June 6, 2018 Disclosing climate change risk
What constitutes risk within your business? Whilst the answer will no doubt vary across organisations and business sectors, there are some areas of risk which will be common to most. Now a committee of MPs is looking to add to that area of commonality by recommending that greater weight is given to climate change risk. Whilst the proposal by the Environmental Audit Committee (EAC) at present is aimed at large companies and pension funds, when any area of potential risk is flagged up by the authorities it is almost inevitable that over time it spreads out into the wider business constituency.
Specifically, the EAC has recommended that it becomes mandatory for large companies and pension funds to report their exposure to climate change risk. With a suggested introduction date of 2022, the recommendation would need to be swiftly taken up by the government if it is to pass all Parliamentary stages in time. Nevertheless, the recommendation does raise some interesting points, not the least of which was the committee’s concern that by failing to take into account climate change risk, organisations may be promoting short-term practices at the risk of long-term stability.
So what is climate change risk? The obvious answer is to look at some of the more outward effects of climate change such as the way in which changing weather patterns impact on areas such as transport and crop production. But organisations should also look towards the impact of measures taken to reduce climate change. For example, a report by the International Energy Agency has estimated that switching from fossil fuels to low carbon sources of energy could cost $44 trillion between now and 2050. And that’s before other factors such as the impact of change on productivity and profitability are taken into account.
Of course, climate change can also be beneficial. The government’s 2017 climate change risk assessment highlighted benefits such as the ability to grow new crops in the UK or the way in which climate change is forcing us to re-evaluate water storage options, bringing the potential for increased biodiversity, carbon storage and water quality. That in itself is a powerful argument for an organisation to evaluate its own climate change risk factors. Risk evaluation gives companies the chance to identify and undertake risk mitigation, perhaps bringing new practices and approaches which will benefit the company in the long term.