The power of putting a dollar value on climate risk

The start of 2026 has shown again the effects of our changing climate. Storms and extreme weather events across the motu have wreaked havoc, disrupted plans, damaged assets and endangered the lives of whānau, in some cases critically.

Witnessing the impacts of climate change firsthand can reinforce a reactive, risk and emergency management focus. However, directors must at the same time maintain a focus on the sustainability of their business and business processes, taking an upfront approach to mitigating risk and helping to lessen potential future harm to New Zealanders and our environment.

Lifting the focus from climate risk management to strategic value creation is the key to enable better, more informed decision making. Central to this is the practice of quantifying the financial impacts of climate-related risks and opportunities.

Robust risk management is crucial, and a key function of good governance. However, a singular focus on managing risk can also stifle innovation and inhibit the fundamental shifts required by businesses to adapt, build resilience and create the new business models that can deliver long-term value in an increasingly dynamic and uncertain operating environment.

But there needs to be a balance between the management of risk and the ability to leverage opportunities to create value and drive change. Currently, the scales are weighted by the greater visibility of risks over the opportunity for change, uncertainty around the nature, scale and timing of both risks and opportunities, and the comfort and lure of current state. All this is compounded by the complexity of climate risk.

Acknowledging and tackling this imbalance is becoming increasingly important as organisations are having to navigate strategic and investment decisions associated with the climate transition. Not all underpinning reasons for this imbalance can be easily addressed, nor is business or governance best placed to resolve some of them. Nonetheless, there is a clear role for improved decision‑making tools and frameworks.

As we anticipate a white paper from the New Zealand Society of Actuaries on this topic in mid-2026, I invite directors to consider how redressing the imbalance through financial quantification might help New Zealand businesses to find a way forward.

Getting started with financial quantification

In a forthcoming Chapter Zero publication, we explore how quantification can support value creation and help organisations focus on their most material risks. Based on our work with early movers, three practical steps stand out.

1. Understand your why and build your approach accordingly

There are multiple different reasons why organisations might seek to quantify the financial impacts of climate change. To better understand the exposure of key value drivers, to support materiality assessments, to inform disclosure requirements. There is no one-size-fits-all solution; each will have different areas of focus and different intended outcomes. Indeed, different kinds of climate risks will require different approaches to quantification too. Getting a clear understanding of your why is critical to creating a decision-useful approach.

2. Focus on the robustness of your logic and process, not the number produced

There will be numerous assumptions and uncertainties within both the approach and the data that is used in quantification. As such, and particularly at the start of your quantification journey, the focus should not be on the end number generated, rather on ensuring transparency in any assumptions, and the soundness and structure of the logic employed. As your approach matures, and there is more certainty in ‘the how’ of quantification, then you can turn to improving the robustness of the underpinning data.

3. Just get started and find others to collaborate with

Building a robust approach takes time. Time to test and establish a solid logic flow, to understand and source good data. Time to build comfort within your stakeholders and key audiences. It is better to start this evolving, learning journey when there is less external scrutiny and pressure on the outcomes. It’s also worth noting that you won’t be the only organisation tackling the issue of quantification; so seek out others who have similar challenges, opportunities and operating contexts, and compare notes on how you’re approaching the quantification challenge.

Financial quantification: from climate risk to value creation will be published in March 2026.

Alec Tang MInstD is a Chartered Environmentalist and Fellow of the Institute of Environmental and Sustainability Professionals, with a career dedicated to tackling sustainability challenges across academia, business, and the public sector. He is a Partner with KPMG New Zealand, leading its Sustainability, Climate and ESG practice, lectures on sustainable business at AUT, and sits on the External Reporting Board’s Sustainability Reporting Committee, as well as the Queenstown Lakes District Council’s Climate Reference Group and the Chapter Zero New Zealand Steering Committee.