Resilience Insights Series: Part 2
Now more than ever, investors are recognizing the importance of managing risk and developing adaptive capacity. How can they make decisions to anticipate, adapt, maneuver, and change course as needed within a volatile, uncertain, complex, and ambiguous world? How can they invest in the right places and at the right time, in a way that continues to deliver value in the future? Resilience is key in navigating these risks and opportunities.
Over the last three years, GRESB provided a Resilience Module to explore ways that climate risk and resilience can be addressed within the GRESB Assessment. The Module set out to help investors start asking questions and support companies in developing answers that reflect a solid approach to risk and resilience.
As the three-year Resilience Module run has come to a close, Arup has partnered with GRESB to share insights on best practices and leadership that have been gathered both within the GRESB Resilience Module responses and from Arup’s own resilience practice. Arup’s risk and resilience teams work with clients globally across all dimensions of resilience, including analyzing risk and building adaptive capacity. This series is designed to share our thinking on key challenges that organizations are grappling with now, what leaders are doing, and what best practice looks like in terms of organizational resilience.
In this series, we will look at key aspects of managing risk and resilience in order to advance the conversation and support organizations working to evaluate and improve their resilience in these complex and rapidly changing times. This series includes:
Climate Risk
Every day, more companies are seeking to measure and manage their climate risk. Investors are familiar with the key concepts of risk and have tools and approaches to factor the riskiness of investment decisions into their value propositions and deals. However, climate change raises many new dimensions for the industry that need to be understood in context.
The Task Force on Climate-related Financial Disclosures (TCFD) focuses on two broad categories of climate risk and opportunity: transition risks that result from the move to a lower-carbon economy, and physical risks that result from the physical impacts of climate change. Simply by raising the topic of climate risk management, investors can begin advancing action, but what that action will look like is still emerging. There is no standardized set of indicators that can serve as a proxy or single line that can be incorporated into financial models to determine performance. Climate risk is driven by many complex factors, from global GHG emissions to local weather patterns and from macroeconomic forces to facility operations. Climate risk is not just one thing — it is a function of many complex systems interacting in a world that is increasingly dynamic and uncertain.
Climate impacts are not happening in a vacuum. Urbanization, disruption of natural systems, rapidly changing technology, and of course pandemics are all intertwining to undermine predictability and make planning based on historical conditions problematic. The past, and even the present, are not reliable indicators of the future.
Assessing Risk
While there are different ways of defining risk, the diagram below is typical. Risk can be conceptualized as a combination of three parts:
A common approach to evaluating physical climate risk includes a portfolio-wide assessment of climate-driven hazards across asset locations. This type of analysis provides a strong starting place so that companies can look across their portfolios to identify potential hot spots. While it provides an important first step, it only looks at a part of the picture—the outside forces at a particular location that might impact an asset, i.e. the hazard. This approach can be highly sensitive to the variables that are considered and the specific climate scenarios used for analysis. This is why some companies that have commissioned similar services from multiple providers of physical risk analysis have found highly variable results.
Beyond looking at the likelihood of climate driven hazards over time, companies must also consider exposure (i.e. what assets or other parts of the organization’s value chain might be impacted by each hazard type) and vulnerability (i.e. how sensitive those assets and value chains are). These three dimensions – hazard, exposure and vulnerability – together make up physical climate risk. There are many ways to evaluate these dimensions, from high-level desktop studies to detailed engineering exercises, and these different types of analysis can be deployed to answer a range of different questions. For example, desktop assessments might help organizations identify concentrations of risk by geography or asset type, while more detailed investigations may be used for asset acquisition due diligence or to direct investment decisions in asset protection. The physical, operational and organizational measures that have been implemented to mitigate or manage those hazards and consequences in turn reduce vulnerability and ideally build adaptive capacity. Risk is also influenced by the way each asset helps to contribute to delivery of overall business goals.
Similar risk frameworks might also be used to understand transition risk, a large category of challenges and opportunities related to changing policies, finance, reputation and other factors that might be presented by climate change, and companies are defining and evaluating these dimensions in different ways. While we won’t delve into transition risk here, it is important to remember that these analyses do not predict the future—no one can do that. They simply parameterize a wide range of variables to help us see patterns, evaluate probabilities, and make better decisions in the face of uncertainty. In fact, scenario analysis as a field of study was born out of the need to understand strategic ramifications for situations with either too many possibilities (making probabilistic modeling too expensive) or with too much uncertainty about the probabilities of its underlying factors (making probabilistic modeling insufficient).
While organizations that have reached a more mature understanding of climate-related risk are not necessarily all following the same approach, they are more proactive in their efforts to understand that risk and build up the necessary tools and processes to mitigate them. They are developing more complete toolboxes to evaluate risk at the right scale and level of granularity in order to support comprehensive risk management processes. They proactively gather and analyze data through established methodologies to inform overarching priorities, acquire and manage assets, invest in mitigation measures and structure deals. In other words, climate risk becomes incorporated into standard procedures across a range of scales and decision types. As this maturity develops, top-down hazard assessments can be matched with bottom-up asset level analysis to provide a clearer picture of what can go wrong, what has to go right, what should be done, and how this integrates into a comprehensive approach to risk management.
What This Means for GRESB
GRESB Resilience Module respondents varied widely in their approaches to measuring and responding to climate-related risk. Nevertheless, 2020 Module data suggests that more organizations are beginning the process of understanding their climate-related risk, particularly physical climate risks. Some are even using scenario analyses based on climate projections to inform the analysis, as recommended by TCFD. However, many are still on their journey to understand how to translate concepts like “hazard,” “risk” and “vulnerability” into decision-useful outputs, suggesting that at this stage enthusiasm might be outpacing capability.

