Mastering climate risk: dss+ framework sets out a 10-step approach

Climate change is no longer a distant environmental concern – it is a material business risk that demands the attention as any other strategic risk. To move past abstract assessments and guesswork, global consultancy firm dss+ has developed a practical, stepwise framework that quantifies financial exposure into a clear ‘Value at Risk’ framework.

With the global climate crisis enacting high economic tolls around the world, climate risk is no longer seen as just an abstract sustainability issue related with compliance. It is a real business risk and companies are increasingly aware of the need to take concrete action.

For executive teams, the primary challenge is identifying precisely where climate change affects operations, assets, and long-term growth. They must then determine the most cost-effective path to adaptation.

This approach narrows the focus to actions that matter most, giving leadership a solid basis for prioritization, investment, and accountability. This framework is designed to provide a defensible calculation of financial exposure and consists of ten distinct steps, summarized in the dss+ ‘Road to climate resilience’ workflow.

Step 0: Organizational Maturity Assessment
Before taking concrete action, it is vital to understand an organization’s current maturity in managing physical climate risks. dss+ uses the Bradley Curve to evaluate this maturity. This scale ranges from a reactive state – driven by compliance – to an interdependent state, where climate resilience is embedded across all functions.

This assessment highlights the gap between the current state and what is required to reduce climate risk to as low as reasonably possible.

Step 1: Identify climate hazards
The process begins by identifying climate hazards, such as temperature extremes, wildfire risk, and tropical storms that could impact operations or the supply chain. Hazards should be shortlisted by focusing on those expected to change significantly over time, using data such as historic incidence, insurance data, and academic research. To maintain a practical analysis, the number of hazards should be limited to no more than ten.

Step 2: Review and shortlist receptors
After climate hazards have been identified, the next step is to understand how they can impact systems or components, referred to as receptors. This review is conducted at the site or operations level and must cover all locations in the value chain.

The approach includes reviewing peer annual reports, examining literature on common receptor vulnerabilities, and analyzing existing site assessments. Targeted reviews and site visits of critical components also help to map key system elements and product flow paths.

Step 3: Potential vulnerability
Next is to synthesize climate hazards and receptors into a Vulnerability Matrix to assess how each hazard could impact critical systems, operations, and the value chain. An initial analysis identifies known vulnerabilities, such as increased temperature driving higher cooling demand, for example.

This analysis is then validated through site visits and engagement with experts, such as maintenance engineers and facility managers. Preliminary hotspots are flagged based on potential infrastructure damage, increased maintenance, production losses, and risks to personnel safety.

Step 4: Quantify Value at Risk
With various vulnerabilities now identified, they are now translated into financial terms by developing damage functions. These mathematical models can estimate potential losses for each receptor-hazard combination under specific climate scenarios.

The outcome is a clear visualization of the Value at Risk (VAR) across the value chain, which enables the identification of financial hotspots and guides cost-effective adaptation strategies. These climate risk assessments should also factor asset condition and maintenance into damage functions for VAR calculations to be as accurate as possible.

Step 5: Estimate probability and financial impact
The most significant risks are identified using a simple five-by-five risk matrix that combines probability and impact. Probability ranges from ‘possible to occur’ to ‘multiple events at the site’, while impact spans from negligible to catastrophic.

Each vulnerability is scored, and multiplying the risk rating by its VAR provides a clear view of financial exposure across the value chain. Climate-driven changes should also be taken into account for an updated profile on operational risks that threaten staff. This ensures decisions reflect both financial and human exposure.

Step 6: Identify adaptation options
This step focuses on developing a comprehensive portfolio of adaptation measures – structural, nature-based, policy, and behavioral – targeting the highest VAR first. Organizations should start with quick wins, such as early warning systems and emergency response plans, before progressing to capital-intensive solutions like infrastructure upgrades and flood defenses. The goal is to create a full ‘wish list’ of potential actions, regardless of initial cost or complexity.

Step 7: Marginal adaptation cost curve
The Marginal Adaptation Cost Curve (MACC) ranks adaptation measures based on their cost-effectiveness in reducing VAR. Each option is plotted according to its implementation cost and the degree to which it lowers financial exposure, providing a clear visual for prioritization.

The MACC considers the entire value chain and accounts for multiple options addressing the same vulnerability. This tool identifies the most cost-effective interventions that deliver the greatest risk reduction.

Step 8: Build an integration roadmap
To minimize VAR within operational and capital constraints, the analysis is translated into a practical, prioritized adaptation roadmap. Multi-criteria decision analysis is used to weigh technical feasibility, cost, social impacts, and institutional capacity, setting clear implementation milestones.

The roadmap must be technically robust but also realistic for an organization to execute. It should align with capital allocation processes and integrate into day-to-day operations and long-term planning.

Step 9: Financing climate risk reduction
Financing determines the pace and scale at which climate risks can be reduced. The quantified VAR, MACC, and roadmap provide the foundation for investment decisions, enabling companies to prioritize the highest-impact, lowest-cost interventions. Companies can either opt to self-fund these initiatives, or look to climate finance, which leverages external funding sources like concessional loans, grants, and resilience bonds.

Step 10: Climate risk program management
Climate risk management is not a one-time exercise but a continuous improvement program designed to maintain momentum in reducing VAR. Success requires embedding resilience into the organization through mindset, governance structures, management processes, capabilities, and enabling technologies.

Companies that succeed establish a cross-functional project management office to monitor progress and lift roadblocks, ensuring organizational success factors are implemented in parallel with technical solutions. Automation is critical to ensure efficient reassessment aligned with annual budget cycles and updates to global climate models.

“This is not just about compliance – it is about safeguarding assets, operations and growth in a changing climate,” said Gerhard Bolt, principal at dss+. “Organizations that adopt this structured approach will not only reduce risk but also unlock competitive advantage through resilience, cost efficiency and stakeholder confidence.”