Climate Risk Management: Identifying and Mitigating Climate Risks for Business

Climate change is one of the most significant challenges facing the world today. The effects of climate change can be felt in various ways, from rising temperatures to changing weather patterns, and it has severe implications for businesses operating in Kenya. Kenya is currently facing its worst drought in 40 years, which brings to focus the importance of climate risk management and how businesses in Kenya can identify and mitigate climate risks.

Climate risk management is the process of identifying, assessing, and managing the risks that arise from climate change. These risks can include physical risks, such as the impact of extreme weather events, and transitional risks, such as changes in policies, regulations, or market trends. Businesses that do not take climate risks seriously may face significant financial losses, operational disruptions, reputational damage, and legal liabilities.

One of the key steps in climate risk management is identifying the climate risks that businesses face. In Kenya, businesses are particularly vulnerable to climate risks, given the country’s dependence on agriculture and natural resources. The current drought is a case in point, with over 2.1 million people in need of food aid, and livestock deaths reported in various parts of the country. The drought has led to a decline in crop yields, increased food prices, and loss of livelihoods, which has a ripple effect on the economy.

Businesses that rely on agriculture, such as the food and beverage industry, are particularly vulnerable to climate risks. The drought has led to a shortage of raw materials, which has affected production and distribution. This, in turn, has led to an increase in prices, making it harder for consumers to afford basic goods. It also creates a difficult environment for businesses to operate in, with unstable supply chains and unpredictable weather patterns.

Other businesses that may be affected by climate risks include those in the tourism industry. Kenya is a popular tourist destination, but climate change can lead to a decline in tourist arrivals. Coral reefs, which are important tourist attractions, are being damaged by rising sea temperatures, which affects the marine ecosystem. The impact of climate change on tourism is not limited to Kenya – animal deaths have been reported in famous tourist hotspots around the world. The Great Barrier Reef in Australia, which is one of the world’s most famous natural wonders, has suffered severe bleaching events in recent years, leading to the death of coral and marine life.

In Africa, wildlife tourism is a significant source of income, but climate change has disrupted ecosystems, affecting wildlife populations and their habitats. In some parts of Africa, elephants have died from dehydration and starvation as a result of prolonged droughts, which are becoming more frequent and severe due to climate change. Elephants need a lot of water to survive, and when water sources dry up, they may travel long distances in search of water, which can lead to exhaustion and death. This not only has a devastating impact on the elephant population but also affects the local ecosystems, as elephants play a crucial role in maintaining vegetation and supporting other wildlife species. The loss of elephants also impacts the tourism industry, as elephants are a major attraction for tourists visiting Africa.

These extreme consequences of climate change highlight the need for businesses to take climate risk management seriously, not just for their own sake but also for the sake of the environment and the animals that depend on it.

Climate Risk Assessment

A climate risk assessment involves analyzing the impact of climate change on operations, assets, and supply chains. A climate risk assessment can help businesses to identify the most significant risks they face, prioritize their responses, and allocate resources more effectively.

Once businesses have identified their climate risks, they need to develop a climate risk management strategy. This strategy should outline how they will mitigate and manage the risks they have identified. Businesses can take several steps to mitigate climate risks, including:

Diversifying their Supply Chains

Businesses that rely on a single supplier or location for their raw materials are at risk of disruption if that supplier is affected by climate change. By diversifying their supply chains, businesses can reduce their exposure to climate risks.

Investing in Renewable Energy

Businesses can reduce their carbon footprint and mitigate the risks associated with rising energy costs by investing in renewable energy sources such as solar or wind power.

Improving Water Management

Businesses can reduce their water consumption and improve their water management practices to ensure they are more resilient to droughts.

Developing contingency plans:

Businesses can develop contingency plans to deal with the impacts of climate change, such as extreme weather conditions, supply chain disruptions, or changes in regulations.

Engaging with stakeholders

Businesses can engage with stakeholders, such as suppliers, customers, and local communities, to build resilience and adapt to the impacts of climate change.

Climate risk management is crucial for businesses operating in Kenya, particularly given the current drought. By identifying and mitigating climate risks, businesses can reduce their exposure to financial losses, operational disruptions, reputational damage, and legal liabilities.

By Katherine Keango

Would you like to share an article? Write to us at sbscommunication@strathmore.edu