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Climate risk 

How are companies, investors, and regulators responding to an increasingly warming planet and international agreements to limit future warming? 

The Financial Stability Board, comprised of finance ministers, central bank governors, and international financial institutions, has prepared global recommendations for climate-related financial disclosures, applicable to financial services and banking industries, as well as energy, transport, food and agriculture, and materials and building sectors. The FSB recognized that potential shocks and losses in value to the financial system due to climate change include precipitous shifts in energy use and the revaluation of carbon-intensive assets. If adopted by stock exchanges around the world, the recommendations for climate disclosures will change the way we think about and report risk, and will lower uncertainty for decision makers, especially investors, lenders, and the insurance industry.

The World Economic Forum’s annual Global Risks Report, drawing from the perspectives of hundreds of experts and global decision-makers, has consistently listed dangerous environmental change in its top 5 global risks every year since 2011. Climate change affects all industries and sectors--no single group or geography is immune. 

Along with growing investor awareness and activism, these developments from regulators and stakeholders indicate that a game-changing shift is underway.

The environment dominates the 2017 global risk landscape in terms of impact and likelihood, with extreme weather events, large natural disasters as well as failure of mitigation and adaptation to climate change as the most prominent global risks.
— Cecilia Reyes, Group Chief Risk Officer, Zurich Insurance Group
Climate change is a terrible problem, and it absolutely needs to be solved. It deserves to be a huge priority.
— Bill Gates

Climate opportunity

When a new paradigm emerges, opportunities also develop: corporates, investors, and financial services have the opportunity to learn about integrated reporting that combines Environmental, Social and Governance metrics. They have the opportunity to mine the metrics and develop scenario analyses that show where their business and investments may be headed under different future climate states. As a result of such analyses, opportunities can be found to introduce new lines of business or new investing approaches, or to reorganize loss-making units. And, for those institutions who move first and execute well, there is the opportunity to establish their credentials as industry leaders in environmental sustainability. Moreover, research shows that leadership in sustainability is a factor in attracting and retaining talent and motivating employees.


 

Concerns we often hear from executives include: 

There is a time and cost burden associated with measuring, reporting, and analyzing climate risks that needs to be weighed against the cost of taking no action. How I do decide which burden is greater?

I am concerned about diminishing natural resource availability, especially water, where my factories are locating or planning to expand.  How do I manage natural resource risk in a changing climate? 

 I am concerned about coastal infrastructure risk from increased storm surge and flooding. How do I climate-proof existing infrastructure and future development plans?

What environmental or climate-related metrics and targets should investors be looking at to determine an asset's climate risk profile, or to decide whether to include or exclude certain assets from our portfolio?

If you have similar concerns or questions, please contact us for a consultation.  Our services include research, strategic programme development, custom training courses, and facilitation of knowledge-sharing events.