How to manage climate and cyber risk

Climate risk is the chance that climate change harms an organization or its strategy. Cyber risk is the chance that a digital attack or failure harms its systems, data or operations. Both are enterprise risks that boards now expect to see measured and managed. This guide gives a plain definition of each, then the practical detail on how to assess and manage them.

What is climate risk?

Climate risk is the potential for loss or disruption to an organization caused by climate change and by the shift to a low-carbon economy. It covers damage to assets and operations as well as changes in regulation, markets and expectations from customers and investors.

Types of climate risk

Type	What it means	Examples
Physical: acute	Damage from extreme weather events	Flooding of a site, storm damage and wildfires
Physical: chronic	Damage from long-term shifts	Rising temperatures, sea level rise and water stress
Transition: policy and legal	Costs from new rules and legal action	Carbon pricing, emissions reporting duties and litigation
Transition: technology	Costs of moving to lower-carbon options	Replacing equipment and investing in new processes
Transition: market	Shifts in demand and supply	Customers favoring lower-carbon products and higher energy costs
Transition: reputation	Changes in how stakeholders view the organization	Pressure from investors, staff and the public

Physical risks hit assets, supply chains and people. Transition risks hit costs, revenue and access to capital. Many organizations face both.

How climate risk shows up in a business

• Supply chain disruption when suppliers or transport routes are affected by weather
• Higher insurance costs or loss of cover for exposed sites
• Asset damage and downtime
• Stranded or less valuable assets as markets move away from high-carbon activity
• Compliance costs from new disclosure and emissions rules
• Workforce health and safety effects from heat and extreme conditions

How to assess and manage climate risk

• Identify which sites, processes, suppliers and products are exposed to physical and transition risks
• Use scenario analysis to test how risks might develop under different climate pathways and time horizons
• Rate each risk by likelihood and impact and add it to the risk register
• Set owners, controls and actions, such as flood defenses, supplier diversification or energy efficiency
• Set measures and targets, including emissions and adaptation indicators
• Report to the board and, where required, in disclosures
• Review as science, regulation and the business change

Disclosure rules and frameworks apply in many places. Examples include the Task Force on Climate-related Financial Disclosures framework, which many regimes build on, the ISSB standards and the EU Corporate Sustainability Reporting Directive. Requirements differ by country and size of company, so check the rules that apply.

What is cyber risk?

Cyber risk is the potential for financial loss, disruption or reputational damage caused by a failure of, or attack on, an organization's information technology systems and data. It covers deliberate attacks, accidental incidents and failures in suppliers that hold or process data.

Common sources of cyber risk

Source	What it involves	Example
Malware and ransomware	Software that damages systems or locks data until a payment is made	Ransomware that stops operations
Phishing and social engineering	Tricking people into giving access or information	A fake email that captures a password
Data breaches	Unauthorized access to personal or confidential data	Stolen customer records
Insider threats	Misuse of access by staff or contractors, deliberate or accidental	An employee sending data to the wrong person
Third-party and supply chain	Weaknesses in suppliers and software providers	A breach at a vendor that hosts company data
System failure and misconfiguration	Errors and outages without an attacker	A cloud storage setting that exposes files
Unpatched vulnerabilities	Known flaws left unfixed	Out-of-date software exploited by attackers

What cyber risk can cost

• Operational downtime and lost revenue
• Incident response and recovery costs
• Regulatory fines and legal costs, for example under data protection laws
• Loss of customer trust
• Theft of intellectual property
• Ransom payments and extortion

How to assess and manage cyber risk

• Know your assets: list systems, data, suppliers and where the most sensitive data sits
• Assess threats and vulnerabilities, and rate risks by likelihood and impact
• Choose controls such as access management, multi-factor authentication, patching, backups, encryption and monitoring
• Train staff to spot phishing and report incidents
• Manage third-party risk through due diligence and contract terms
• Plan and test incident response and recovery, including who calls whom
• Decide risk appetite and whether to transfer part of the risk through insurance
• Report key risk indicators to the board and review regularly

Frameworks give a structure for this work. Common examples include ISO 27001, the NIST Cybersecurity Framework and Cyber Essentials in the UK. Which one fits depends on the sector and the regulator.

Managing climate and cyber risk together

Item	Climate risk	Cyber risk
Main drivers	Weather, regulation and market shifts	Attackers, errors and supplier weaknesses
Time horizon	Often long-term, with some acute events	Often immediate, with ongoing change
Typical impact	Asset damage, cost changes and disclosure duties	Downtime, data loss and fines
Typical owners	Sustainability, operations, finance and risk	IT, security, risk and compliance
Shared need	Clear ownership, consistent scoring, board reporting and regular review	Clear ownership, consistent scoring, board reporting and regular review

The two risks differ, but the management routine is the same: identify, assess, treat, monitor and report. They can also feed each other. A flood can take out a data center, and a cyber attack can disable climate controls at a site. Treating them in separate places makes those links hard to see.

Putting both into an enterprise risk process

• Use one risk register and one scoring method for all risks
• Link each risk to its controls, actions and owners
• Show how risks connect to strategic objectives
• Set risk appetite and key risk indicators for each
• Report to the board from the same data
• Link findings from audits and incidents back to the register

Spreadsheets struggle once risks, controls and actions multiply across teams. Ideagen's enterprise risk management solution brings risks, controls, actions and reporting into one system and supports frameworks such as ISO 31000, so teams can see climate and cyber risks next to every other business risk. People still need to judge how likely a risk is and how much of it the organization will accept.

Frequently asked questions

What is climate risk in simple terms?

It is the chance that climate change or the move to a low-carbon economy harms an organization's assets, costs, revenue or reputation.

What is the difference between physical and transition climate risk?

Physical risk comes from the effects of climate change itself, such as floods and heat. Transition risk comes from the shift to a low-carbon economy, such as new rules and changing markets.

What is cyber risk in simple terms?

It is the chance that an attack on or failure of digital systems causes loss, disruption or damage to reputation.

Is cyber risk the same as information security?

They overlap. Information security is the set of controls and practices. Cyber risk is the business exposure those controls are meant to reduce.

Who is responsible for managing these risks?

The board and senior leaders hold overall responsibility. Day-to-day ownership sits with named risk owners, such as security, operations and sustainability leads, supported by the risk function.