Climate Change and Risk Management
Climate change is undoubtedly one of the largest global issues of the coming decade. Its impacts continue to creep into day-to-day and wider year-to-year aspects of life, with people, businesses and the environment all affected by the global environmental changes.
As the effects of climate change are experienced around the world, humans are being forced to adapt and accommodate for these changes reactively. To ensure this adaptation and accommodation shifts to proactive going forward, businesses need to step up. A greater understanding of the climate change risks is needed alongside an understanding of how these risks threaten business operations.
Climate change brings diverse business challenges. Without evaluating and planning for these climate change challenges in a business sense, the possible risks to reputation, production and longevity are significant. A company may be unable to reliably supply a product or service due to climate change challenges for example, and hence suffer from reputational tarnish. These climate change impacts differ from country to country. Some governments are even releasing guides to advise risk managers of the most relevant climate changes for their location.
Risk management teams are being increasingly tasked with identifying the potential risks linked to climate change. Initially identifying these climate risks and establishing which risks require greatest attention is critical. This assessment requires knowledge of how climate change is predicted to intensify in the future. Three key factors should be looked to in this assessment - firstly, businesses should establish the climate change risks that may impact their business; then, identify which of these risks demand further attention; and implement systems to manage these high priority risks.
The main challenge of these climate risk assessments is climate uncertainty. Whilst it can be agreed that the climate is changing, the exact magnitude of these changes is impossible to pinpoint. This means reflection of the risk management systems used to address climate change needs consistent monitoring. Systems previously effective may be rendered inadequate given the pace of climate change.
Smaller businesses may need to look to risk specialists or external risk experts to offer this insight. With the potential risk of climate change catastrophic and continual, these third-party experts are best positioned to offer climate-specific advice.
Finally, when assessing how future climate changes may impact a business, risk management must look beyond the climate change
s experienced over the previous fifty to one hundred years. Assumptions should be based on future changes rather than based purely on changes experienced in the past.
Adapting to climate change is a necessity for businesses in both the public and private sector globally. Any business looking to remain operating in fifteen years must consider the environment in which they are operating, and how the changing environment will inevitably impact their business over this fifteen period and beyond.
It is the job of risk professionals to stay abreast of the latest climate changes locally and globally. With this comprehensive monitoring, a businesses’ risk landscape will remain as accurate as possible.
Climate change will see huge global challenges over the next decade and beyond and no business will be unscathed by these challenges. The only way to proactively navigate climate change is through this comprehensive risk management and a vigilant risk team.