How to Conduct a Climate Risk Assessment and Build an Adaptation Plan for Business

Climate change is no longer a distant possibility – it is a present‑day business risk. For executives in agriculture, ready‑made garments (RMG) and finance, climate hazards are already disrupting supply chains, asset values and workforce productivity. Only one in five companies globally has a plan to adapt to physical climate risks, yet the failure to adapt is considered the second‑greatest risk facing companies over the next decade. This guide explains why climate risk is a strategic issue for these sectors and outlines a practical pathway for assessing risks and building a robust adaptation plan.

Understanding Physical and Transition Risks

Climate risks fall into two broad categories:

1. Physical risks – direct impacts from weather and climate phenomena. They can be acute (short‑term events such as cyclones, floods or heat waves) or chronic (gradual changes such as higher average temperatures, sea‑level rise or shifting precipitation). The risk faced by a business depends on the magnitude of the hazard, the level of exposure of assets and their vulnerability.
2. Transition risks – arise from efforts to shift to a low‑carbon economy. They include policy and legal risks (e.g., carbon pricing or compliance burdens), technology risks (e.g., costs of adopting new technologies or stranded assets), market risks (e.g., volatile energy prices) and reputational risks (e.g., sector stigma or greenwashing concerns).

When conducting a climate risk assessment, companies need to explore hazards, exposures and vulnerabilities under various climate scenarios and consider both physical and transition risks. Regulators have introduced frameworks such as the Task Force on Climate‑Related Financial Disclosures (TCFD) and IFRS S2 to standardise disclosure.

Step‑by‑Step Climate Risk Assessment

Developing a climate risk assessment is not just a compliance exercise; it is a strategic tool. The following steps synthesise TCFD guidance and best‑practice recommendations for businesses in agriculture, garments and finance.

1. Set governance and objectives

Establish governance structures and define the assessment’s purpose. TCFD recommends that organisations describe climate‑related risks and opportunities over the short, medium and long term and explain how they were determined. Companies should assign responsibilities at board and management levels, integrate climate risk into enterprise risk management and ensure cross‑functional participation (risk, finance, procurement, human resources and R&D). Clarify which frameworks will guide reporting – e.g., TCFD’s four pillars (governance, strategy, risk management, metrics and targets) and relevant jurisdictional rules (IFRS S2, CSRD, California SB219, etc.).

2. Identify hazards and develop climate scenarios

Map the physical hazards relevant to your assets, operations and supply chain: extreme temperatures, storms, floods, droughts, pests or sea‑level rise. Examine transition drivers such as carbon pricing, renewable energy policies and market shifts. Use climate data and projections to develop scenarios (e.g., 1.5 °C, 2 °C or 4 °C warming) and time horizons (short, medium and long-term) in line with TCFD recommendations. Scenario analysis helps companies understand how climate change could impact financial performance and business strategy. Many companies, however, still do not conduct scenario analysis; only half of utilities and fewer than half of firms in other sectors undertake it. Early adoption builds resilience.

3. Assess exposure and vulnerability

For each scenario, evaluate which sites, assets, products, value chains and workforce segments are exposed to identified hazards. Analyse the vulnerability of these exposures – the sensitivity of systems to climate impacts and their adaptive capacity. In agriculture, assess crop sensitivity to temperature and water stress, reliance on irrigation or pests. In garment manufacturing, consider factory locations, building conditions, worker health and access to cooling. For financial institutions, map exposures to sectors and geographies vulnerable to physical impacts. Use heat maps or risk matrices to visualise hotspots.

4. Quantify impacts and prioritise risks

Estimate the financial and operational impacts of each risk. Consider direct costs (asset damage, crop losses, labour productivity declines) and indirect effects (supply‑chain disruptions, commodity price volatility, reputational damage). Prioritise risks based on magnitude and probability, focusing on those that threaten business continuity or the most vulnerable communities. Research indicates that agriculture absorbs the majority of drought-related economic losses and that increased rainfall during monsoons significantly raises sick leave among garment workers. Scenario analysis can help quantify the effect of policy changes (e.g., carbon taxes) on lending portfolios or investment returns.

5. Develop disclosure and integration strategy

Document findings in line with the chosen framework (e.g., TCFD, IFRS S2 or CSRD). Disclose the governance approach, material risks, potential financial impacts and planned actions. Only about 46 % of companies conduct physical risk assessments, so transparent disclosure is an opportunity to differentiate. Integrate climate risk considerations into strategic planning, capital allocation and product design. Communicate results to stakeholders – investors, employees, suppliers and local communities – to build support for adaptation.

From Assessment to Adaptation: Building the Plan

A climate risk assessment provides the foundation for an adaptation plan. The World Business Council for Sustainable Development (WBCSD) and partners outline a four‑step adaptation planning process. This cycle is iterative and should be integrated into transition plans.

