Climate Risk Management (CRM) aims to manage climate change impacts along the entire risk continuum, from short-term extreme weather events to long-term gradual changes. Based on a climate risk assessment (CRA), it combines proven and innovative measures from the field of climate change mitigation and adaptation, disaster risk management and social protection into a single holistic and participatory framework to avert, minimise, and address Loss and Damage.
Mainstreaming climate risks into relevant processes and policies at the national and sub-national level fosters a holistic consideration of climate change impacts in affected sectors and highlights the need for specific instruments and data collection, appropriate human and financial resources, and institutional rearrangements.
The first step comprises an assessment of how climate-related hazards interact with the exposure and vulnerability of a system including socio-economic factors. The interaction of these factors determines the overall risk for the affected system.
In order to allow for effective planning, the assessment includes evaluating the magnitude of the expected impacts and the identification of potential losses and damages by applying a suitable combination of methods.
Based on a cost-benefit analysis, the most promising risk management options to deal with risks can be selected and combined into a smart mix of measures. This forms the basis for the integration of climate policy measures into public budgets and national policies.
In order to attain the smartest mix of measures for a given situation, the CRM framework links tried-and-tested measures with innovative instruments and transformational approaches in a comprehensive and integrated way.
Prioritised measures must be context-specific and sustainable, and must engage affected populations. Institutional integration is crucial to mainstream CRM considerations into new and existing development planning and budgeting processes, within all relevant institutions and sectors, and at all levels.
Monitoring and evaluation of implemented measures lead to continuous learning that feeds into the CRM framework and informs future decision making.
The CRM framework allows for decision-makers to take account of fresh evidence and insights, newly available data, and lessons-learnt from monitoring and evaluation. This flexibility is fundamental, especially for integrating innovative and transformative instruments and approaches.
CRA builds the foundation for successful CRM. By identifying risk and assessing the magnitude of impacts on people, assets, value chains, (critical) infrastructure, settlements, and ecosystems, CRA informs decision makers about possible options for action.
The CRM framework informs and supports decision making and implementation. To identify the smartest mix of CRM measures for a given context, it is crucial to understand the organisational and economic ability of countries, communities, and the private sector to adapt and respond to risk.
Risk results from the interaction of vulnerability, exposure, and hazard. While the occurrence of climate-related hazards can be reduced through mitigation measures, the exposure and vulnerability of people and assets are mainly linked to sustainable development indicators and CRM.
The CRM framework combines tried and tested approaches from CCA (e.g. climate-smart agriculture; ecosystem-based adaptation) and DRR (e.g. early warning systems; contingency planning; civil protection plans) to minimise losses and damages.
Risk finance mechanisms (e.g. climate risk insurance; contingency funds; social protection) provide security against the loss of assets, livelihoods, and lives. Transformational approaches include the diversification of livelihoods, flexible and participatory decision-making, and adaptive management approaches.
The effects of climate change are already being felt today: According to the latest climate projections, extreme weather events are set to increase in frequency and magnitude in the future. These events, such as storms/cyclones and floods, along with slow-onset changes like sea level rise and desertification, and the resulting socio-economic aspects pose a growing risk to the sustainable development of all countries and can lead to economic and non-economic losses and damages. Least developed countries (LDCs) and small island development states (SIDS) are particularly vulnerable to such risks, meaning that their natural and social systems are more exposed to the negative impacts of climate change and less able to cope with them. Despite current efforts for mitigation and adaptation, residual risks of adverse impacts of climate change remain. Assessing and managing risks in order to avert, minimise, and address Loss and Damage is therefore of central importance.
The topic of growing risks from climate change is reflected in many international policy agendas, e.g. in the Sendai Framework for Disaster Risk Reduction, as part of the United Nations Office for Disaster Risk Reduction (UNDRR) and under the United Nations Framework Convention on Climate Change (UNFCCC). Under the UNFCCC, the topic of Loss and Damage (L&D) has gained growing attention, which led to the establishment of the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (WIM) in 2013. In 2015, the Paris Agreement emphasised its importance by introducing L&D as a standalone article:
“Parties recognize the importance of averting, minimizing and addressing loss and damage associated with the adverse effects of climate change…”
ARTICLE 8 OF THE PARIS AGREEMENT
Article 8 of the Paris Agreement (UPCA) recognises the relevance of averting, minimising and addressing climate change-related loss and damage.
In 2019, the Santiago Network was launched at COP25 as a “catalyst for demand-driven technical assistance” for loss and damage. At COP26 in 2021, the Glasgow Dialogue was initiated, within which funding arrangements for loss and damage will be addressed in three dialogues at the interim negotiations between countries, civil society and experts until 2024. Most recently, a new agenda item on financial arrangements for loss and damage was included for the first time at COP27 in 2022.
Comprehensive Climate Risk Management (CRM) is a systemic framework that seeks to anticipate, avoid and prevent all types of climate risks as well as to absorb remaining impacts from extreme weather events and slow-onset changes. Thereby, it integrates the two research strands of Climate Change Adaptation (CCA) and Disaster Risk Reduction (DRR) into a sustainable development framework.
Comprehensive Climate Risk Management aims to address and reduce the negative consequences of climate change by averting climate risks through the reduction of greenhouse gas emissions, minimising climate risks through adaptation, and risk management or managing residual climate risks via instruments such as climate risk financing or transformative measures (see below). The concept of CRM encompasses the following mutually reinforcing steps and should be built on the participation of stakeholders from different sectors and scales. Click on the graphic below to interact with it.
