According to the World Economic Forum, climate-related disasters have caused over $3.6 trillion in damage since 2000.
And without urgent action Global GDP could drop by up to 22% by 2100.
- Think Soluthern California wildfires in early 2025 – $250 billion gone, 40,000 acres destroyed.
- Or the 2020 floods in South Asia – over 6,000 lives lost and $105 billion in damage.
- Then there's Spain, where flooding in 2024 claimed more than 200 lives and cost $20 billion.
It's clear: climate change is no longer a distant threat.
It's here, it's now, and it's reshaping how organisations think about risk and reporting.
So — what exactly is climate risk?
And how do you make sure it's included in your ESG and sustainability reporting?
That's what we'll cover here.
What Is Climate Risk?
The European Union Mission on Adaptation to Climate Change, drawing on the Intergovernmental Panel on Climate Change(IPCC), defines climate risk as the result of three things:
- Hazard (e.g. droughts, floods, wildfires)
- Exposure (what's at risk — your people, land, assets)
- Vulnerability (how well you can handle it — infrastructure, resilience, preparedness)
Climate Risk = Hazard + Exposure + Vulnerability.
And because all three can change over time, every organisation faces uncertainty — both in how bad an event could be and how likely it is to happen.
The Two Types Of Climate Risk
According to the Taskforce on Climate-Related Financial Disclosures (TCFD), there are two main categories:
- Physical Risk
- Transition Risk
Let's unpack both.
1️⃣ Physical Risk
Physical risks are the direct impacts of climate change — things that damage people, property, and the planet.
They're split into:
- Acute hazards – sudden, event-driven threats like cyclones, floods, heatwaves, wildfires and droughts.
- Chronic hazards – longer-term shifts like rising sea levels, hotter temperatures, changing rainfall patterns and water scarcity.
2️⃣ Transition Risk
Transition risks are about the journey to a low-carbon economy — and the bumps along the way.
Think new laws, tech disruption, changing markets and investor pressure.
If organisations fail to adapt, they could face financial losses, legal issues, or reputational damage.
Climate Risk In Reporting Frameworks
So how does all this fit into sustainability reporting? Let's look at some of the big frameworks leading the charge:
The Taskforce on Climate-Related Financial Disclosures (TCFD)
Born in 2015 from the G20 and the Financial Stability Board, the TCFD framework is now used globally — and mandatory in many countries, including the EU, Canada, Japan, South Africa, Singapore, the UK and New Zealand.
Even though the taskforce officially disbanded in 2023, its structure still lives on through the IFRS Foundation.
The Taskforce on Climate-Related Financial Disclosures reporting focuses on four pillars:
- Governance
- Strategy
- Risk Management
- Metrics & Targets
Organisations are encouraged to describe their climate-related risks, opportunities, and strategies for staying resilient — even under 2°C scenarios.
🌱 The Taskforce on Nature-related Financial Disclosures (TNFD)
The Taskforce on Nature-related Financial Disclosures (TNFD) takes sustainability reporting a step further.
Launched in 2021, the TNFD builds on the structure and success of the Taskforce on Climate-related Financial Disclosures (TCFD) — but broadens the focus to include nature-related risks and opportunities.
Where the TCFD helps organisations report on climate impacts, the TNFD focuses on the natural world — issues such as deforestation, biodiversity loss, water security, and ecosystem degradation. These factors can have direct financial implications for businesses through disrupted supply chains, shifting regulations, and changing market expectations.
The TNFD recognises that climate and nature are deeply interconnected — one can't be addressed without the other. A changing climate accelerates ecosystem loss, while damaged ecosystems reduce our ability to mitigate and adapt to climate change.
By following the TNFD framework, organisations can begin to understand, measure, and disclose their dependencies and impacts on nature, helping to build more resilient business models and drive better environmental outcomes.
💼 IFRS Sustainability Disclosure Standards
In 2021, the IFRS Foundation established the International Sustainability Standards Board (ISSB) — a major step toward creating a single, consistent global baseline for sustainability and ESG reporting.The ISSB's mission is to unify the patchwork of existing ESG frameworks — such as TCFD, SASB, and CDSB — into one coherent set of standards that enable investors and stakeholders to compare sustainability performance across companies and industries.
In 2023, the ISSB released its first two sustainability disclosure standards:
- IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2 – Climate-related Disclosures
Together, these frameworks provide a comprehensive and globally consistent approach to reporting sustainability and climate-related risks and opportunities. They are rapidly becoming the global benchmark for credible, comparable ESG reporting and are expected to underpin many national and regional disclosure regulations in the coming years.
☀️ California SB261
In 2023, California passed SB 261, a groundbreaking piece of legislation requiring large companies — those with annual revenues exceeding $500 million — to publicly disclose their climate-related financial risks.
The law aims to increase transparency around how businesses are preparing for the financial impacts of climate change, such as extreme weather events, regulatory shifts, and market transitions to a low-carbon economy.
Companies must produce a climate risk report every two years, aligned with globally recognised frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) or the International Sustainability Standards Board (ISSB).
Organisations that fail to comply could face penalties of up to $50,000 per reporting period, making early preparation and structured ESG data management essential for compliance.
Reports must align with TCFD or ISSB frameworks.
The EU Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD), introduced by the European Union and officially published in 2023, represents one of the most significant shifts in global sustainability reporting.
Its purpose is to raise the quality, consistency, and comparability of sustainability information across the EU — ensuring investors, regulators, and the public can clearly see how companies are managing environmental and social risks and impacts.To support implementation, the CSRD is underpinned by the European Sustainability Reporting Standards (ESRS) — a detailed set of disclosure requirements that guide what and how organisations must report.
One of the key standards, ESRS E1 – Climate Change, requires companies to disclose:
- Their climate-related risks and opportunities,
- The impact of their operations on climate change, and
- Their transition plans toward a low-carbon economy.
Crucially, all disclosures must be assessed through the lens of double materiality — meaning organisations must report on both:
- How climate-related issues affect their financial performance, and
- How their activities impact society and the environment.
This dual perspective ensures transparency not only about risk exposure but also about the organisation's broader role in achieving a sustainable future.
Wrapping Up
Climate risk isn't just a "nice to have" in sustainability reports anymore — it's essential.
As the cost of climate disasters rises, regulators, investors, and customers expect transparency and action.
The good news? With the right tools, assessing and reporting on your climate risks doesn't have to be complicated.
EcoOnline's Climate Risk module helps you identify and assess physical climate risk exposure — giving you a clear view across your whole organisation, right down to individual assets.
It's smart, scalable, and built to help you stay one step ahead.