Has the focus on COVID-19 mitigation desensitized business leaders to the risks they face from climate change? In June, the Climate Change Committee found that the United Kingdom today is less prepared for the effects of climate change than it was five years ago.
It is a potentially catastrophic state of affairs. Every physical asset and ecosystem is threatened by increased extreme weather events, such as flooding, droughts, and heatwaves. Man-made structures like offices, roads, and factories, and natural ecosystems like forests and peatlands, could suffer incalculable damage as a result of climate change.
Billions of dollars — not to mention livelihoods and communities — are at risk from freak climate events as the devastating floods in Belgium and Germany have just demonstrated.
Many conversations about climate risk centre on the transition risks businesses face from decarbonization. But we aren’t talking nearly enough about the accelerating physical risks of climate change.
Business leaders and boards need to understand their assets are at risk from climate change. There can be no naivety here. Though many organisations have made bold and welcome commitments to decarbonize, climate volatility is already locked-in: even if the planet ceased all CO2 emissions quickly, physical climate risks would still exist.
Addressing the risks of climate change
Understanding climate risk and factoring it into company strategy and day-to-day operations is the essence of climate intelligence. Without it, organizations are effectively wrapping their plans around a future that might never happen.
Investors are becoming increasingly nervous about the perceived lack of transparency on physical climate risks. One example is investment manager Legal & General, which has recently divested from four companies, including the American insurance giant AIG, citing “insufficient action to address the risks posed by climate change.”
National governments are following suit. The G7 leaders’ meeting in June saw member states back moves to make it mandatory for banks and companies to disclose their exposure to climate-related risks, in line with the Task Force for Climate-related Financial Disclosures (TCFD) framework.
In May, President Joe Biden ordered businesses that work with the U.S. Federal Government to disclose the physical risks they face from climate change.
Delivering advanced climate science for business decision-makers
How are executives and their boards to build climate change into their decision-making? The good news is that cutting-edge climate science is becoming increasingly accessible. In the past, climate data was generally gathered by scientists for the benefit of other scientists. Today, it is possible to deliver that same information in a useful, actionable form for decision-makers, investors, and indeed everyone.
Climate Intelligence places at decision-makers’ disposal clear open intelligence based on cutting-edge climate science and authoritative, validated data. It’s intelligence which can be used to meet disclosure requirements, such as TCFD, as well as making it easier to layer climate risk into strategic decision-making — for example, about supply chains, investments, and sustainable growth.
Business decision-makers need to become more conversant with climate risks, understand better how different scenarios might impact the long-term picture, and start looking at their organisation as a whole through the lens of climate change. Harnessing Climate Intelligence to meet disclosure requirements is a good starting point.
The longer-term goal should be using it to build climate change into the DNA of the business. Leaders that achieve this will be far better-placed for long-term success. Bolstered by future-proofed business models and resilient partners and suppliers, these climate intelligent businesses stand to gain significant strategic and competitive advantages.
The heightened focus from investors and governments on climate risks should be a clarion call for executives and board members. They need to be ready to meet disclosure requirements when they are imposed.
But they should take the opportunity to go further: projecting into the future, and understanding — together with their partners and suppliers — how they can navigate and thrive sustainably in an increasingly uncertain world.
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