionals have many models and methodologies for determining discount rates according to the risks involved.
Then there are governments. Many politicians and policymakers are convinced that the role of government is merely to correct market failure. So they have formulated the problem of climate change as follows: the prices of goods and services fail to reflect the full social costs of the carbon emitted in production. By applying policies such as carbon taxes (other options are very much available), these ‘externalities’ can be shepherded back into the incentive structure. Again, the risk framing aligns well with this perspective.
The risk framing has other features that are attractive to the IPCC. Specific risks may help to make climate change feel personal, rather than something taking place on an unimaginable scale. The risk framing may also help to centre vulnerable communities because, as mentioned above, vulnerability is one of the three key components of risk.
Then there’s the subplot involving the role of uncertainty. All scientific evidence, and especially anything involving statistics and models, is associated with uncertainty. Yet it’s been hard to say “uncertainty” and “climate change” within the same breath. Climate change deniers wait in the wings ready to take uncertainty data out of context. Risk is perhaps a little more resistant to having its meaning twisted in this way.
Despite all this, there is nothing inevitable about the IPCC’s risk framing. Things may well have followed a different path … but for the nature and mandate of the IPCC. The IPCC was established in 1988 as a policy-neutral body to assemble the scientific evidence on climate, not tell anyone what they should do. That remains the case.
Through its assessments, the IPCC determines the state of knowledge on climate change. It identifies where there is agreement in the scientific community on topics related to climate change, and where further research is needed. The reports are drafted and reviewed in several stages, thus guaranteeing objectivity and transparency. The IPCC does not conduct its own research. IPCC reports are neutral, policy-relevant but not policy-prescriptive.
Yes, there are plenty of theorists within the philosophy of science, or Science and Technology Studies, who can convincingly explain why there is really no such thing as purely objective and non-prescriptive science. And even if there were such a thing, it would be pretty hard to connect with the IPCC, whose job is driving deep, rapid and unprecedented transformation of all areas of society.
Nevertheless, the will-o’-the-wisp of policy neutrality is what guides how the IPCC operates, communicates, and reflects on what it does. In this sense, the risk framing has evolved as a creative compromise between two things: the IPCC’s neutrality mandate, and its urgent need to make forceful recommendations.
The risk framing lets the IPCC say: “I’m not here to tell you what to do. But if you don’t do x, here’s what might happen.”
This framing seems to be here to stay. It doesn’t completely dominate the way we think and talk about climate action: it coexists and interacts with other flexible, high-level concepts, such as Net Zero, climate justice, ESG, and climate activism.
But we can still ask: is the risk framing a good thing? In what ways? In what contexts? To give risk a taste of its own medicine: what are the risks of the risk framing?
What do you think?