Climate Risk Assessment as part of CRM
Climate Risk Assessments build the foundation for comprehensive Climate Risk Management (CRM) by identifying the nature and extent to which climate change and its impacts may harm a country, region, sector or community. Quantifying and assessing climate risk, i.e. the result of the interaction of vulnerability, exposure and hazard, is important to support decision-making and forward-looking planning. Thus, the identification of current and future key risks and impacts on people, assets and ecosystems can help to allocate resources accordingly, in order to design adaptation policies and projects for reducing vulnerability and risk, and to establish a baseline against which the success of adaptation policies and actions can be monitored.
A Climate Risk Assessment analyses how climate change and extreme weather events interact with socio-economic factors in order to determine the overall risk for the affected population. The assessment includes evaluating the magnitude of the expected impacts and identifying the costs and benefits of the most promising risk management options – as to enable anticipatory planning, to inform decision-taking and to incentivise investments into adaptation. This integrated evaluation demonstrates effective measures for dealing with risks and forms the basis for the integration of climate policy measures into public budgets and national policies.
To obtain the most accurate result possible, practitioners need to choose a suitable methodology from a variety of different Climate Risk Assessment approaches. Other challenging aspects include the availability of data and the capacity to analyse them. In addition, Climate Risk Assessments often require specific technical expertise and significant coordination between different disciplines and actors.
CRM measures: Identification and selection
This step encompasses the identification of CRM measures and instruments for adaptation and risk reduction. In the process of identifying the most suitable instruments ensuring climate-resilient development pathways, the organisational and economic capacities of countries, communities and the private sector to adapt and respond to risk play a major role.
Given the partly subjective nature of risk assessment, appropriate CRM measures cannot be solely determined based on a cost-benefit analysis as many important aspects are not quantifiable but might have a significant impact especially on poor people. Identifying appropriate measures is thus context-specific and needs to consider the following factors:
Uncertainty regarding future climate change implies that measures of incremental nature will not always be sufficient. In addition, measures that have transformational character and alter fundamental attributes of systems (such as value systems, regulations, legislation, technological or biological systems) need to be considered to appropriately manage current and future climate-related risks.
CRM measures: Implementation and monitoring
Having identified the most suitable CRM measures and related costs, the next step is the process of decision making and implementation. Thereby, decision makers from the public and private sector are enabled to better prioritise, fund and implement options. Monitoring and evaluating the implemented measures facilitates continuous learning that feeds into the CRM cycle and informs future decisions (see figure above or here for further information).
Mitigation at the global level:
The magnitude of the adverse impacts of climate change largely depends on the global emissions pathway in the coming years and decades . Even with the most ambitious adaptation actions, we will have to face residual climate impacts. To keep climate change manageable, climate change mitigation is therefore paramount. Taking ambitious action to keep global warming well below 2° C compared to pre-industrial levels and to even limit it to 1.5° C, is thus an important step for managing climate-related risk and probably the best form of adaptation.
Sustainable development at all levels:
Sustainable development aims at meeting the needs of current and future generations without exceeding Earth’s capacity to sustain life and in a way that is socially just. Sustainable development therefore involves economic, social and environmental considerations. This approach includes, inter alia, using renewable energy or switching to low-carbon transportation and lifestyles. Sustainable development pathways offer multiple co-benefits such as better air quality and access to clean energy. Adaptation measures like afforestation of mangroves and agroforestry often entail co-benefits such as protection from storm floods or extreme heat, while climate-smart agriculture is essential for future food security.
Smart combination of proven tools already applied in adaptation and disaster risk reduction:
Tools that are already applied in the field of climate change adaptation, such as drought-resistant crops, climate resilient cities and infrastructure or ecosystem-based adaptation, are combined with tools of disaster risk reduction, e.g. contingency planning and early warning systems. Capitalising on synergies between adaptation and disaster risk reduction measures has a great potential to avoid a duplication of efforts and thus make better use of limited financial and human resources, not only by contributing to better preparedness and response to disasters but also by limiting or reducing damage in the first place.
Innovative adaptation instruments, e.g. risk finance and insurance as well as transformational approaches:
Addressing residual risks that cannot be averted through mitigation and adaptation options is another critical pillar of comprehensive CRM. Risk finance mechanisms, such as climate risk insurance, contingency funds and social protection schemes, can foster resilience to climate change by spreading risks across different actors, geographies and time. These mechanisms also gain importance for addressing residual risks. To continuously manage remaining risks, two options exist: risk transfer or re-entry of residual risk into the risk management cycle.
Instruments for addressing L&D are not only of incremental nature. In addition, transformational approaches such as diversification of livelihoods, and adaptive management are needed in order to adapt to change and to reduce the risk of losses and damages. In addition, human mobility has been and will be an important part of development – with or without climate change. It is already widely used in regions experiencing climate variability, e.g. seasonal labour migration. Migration and planned relocation, as a last resort, can reduce the risk of losses and damages.
Risk Transfer Mechanisms:
Finally, in order to tackle residual risk, risk transfer mechanisms such as climate risk insurance and social protection schemes can foster resilience to climate change by spreading risks across different actors, geographies and time. Furthermore, in post-disaster situations resilient recovery contributes to “build back better”and to prepare for future climate risks.