The significant growth in participation in the Resilience Module over the past three years speaks to the growing demand for new approaches to understand and manage climate risk. It is a promising step forward. However, there is still a lack of alignment around how the boundaries of risk are being defined and how risk is being measured. High-level, portfolio-wide assessments, the most common type of physical climate risk assessment reported in GRESB, is a great start. However, it does not replace the need for finer grained analysis that can be used to evaluate exposure and vulnerability at the asset level. To become resilient, asset operators are going to need to actively work to mitigate risks on site, and that will require investment which may be in competition with other priorities at the fund level.
As GRESB moves to align with TCFD, and as more ESG programs, financial organizations and even nations do the same, there will hopefully be an increase in alignment around awareness and key concepts. The industry is still nascent, and there is a critical need for deeper-dive hazard and vulnerability assessments, including physical and transition risks, and expanded ability for organizations to manage uncertainty and create adaptive capacity.

Heather Rosenberg
Associate Principal, Arup
Heather Rosenberg is an Associate Principal at Arup and is Arup’s City Resilience Skills Leader in the Americas. An ecologist by training, Heather is a USGB Ginsberg Fellow with 20 years of experience in sustainability and resilience in the built environment. Her approach combines organizational and community resilience with effective asset management. Before joining Arup, Heather was the founder and president of her own successful resilience strategy firm, Building Resilience Network. She created the Building Resilience-LA program, worked with GRESB to develop its Resilience Module and serves as resilience advisor to Enterprise Community Partners. She has worked with organizations including local real estate investment firms, corporations, local governments, transportation authorities and social justice organizations to help them manage risk and build adaptive capacity. She serves on a variety of commissions and boards, including the State of California Clean Energy Jobs Act Citizens Oversight Board, and is a former member the City of Los Angeles Innovation and Performance Commission (Mayoral appointee).

Caroline Field
Associate Director, Resilience Security & Risk
Caroline Field leads Arup’s Organisational Resilience Offer in the UKMEIA region. She is an Associate Director within the Resilience Security and Risk team.
She has developed a comprehensive “resilience in the round” approach that considers leadership, operations, people, supply chains as well as physical and virtual systems. They consider measures to reduce disruption but also to capitalize on business opportunities, creating a robust, inclusive, agile and integrated business. She utilised this expertise recently leading the Resilience First Study into the adaptive capacity (agility) of UK Airports.
Caroline has built her resilience capability on the back of over 20 years of professional experience including 12 years in counter terrorism, blast mitigation and physical security and 7 years in earthquake engineering and dynamics.
Caroline is active in developing standards in resilience. She was Chair for the recently published British Standard on City Resilience, Co-Chair for the ASCE Infrastructure Resiliency Division SPEED committee, Lead SME for the AEI Resilience program and member of the ISO Urban Resilience Standard Working Group.
Caroline recently received the Royal Academy of Engineers Visiting Professorship Award and will be supporting Loughborough University’s Civil Engineering Department as a Professor of Structure and Infrastructure Resilience.

Erik Landry
Climate Change Specialist, GRESB
As GRESB’s Climate Change Specialist, Erik is responsible for the content of GRESB’s research, products, and partnerships with regard to climate-related risks (both transition and physical), resilience, and carbon accounting. As such, he manages a suite of projects meant to, in combination, give real asset managers and investors the tools they need to make informed decisions regarding climate-related risks, advance the state-of-the-art with regards to real asset portfolio alignment with international climate goals, and position GRESB as a leader within the rapidly evolving landscape of climate-related regulations, disclosures, and data.