Climate Risk Management

Climate variability and change present significant challenges that affect the environment and economic stability. Extreme weather, intensifying climate hazards, and greenhouse gas emissions threaten progress made surrounding hunger, poverty, conflict, water scarcity, infrastructure integrity, sanitation, and health.

Climate Risk Management (CRM) enhances the resilience and sustainability of USAID’s initiatives. By systematically assessing, addressing, and adaptively managing climate risks, CRM ensures effective use of U.S. taxpayer dollars, supporting the success of projects across various sectors, from HIV/AIDS in Mozambique to education in Uganda and water and sanitation in Haiti.

Key Components of Climate Risk Management:

1. Strategic Assessment and Planning:

   • Financial Impact Analysis: Reports on the financial implications of climate risks, aiding strategic planning and resource allocation.
   • Scenario Planning Tools: Tools for modeling different climate scenarios and their potential impacts on project budgets, business models, and outcomes.

2. Implementation and Adaptation:

   • How To Do Climate Risk Management: Guides and resources for implementing climate-resilient designs in projects.
   • Climate Risk Management in Action: Case studies showcasing successful climate risk management implementation and best practices.
3. Data and Resources:
   • Climate Risk Screening & Management Tools: Tools for evaluating and managing climate risks in project planning.
   • Regional & Country Risk Profiles and GHG Fact Sheets: Profiles to inform project designs, sustainability strategies, and monitor greenhouse gas emissions.
   • Climate Risk Management Resources and Training: Resources and training modules to build expertise in climate-resilient planning.

Understanding Physical and Transition Risks:

To manage climate risks, it’s essential to understand both physical and transition risks:

• Physical Risks: Direct impacts of climate change on human or ecological systems, assets, and operations. These include acute risks like extreme weather events (floods, hurricanes, wildfires) and chronic risks like long-term shifts in climate patterns (rising temperatures, sea-level rise, changes in precipitation). Heat waves and extreme precipitation represent significant physical risks, affecting health, infrastructure, and supply chains.
• Transition Risks: Risks from the shift towards a low-carbon economy, including regulatory changes, market shifts, technological advancements, and reputational risks. Policies to reduce greenhouse gas emissions can impact the financial viability of fossil fuel-dependent projects, leading to stranded assets and increased compliance and adaptation costs. These changes also affect supply chains, creating challenges in sourcing materials and managing costs.

Real-World Applications:

Climate risk management’s benefits are evident across USAID’s portfolio:

• Ethiopia: Climate risk profile outlining impacts on agriculture, livestock, water resources, human health, and greenhouse gas emissions.
• Madagascar: Assessments highlighting climate risks to food security, resilience, and greenhouse gas emissions.
• Somalia: Profiles outlining projected climate change impacts on multiple sectors, including greenhouse gas emissions, aiding comprehensive risk management.