A storyline approach for navigating climate risks in Australia

Climate change is set to increase the risk from natural catastrophes in countries such as Australia, complicating an already intricate business risk landscape. Storylines can help businesses better understand and manage these complex and often compound climate hazards.

Australia faced numerous natural catastrophe events in the first half of 2024. While these events did not result in significant economic damage, they highlight the country’s natural catastrophe exposure, which is expected to escalate with climate change.

The Intergovernmental Panel on Climate Change (IPCC) projects that climate change will increase the frequency and/or intensity of extreme weather events in Australia, such as bushfires, floods and tropical cyclones, leading to heavier rainfall, stronger winds and longer wildfire seasons.

For example, events such as the flash flooding in April – historically mostly confined to coastal regions – are becoming more common farther inland as global warming is influencing the climate drivers that determine the frequency and location of extreme precipitation.

Storylines for climate risk management

Natural catastrophes such as these can disrupt critical infrastructure and business value chains in a variety of complex and interconnected ways. Using “storylines” – physically consistent narratives of plausible future events – helps us understand and manage these complex risks in a warming world.

For instance, a storyline could depict a future where prolonged droughts lead to severe water shortages, increasing business costs and downtime – underscoring the need for effective water management strategies.

These narratives are oriented around events that people can easily understand and relate to and allow us to clearly communicate which aspects we are more or less confident in (known as “partitioning uncertainty”).

We have worked closely with companies in the region to translate the latest climate and impact science into information that can be used to make business decisions. This includes the use of storylines that integrate climate model outputs, observational data and expert judgement to create extreme but plausible scenarios. These can guide new or upgraded risk management controls – usually in the context of a wider enterprise risk management framework.

A storyline approach is particularly useful for two types of risks: complex business risks with large uncertainties and compound physical climate risks.

Complex business risks with large uncertainties

Consider road freight worker health and safety, an important issue for many companies. In Australia, strong winds and bushfires have contributed to serious incidents in the past.

A company might want to understand future climate impacts on worker or contractor safety to improve controls or business continuity plans. Conventional climate models – even locally downscaled – cannot provide these answers directly, but storylines based on diverse information sources can.

Key information sources for assessing bushfire risks in this context include precedent events, which involve analysing past incidents from Australia and other regions (e.g. fires in Maui and Hawaii, in 2023 or in Chile in 2024) to understand their causes and impacts: what happened there, and could it happen here?

Another crucial information source relates to vulnerability and exposure, such as examining how many vehicles use specific roads and at what times. Are certain types of vehicles more susceptible to risks?

Thirdly, reviewing historical data on where fires have occurred in Australia and projecting how bushfire hazards may change over time in terms of severity, frequency and distribution. How might these changes affect road freight operations in the future?

An expert panel can then deliberate on this information in a structured manner. Scores can be considered around the likelihood of a scenario occurring (noting that a likelihood score is not always needed in a storylines approach). Importantly, a confidence score can be given, which reflects the experts’ level of agreement, together with the amount and quality of the available evidence.

Compound physical climate risks

Traditional risk assessments track individual threats by identifying historical trends in the magnitude and frequency of single hazards; however, this approach does not capture the risk from interconnected and cascading hazards, which have the potential to amplify risks for a company’s value chain.

The resulting compound risks differ significantly from independent risks, often with distinct likelihoods and impacts.

The floods, tropical cyclones, convective storms and bushfires experienced in Australia during the first half of 2024 exemplify how hazards can strike in quick succession, creating transport delays, power cuts and critical supply shortages as well as affecting worker availability and safety.

A storyline approach views risks through the lens of the entire value chain, identifying interactions and compounding effects, which add up to something greater. Analysing factors that could produce a significant shock event can inform shorter-term business continuity plans and longer-term strategic decisions such as mergers and acquisitions.

In the face of global change, there has never been a more important time to consider complex and compounding risks and their impact on a company’s short-term performance and long-term prosperity.

Jessica Boyd is modelling research and innovation lead at WTW Research Network.