Managing climate risks in business using the precautionary principle

Abstract

The article states that the functioning of business in a changing environment associated with the aggravation of the climate crisis requires increased attention to uncertainty, identification and neutralization of possible climate risks that may adversely affect its functioning and further development, as well as the implementation of measures to adapt to climate change. It is emphasized that adaptation to climate change is a process of business adaptation in response to actual or expected destructive climate impacts, which allows to reduce their negative effects and take advantage of favorable opportunities. It is emphasized that climate risks are difficult to predict due to their radical uncertainty and unique properties, including unpredictability, difficulty of forecasting, complex dynamics and chain reaction effects. In addition, climate risks are irreversible and non-linear, so even minor climate change can lead to significant and even catastrophic consequences for businesses. Therefore, managing business climate risks is crucial, as the impact of secondary effects can affect the company's operations, leading to financial losses due to fluctuations in asset values. It is substantiated that forecasting of climate risks to business should be based on the results of studying the background of natural disasters that have affected the viability of business in previous years and the results of assessing its vulnerability to climate change. The methods for assessing climate risks to business, adapted for use in Ukrainian practice, are considered. A search for ways to manage business climate risks on the basis of the precautionary principle is carried out. It is proved that the proposed additions to the Methodological Recommendations for Assessing Risks and Vulnerability to Climate Change in Socio-Economic Sectors and Natural Components will allow clearly observing the trends in the priority of climate risks and promptly making decisions on their neutralization or minimization of their impact on economic activity. At the same time, they will simplify modelling of the impact of climate change on business in the short and long term, which will facilitate early adaptation measures and the creation of reserves to cover losses resulting from the occurrence of difficult to manage and/or unmanageable climate risks.