What Is Operational Carbon Risk and Why Does It Matter Now?

Climate Risk in Practice Series – Part 1

Have you ever heard the term climate risk come up in conversations about sustainability, regulations or corporate responsibility, but weren’t quite sure how it applies to your organization’s day-to-day reality? Or perhaps the idea feels abstract, disconnected from the actual decisions made in managing buildings, infrastructure, energy use or sustainability strategies.

That’s were operational carbon risk comes in. While carbon has become a politicized term in some public discourse, it’s something far more concrete in an operational context: a measurable, practical side of climate risk. For starters, it shows up in your utility costs, operating budgets, capital planning, and regulatory compliance. 

Understanding this connection helps organizations shift from theory to action, focusing on real operational levers that influence risk, cost, and performance. This first edition of our series breaks down what operational carbon risk is, why it matters now, and how to begin understanding it in clear and actionable ways.

Starting with the Big Picture: What Is Operational Carbon Risk?

Climate risk refers to the financial, operational, and reputational threats posed by a changing climate. The now-dismantled Task Force on Climate-related Financial Disclosures (TCFD), whose framework has since been adopted by the International Sustainability Standards Board (ISSB), defined climate-related risks in two categories that are still widely used today:

• Transition risks: Risks associated with the shift to a low-carbon economy, such as new climate mitigation policies, evolving technologies, and changing market or stakeholder expectations.
• Physical risks: Risks stemming from climate-related events, including extreme weather (acute) or long-term shifts in climate patterns (chronic), such as heatwaves or rising sea levels.

These types of risks are often framed at a strategic level, which can make them feel disconnected from day-to-day operations. In this series, we focus on operational carbon risk, a practical and actionable subset of both transition and physical risks. It refers to an organization’s scope 1 and 2 emissions, including how climate-related pressures materialize in real-time through utility costs, energy performance, infrastructure choices, and operational decisions. From how data is tracked to how systems are run; operational carbon risk is embedded in the way facilities are managed every day.

Breaking Down Operational Carbon Risk

Zooming in further, operational carbon risk refers to the specific performance challenges and financial exposures tied to an organization’s energy use, emissions profile, and facility infrastructure. Simply put: if an organization consumes energy to heat, cool, light, or operate its buildings, it is exposed to operational carbon risk.

This risk manifests in real-world decisions such as:

• Whether to replace an aging boiler or extend its life
• How to plan HVAC loads during extreme weather events
• How to prepare for emissions-related regulatory changes or insurance premium adjustments

When proactively understood, operational carbon risk becomes a lever for improving performance across key areas:

• Anticipating and managing regulatory costs, such as Canada’s carbon pricing framework
• Controlling utility-related operational expenditures
• Unlocking financial incentives and funding tied to energy and emissions performance
• Meeting rising stakeholder expectations for environmental disclosure
• Adapting to changes in the operating environment, including heatwaves and wildfire smoke events

Operational carbon risk is not just about emissions data. It sits at the intersection of infrastructure performance, energy use, capital strategy, and resilience. For example, deciding whether to upgrade a natural gas boiler to a more efficient system isn’t just a like-for-like capital cost decision, it impacts long-term emissions exposure, utility bills, and regulatory compliance.

Key Questions to Understand Operational Carbon Risk

Understanding operational carbon risk doesn’t start with data, it starts with awareness. Data is a tool for managing the risk, but the first step is recognizing where and how that risk exists. Key questions to help assess it include:

• Do you have a system and process in place to track your energy and emissions?
• Which operations drive the bulk of your emissions?
• Are your energy-intensive systems aligned with current and future regulations?
• How might changing climate conditions (such as heatwaves, droughts, floods) impact building performance?
• Are you considering emissions and energy exposure in capital and asset planning?
• What dependencies do you have on carbon-intensive inputs or energy sources?

These questions help organizations identify where the risk is most concentrated, and where the biggest opportunities for mitigation or value creation lie.