Climate Risk Assessment Called a Strategic Navigation Tool to Win Global Competition
Climate change is no longer merely an environmental issue; it has become a tangible business risk with a direct impact on a company’s financial performance. Organisations that maintain a conventional mindset will undoubtedly face increasing risk exposure, ranging from operational disruptions and regulatory pressure to surges in production costs. Therefore, understanding climate risk is no longer an option, but a crucial global standard in determining a company’s long-term resilience and sustainability.
Currently, net-zero commitments cover a large portion of global emissions and are officially enshrined in the policies of various nations. While global sustainability ambitions continue to strengthen, the greatest challenge for business leaders is how to transform these ambitions into measurable actions. The primary obstacles generally stem from internal aspects, such as fragmented data, the complexity of scenario modelling, and the difficulty of translating climate issues into financial language. To overcome these hurdles, companies are encouraged to unify finance, risk management, and sustainability functions into a single decision-making forum to develop accurately quantified business strategies.
Beyond merely responding to market demands, climate risk analysis has now become a regulatory obligation. Through the International Sustainability Standards Board (ISSB) pillar, the IFRS S2 standard strictly requires companies to disclose climate-related risks and opportunities, including their impact on business models, value chains, financial performance, and strategic resilience under various climate scenarios.
In Indonesia, these global standards have been adopted as Sustainability Disclosure Standard Statement 2 (PSPK 2) regarding Climate-related Disclosures. This regulation was ratified by the Sustainability Standards Board of the Indonesian Institute of Accountants (DSK IAI) on 1 July 2025 and will come into effect on 1 January 2027. Given this deadline, companies are now required to begin building governance, strategy, risk management, as well as measurable metrics and targets through climate scenario analysis from an early stage, ensuring that climate disclosures are not merely narrative but directly linked to financial reports.
The urgency of structured climate risk management is strongly reflected in the phenomena of forest and land fires (karhutla) and extreme droughts in Indonesia. Within global governance frameworks such as TCFD and IFRS S2, forest fires represent two types of exposure simultaneously: physical risk and transition risk. From a physical perspective, land fires trigger damage to operational assets, disrupt worker health due to haze, and sustainably degrade peatland ecosystem functions. From a transition perspective, companies face threats of legal sanctions, pollution fines, and the potential loss of access to global markets due to increasingly strict deforestation regulations.
To protect organisations from these threats, companies can immediately implement a more comprehensive climate risk evaluation framework. A crucial first step is establishing oversight at the board level and implementing a strict no-burning policy. Furthermore, companies must identify vulnerable areas through spatial analysis based on satellite data and climate scenario modelling. Through stress testing against high-emission scenarios or strict regulatory transition scenarios, companies can measure potential financial impacts. All findings should then be incorporated into an integrated transition plan and reported transparently to maintain investor confidence.
Addressing this, the Risk Advisory Service Partner at BDO in Indonesia, Johan Sebastian, stated that climate risk assessment is not merely a defensive action to meet regulatory compliance. It is a strategic navigation tool to identify where your business can excel and win competition amidst global economic changes.
“The resilience of future businesses will be determined by how quickly and accurately the decisions we make today are implemented,” said Johan in a press release on Wednesday (16/9/2026).
Ultimately, the success of this sustainability agenda will depend heavily on an organisation’s ability to manage its internal changes. Key elements include appointing reliable communicators capable of translating technical terms into business insights, implementing a gradual adaptive approach, and forming internal forums to ensure the involvement of all stakeholders.
“By adopting these proactive steps, climate risk assessment will no longer be a mere compliance burden, but will transform into a strategic navigation tool that will protect assets, control future costs, and ensure victory amidst global economic competition,” he concluded.