1. Set the scope and adaptation goals

Establish governance structures and secure resources. Identify priority risks and opportunities and set adaptation goals that align with business strategy. Companies may start with high‑risk hotspots, increase baseline resilience across all operations or adopt a balanced risk approach. In sectors like agriculture, targeting hotspots may involve investing in drought‑resistant crops or irrigation infrastructure; in garment manufacturing, upgrading ventilation and flood defences; in finance, stress testing portfolios against climate scenarios.

2. Design adaptation solutions

Compare options to select short-, medium-, and long-term solutions. Engage internal and external stakeholders to evaluate cost–benefit trade‑offs. Consider three types of measures:

• No‑regrets measures – actions beneficial regardless of climate outcomes, such as reducing water leakage, improving energy efficiency or enhancing worker safety.
• Win‑win measures – strategies that reduce climate risks while generating co‑benefits, such as agro‑ecological farming methods that improve soil health and sequester carbon, or designing green manufacturing facilities that enhance employee well‑being.
• Flexible/adaptive measures – initiatives that can be adjusted as conditions evolve, like modular flood barriers or adaptive lending criteria that can be revised based on emerging climate data.

In addition, consider collaborative solutions that build collective resilience (e.g., farmer cooperatives, industry‑wide worker‑health programmes or sectoral risk‑sharing mechanisms).

3. Build the plan and implement

Develop an investment roadmap, allocate budgets and assign responsibilities. Pilot adaptation solutions in selected locations or business units. In agriculture, pilots might test drought‑tolerant seed varieties or regenerative practices; in garment manufacturing, heat‑resilient factories; in finance, new credit products that incentivise climate‑resilient investments. Finance for adaptation remains limited – less than 8 % of global climate finance is allocated to resilience measures – so innovative funding mechanisms (e.g., blended finance, green bonds) may be required. Collaboration with governments and development banks can unlock additional resources. Importantly, integrate adaptation measures into core business processes instead of treating them as add‑ons.

4. Monitor, evaluate and refine

Establish metrics and triggers to monitor the effectiveness of adaptation solutions. Incorporate these metrics into enterprise risk management systems. Evaluate progress, learn from pilots and adjust strategies. Adaptation is a continuous improvement process; not all risks can be addressed at once. Regularly update risk assessments and adaptation plans as climate science, regulations and business conditions evolve. More than half of companies with adaptation plans have an implementation timeline of ten years or less, but many delay action; prompt implementation is critical.

Sector Insights and Examples

Agriculture

Physical climate hazards – including heat stress, water scarcity, floods and wildfires – threaten crop yields and livestock. Adaptation strategies may include diversifying crops, investing in irrigation and water‑efficient technologies, using climate‑resilient seed varieties, and building supply‑chain partnerships to ensure feed and raw materials. Integrating climate scenarios into financial planning helps companies anticipate investment needs and potential revenue fluctuations.

Ready‑made garments (RMG)

Garment manufacturing in South and Southeast Asia faces extreme heat and monsoon. In Bangladesh, humidity and factory heat lead to breathing problems, while heavy rainfall causes flooding and power outages. Women – who constitute around 80 % of the workforce – and pregnant workers are especially vulnerable. Adaptation actions include installing heat‑resilient infrastructure (ventilation, cooling systems), improving drainage, providing health services and paid sick leave, diversifying production locations, and involving workers in adaptation planning. Companies should also consider empowering women through leadership programmes and training to strengthen resilience.

Finance

Financial institutions are exposed to climate risk through their lending, investment and underwriting activities. Physical hazards, such as storms, floods, or droughts, can impair borrowers’ ability to repay loans or affect asset values. Transition risks – policy changes, technological disruption or reputational damage – can strand assets or lower returns. Regulators expect banks to understand both physical and transition risks and incorporate them into risk management. To build resilience, finance firms should conduct portfolio‑level scenario analysis, stress-test exposures, develop climate‑aligned lending criteria, invest in climate‑resilient infrastructure, and support clients in their adaptation journeys. Banks should also disclose concentrations of credit exposure to carbon‑intensive assets and explain how climate risks could affect financial planning.

How Foresight Advisory Can Help

Foresight Advisory specialises in guiding businesses through every stage of climate risk assessment and adaptation planning. Our team combines climate science, financial analysis and sector expertise to translate complex data into actionable insights for executives. For agricultural clients, we help quantify crop and water risks, evaluate investments in resilient technologies, and build farmer‑centric adaptation strategies. In the garment sector, we assess factory‑level vulnerabilities, model worker‑productivity impacts and design health‑ and gender‑responsive adaptation measures. For financial institutions, we conduct portfolio‑wide scenario analysis, stress testing and climate‑aligned lending strategies. We align our work with TCFD, IFRS and regional regulations, and we design adaptation plans that integrate mitigation and transition priorities.

Foresight Advisory stands ready to support your organisation at every step – from identifying risks to implementing resilient solutions. Please book an appointment (foresightadvisory1@gmail.com) with our experts today and turn climate risk into a competitive advantage.