Bridging the Gap: Why a Climate Damage Measurement Model is Essential for Businesses

As climate change continues to escalate, both businesses and governments are under increasing pressure to effectively quantify its financial repercussions. Experts emphasize the urgent need for a standardized model that can accurately measure the impact of climate-induced events such as storms, floods, and droughts on various sectors.

Paresh Narayan, the President of the Academic and Asia-Pacific Applied Economics Association (APAEA), highlighted the importance of developing a measurement model in a recent interview. He stated that such a model is essential for companies to evaluate direct and indirect losses, secure insurance policies, and access climate financing options.

Narayan pointed out that measuring the destruction caused by climate change is distinctly more complex than assessing physical damage to infrastructure. He explained that the methodology varies significantly, as it depends on the specific sector affected, including housing and businesses. Sectors such as tourism and manufacturing, which often experience direct losses and operational disruptions, are particularly vulnerable.

Without a reliable method to gauge these impacts, businesses may encounter significant challenges when filing insurance claims or seeking climate resilience funding. Narayan stressed the crucial role of accountants and auditors in verifying reported damage, ensuring it is neither exaggerated nor minimized.

The APAEA is set to play a proactive role in this endeavor by contributing to the development of a functional measurement model. This includes participating in regional discussions, such as an upcoming roundtable with the Asian Development Bank (ADB), aimed at producing practical tools that assist businesses and governments in managing and mitigating the financial risks associated with climate change.

The overarching message remains clear: accurate measurement is vital for effective recovery from climate events, a challenge that affects both businesses and nations.

In summary, the call for a standardized model to measure the financial impact of climate change reflects a growing recognition of its significance for businesses and governments. As discussions progress, there is hope that collaborative efforts will lead to the development of effective tools, enhancing resilience and enabling better preparedness for future climate challenges.