How Climate Risk Assessment and Scenario Analysis Strengthen CSRD Compliance

Let’s be honest: climate risk is not about if - it is about how prepared your company is. Climate impacts are no longer distant probabilities; they are materialising faster than ever. For businesses, the challenge is not about predicting the unpredictable but preparing for it with structured, actionable plans.

In our recent denxpert webinar, we explored the foundations of climate risk assessment and scenario analysis, not from a theoretical perspective, but grounded in real-world examples and practical advice. While global regulatory landscapes, such as the Corporate Sustainability Reporting Directive (CSRD), are undergoing significant changes, the importance of understanding and managing climate risks remains clear and urgent. The better your preparation, the stronger your company's position in the eyes of investors, customers, and regulators, regardless of legislative shifts.

Why Climate Risk Assessment Matters

Climate risks are not just about extreme weather or rising temperatures; they have become fundamental business risks. The contrast between the two recent cases illustrates this point clearly. In Parajd, Romania, a salt mine is now collapsing due to intensified rainfall, a direct result of shifting climate patterns. Although early warning signs were present, no preventive measures were taken, and the lack of a structured risk management plan left the region vulnerable to potential risks. The locals are now left without Income and possible hope for the future to come. The government and the local bodies could have been more equiped for the aftermath of the disaster.

In contrast, authorities in Switzerland faced the inevitable collapse of a glacier. Yet, rather than waiting for disaster to strike, they developed a comprehensive risk plan years in advance, mapped out evacuation routes, and ensured that when the glacier did collapse, there were no casualties. The key difference between these two situations was not resources or technology but mindset. Switzerland demonstrated that effective climate risk management is not about predicting every detail of the future, but about preparing for foreseeable risks with the right information and decisive action.

This mindset shift is increasingly essential as investors sharpen their focus on climate risks. Norges Bank Investment Management has quantified the potential impact, estimating that in a 3°C warming scenario, the value of an average S&P 500 holding could decline by as much as 19%. A stark contrast to the 2-4% loss predicted by traditional models. Companies that fail to adopt credible, transparent climate risk strategies are not only exposing themselves to physical and transitional risks but are also risking their valuation, as investors increasingly reward preparedness and resilience while penalising inaction through divestment or underweighting.

Why Climate Risk Matters: More Than Just Hazards

Many still equate climate risk with hazards alone, like floods or wildfires. But the IPCC’s framework tells a more nuanced story. Climate risk is the product of three interdependent factors:

• Hazard: The potential occurrence of a climate-driven event (e.g., floods, droughts).
• Vulnerability: How susceptible your company is to harm, and how well you can adapt.
• Exposure: The extent to which your people, assets, and operations are located where hazards strike.

Real risk management means tackling all three.

Hazards are dynamic. Floods that used to be "once in a century" now happen every 20 years. Vulnerability can be mitigated through actions like diversifying suppliers or fortifying infrastructure. Exposure can be reduced by reevaluating site locations or changing asset footprints.

Six Essential Steps for Climate Risk Analysis

At denxpert, our sustainability experts recommend a six-step approach to build a robust climate risk assessment:

1. Set Objectives and Boundaries: Define why you’re assessing compliance, strategy, or resilience and set clear boundaries like time horizons or supply chain tiers.
2. Screen for Risks: Identify physical hazards and transition pressures. Map exposure hotspots and vulnerabilities within operations and supply chains.
3. Gather Data: Use location-specific hazard data and credible climate scenarios like IPCC SSPs or NGFS models to ground your analysis.
4. Quantify Financial Impacts: Translate risks into monetary terms to understand potential losses and opportunities across the business.
5. Integrate and Manage: Embed findings into enterprise risk management (ERM) systems, guiding mitigation plans and capital allocation.
6. Disclose and Align: Report findings transparently through frameworks like TCFD or ESRS, ensuring they tie back to business strategy and governance.

Scenario Analysis: Your Essential Playbook

No one can predict the future, but you can prepare for a range of outcomes. That’s where scenario analysis comes in.

A solid scenario analysis examines both:

• Physical risks: e.g., storms, droughts, sea-level rise.
• Transition risks: e.g., carbon pricing, climate litigation, consumer shifts.

And crucially, it uses structured, evidence-based storylines and not just guesses.

You should stress-test your business against:

• A high-emission scenario (think 4 °C warming by 2100, widespread climate hazards).
• A Paris-aligned scenario (limiting warming to 1.5 °C with tough regulatory shifts).

Disclosure Frameworks

While the regulatory landscape is shifting under the Omnibus proposal, ESRS E1 remains one of the most technical and stable standards for climate disclosures. It lists key physical risks and scenario expectations, offering a structured pathway for compliance.

However, it’s complex. Many companies start with the simplicity of TCFD and later align with ESRS or ISSB S2 standards for deeper, broader reporting.

At denxpert, we provide an ESRS-aligned reporting solution that integrates climate risk assessments directly into your sustainability reporting workflow,  making the process more transparent, manageable, and audit-ready.

Recommended Data Sources

Our experts emphasize using open-source, reputable datasets for a few critical reasons. Resources like the IPCC’s scenarios, the World Bank Climate Knowledge Portal, or ThinkHazard! provide scientifically credible, location-specific data. They ensure that scenario analyses are not just compliant but truly actionable, building resilience and boosting investor trust.

Leading Examples from the Field

Vattenfall’s approach to climate scenario analysis shows what it looks like when climate risks are treated as business risks, not just compliance requirements. Instead of modelling a single optimistic future, they work with multiple scenarios, including a "business as usual" case and a more ambitious 2°C pathway. Their analysis doesn’t stop at the physical risks, like damage to infrastructure from extreme weather; it also tackles the challenges of energy transition risks, such as evolving policy frameworks. What makes Vattenfall stand out is how tightly they integrate this scenario work into actual business planning. It’s not just a CSR exercise tucked away at the back of a report.

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For a sector so exposed to climate impacts, Arla Foods’ science-based approach feels refreshingly real. Their climate risk assessment is fully embedded within their Double Materiality Assessment (DMA), and they don’t settle for a one-size-fits-all scenario. Recognizing agriculture’s high exposure to physical risks, they work with multiple IPCC scenarios to reflect different future pathways. What’s particularly thoughtful is how Arla adapts the time horizons: differentiating between the slow, creeping impacts on agriculture and the faster, transition-related policy changes. It’s a great example of sector-specific climate resilience.

Enel, the Italian energy giant, offers a masterclass in credible transition planning. Rather than vague net-zero ambitions, they start with a tangible vision: phasing out fossil fuels while ramping up renewables. Their climate transition plan isn’t just about reducing emissions, it’s about managing real-world impacts, including workforce transitions tied to plant closures. Enel not only sets decarbonisation targets but also maps out specific levers and timelines, openly addressing the social consequences of their strategy. It’s an ambitious plan, yes, but grounded in operational realities. A true gold standard.

Preparedness Is the Real Advantage

In a business landscape where climate risks are increasingly financial risks, preparedness is not a luxury, it is a competitive advantage. Companies that embed climate risk assessment and scenario planning into their strategy are not only building resilience but are also positioning themselves for long-term value creation. As regulations evolve and investor scrutiny intensifies, those who act now will lead tomorrow’s sustainable economy.

If you want to see how structured, transparent, and actionable climate risk management can transform your reporting and resilience journey, explore how denxpert’s ESRS-aligned solutions can support your next step.

Ready to dive deeper? Watch our on-demand webinar on Climate Risk & Scenario Analysis for real-world strategies and practical insights from sustainability experts.

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