Climate Risk Isn’t Just an Environmental Issue, It’s a Business One
In 2025 alone, extreme weather and climate events affected at least 13 million people across Africa and caused more than 3,000 reported fatalities, according to the World Meteorological Organization. Those figures represent more than a humanitarian toll they represent disrupted supply chains, damaged infrastructure, non-performing loans and rising insurance claims. Climate risk is a business issue, and increasingly, a financial one.
Physical Risk: When Climate Hits the Balance Sheet
Physical climate risk shows up directly in financial results. Flooding and drought disrupt agriculture-dependent supply chains and the businesses that rely on them. In East Africa alone, drought affected an estimated 8.5 million people in 2025, with direct consequences for agricultural output, food security and the loan portfolios of banks exposed to that sector. Floods, which accounted for more than half of Africa’s reported climate hazards in 2025, damage infrastructure and interrupt operations across manufacturing, logistics and retail.
Transition Risk: The Cost of Regulatory Change
Alongside physical risk, businesses face transition risk the financial exposure created by policy and market shifts as economies move toward lower-carbon models. Kenya’s CMA ESG Code, the CBK’s climate risk guidance for banks, and the country’s new carbon market regulations are all part of this shift. Businesses slow to adapt face a higher cost of capital, reduced access to sustainability-linked finance, and growing scrutiny from investors and lenders.
Financial Risk Categories Businesses Must Track
- Credit risk: loan books exposed to climate-vulnerable sectors such as agriculture and real estate.
- Market risk: asset repricing as physical and transition risks become better understood and priced in.
- Underwriting risk: rising claims frequency and severity for insurers.
- Liability risk: exposure to litigation or penalties linked to inadequate climate risk disclosure.
- Operational and supply chain risk: business interruption from extreme weather events.
From Risk to Opportunity
Businesses that quantify and manage climate risk proactively are better placed to access resilience-focused investment, develop climate-smart products, and participate in growing carbon markets. Lybra’s Climate Risk and Opportunity Management service helps banks, insurers and corporates identify, quantify and disclose climate risk, and turn resilience into a genuine competitive advantage rather than just a cost centre.
Frequently Asked Questions
How is climate risk different from other business risks?
Climate risk combines physical risk (direct damage and disruption from weather events) with transition risk (financial exposure from policy and market shifts), and both can compound existing credit, market and operational risks rather than acting in isolation.
What is TCFD and how does it help manage climate risk?
TCFD is an internationally recognised framework for disclosing climate-related governance, strategy, risk management and metrics, helping businesses structure how they identify, manage and report climate risk to investors and regulators.
Can small and medium businesses be affected by climate risk too?
Yes. SMEs, particularly those reliant on agricultural supply chains or physical infrastructure, are often more exposed to climate disruption and typically have fewer resources to absorb the resulting losses.
Understand your organisation’s exposure before it becomes a balance sheet problem. Contact Lybra to discuss a climate risk assessment.
This article is provided for general informational purposes only and does not constitute legal, financial, or professional advisory advice. While every effort has been made to ensure accuracy at the time of publication, regulatory frameworks and requirements referenced here may change. Organizations should seek tailored guidance from Lybra or a qualified professional before making decisions based on this content.