Which element is essential for managing climate-related financial risks?

Proactive risk assessment frameworks are crucial for effectively managing climate-related financial risks because they allow organizations to identify, evaluate, and prioritize potential risks associated with climate change in advance. These frameworks enable companies to analyze how changing climatic conditions can impact their operations, supply chains, and market conditions. By adopting a proactive approach, businesses can implement strategies and resilience measures to mitigate those risks, such as transitioning to sustainable practices, investing in renewable energy, or adjusting their portfolios to reduce exposure to high-risk assets.

This forward-looking strategy is essential in navigating an increasingly complex regulatory landscape as well, as it helps organizations prepare for and comply with emerging environmental regulations and stakeholder expectations, ensuring long-term sustainability and profitability.