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Business Primer – Chapter 6: How To Do It: Build Climate Resilience Across The Enterprise

Build Climate Resilence

STEP 1 : ASSIGN SENIOR-LEVEL RESPONSIBILITY.

Make accountabilities clear and articulate a vision: otherwise, cross-cutting issues such as climate change will be both everyone’s problem and no one’s problem.

// ASSIGN LEAD RESPONSIBILITY for building climate resilience to a senior individual to signal the priority of adaptation and make it part of senior-level discussions.

// INCLUDE ADAPTATION in existing business climate change strategies.

 

IN PRACTICE // MUNICH RE

At Munich Re, responsibility for climate risk management sits within the Board. In 2007, Munich Re adopted a corporate climate change strategy founded on three pillars: investing in risk assessment, including research on climate change impacts and climate risk management measures; seizing opportunities by offering new insurance products; and considering climate change risks as part of investment decision making. Munich Re now has confidence in its understanding of the business risks of a changing climate and has also identified business opportunities.

Read the full Case Study

 

STEP 2 : AMEND ENTERPRISE AND PROJECT-LEVEL PROCESSES.

Adapting to climate change is most successful when it becomes just another part of doing business. Integrating adaptation into the way businesses already work can minimize resource commitments and keep adaptation on the business radar.

// INTEGRATE climate change risks in existing management systems.

// ADJUST enterprise-wide processes and guidelines so that adaptation thinking will factor into key decision points, including siting decisions, long-term planning, and capital asset plans.49

  • Check whether contracting and procurement processes are sufficiently flexible to accommodate disruptions in the availability of raw materials in a changing climate.
  • Consider the stages at which infrastructure development projects may require additional and explicit consideration of future climate conditions.

// STENGTHEN approaches to managing supply-chain risks (see Box 3).

 

 

 

 

“WE FEEL IT IS IMPORTANT TO MANAGE RISK AT THE APPROPRIATE LEVEL . FOR EXAMPLE, SITE SPECIFIC ISSUES SUCH AS WATER AVAILABILITY AT AN EXISTING RESERVOIR ARE MANAGED DIFFERENTLY THAN SOCIO-ECONOMIC CONSIDERATIONS ASSOCIATED WITH A NEW HYDROPOWER PROJECT.”
Sonia Lacombe, Director – Climate Change, Rio Tinto Alcan

BUSINESSES ALREADY WORK WITH A RANGE OF STANDARD MANAGEMENT SYSTEMS INCLUDING ISO 31000 RISK MANAGEMENT, ISO 14000 – ENVIRONMENTAL MANAGEMENT, AND ISO 9000 – QUALITY MANAGEMENT. EACH OF THESE CAN ACCOMMODATE CLIMATE CHANGE RISK MANAGEMENT AND ADAPTATION.

Box 3

 

IN PRACTICE // RBC

RBC has implemented thorough risk management and investment due diligence processes. For example, as part of its credit risk analyses, RBC assesses industry-, company-, and transaction-level risks and ensures that staff is trained to address these risks. In some cases, RBC has added new risk dimensions to its credit-review process in response to the increasing body of knowledge on climate change and its impacts. RBC’s analysis has identified the following sectors as those most impacted by climate change: tourism and recreation, agriculture and fisheries, forestry, insurance, and hydropower.51 The benefits of these actions register as improved risk management and due diligence, key to the performance and reputation of businesses in the financial services sector.

Read the full Case Study

 

STEP 3 : DISCLOSE RISKS TO INVESTORS AND STAKEHOLDERS.

While voluntary disclosure of climate change risks continues to grow through such initiatives as the Carbon Disclosure Project (CDP), publicly traded companies must provide this information, if material, in continuous disclosure documents.52

// CONSULT the following sources to identify potential material climate-related disclosures for inclusion in annual securities filings:53

  • CDP survey responses from your own business and your peers
  • Industry research papers on physical impacts relevant to your sector
  • Enterprise risk management reports

// FOLLOW Canadian Securities Administrators guidance on disclosure of environmental risks and other sources (e.g., sector-specific guidance published by Ceres).54

GOOD CLIMATE CHANGE RISK GO VERNANCE :
• PROMOTES RISK AWARENESS ACROSS THE ENTERPRISE,
• STRENGTHENS COHERENCE AMONG FIRMS, SUSTAINABILITY AND FINANCIAL UNITS,
• DRIVES THE ASSESSMENT OF FINANCIAL IMPLICATIONS OF CLIMATE CHANGE, AND
• EMPHASIZES LONGER-TERM SHAREHOLDER VALUE. BASED ON COGAN 2006

 

IN PRACTICE // GREATER TORONTO AIRPORTS AUTHORITY (GTAA)

In its 2010 securities filings, the Greater Toronto Airports Authority (GTAA) noted that climate change may lead to more severe weather, creating flooding risk for airports. In response to this risk, GTAA is spending roughly $100,000 to identify improvements and adjustments in operational practices to prevent storm flooding.55

 

STEP 4 : MONITOR ENTERPRISE PROGRESS AND NEW DEVELOPMENTS.

Adapting to changing climate conditions is a moving target: it’s not about adapting from one climate to another, but rather about a continual process of adjustment to continuously changing conditions. To optimize adaptive strategies, pay attention to lessons generated internally and by others.

// STEP BACK from the micro-assessment of each individual adaptive strategy to take an enterprise-wide view of progress in adapting to the risks and opportunities of a changing climate.

// PARTICIPATE IN NETWORKS that keep you attuned to advancements in climate science and adaptation research.

// SCAN FOR NEW RISKS and opportunities on the horizon and factor new information into risk assessments.

 

 

 

AS THE IMPACTS OF CLIMATE CHANGE INTENSIFY, POLICY AND REGULATORY REFORM IS SURE TO FOLLOW. FIRMS MAY FIND IT ADVANTAGEOUS TO WORK COLLABORATIVELY TO ENGAGE WITH GO VERNMENTS ON THE ISSUE . IN SOME CASES, NEW POLICIES MAY BE NECESSARY TO MANDATE THE ASSESSMENT OF CLIMATE CHANGE RISK. SPECIFIC MANAGEMENT ACTIONS AMONG THE PRIVATE SECTOR MAY ALSO BE NEEDED. KEY FOR FIRMS IS BEING AT THE TABLE AS NEW POLICIES ARE CREATED AND EXISTING POLICIES ARE ADJUSTED.

 

IN PRACTICE // ANGLIAN WATER

Anglian Water, a large private water utility in the U.K., views climate change as among its greatest business risks due to the expected reduction in summer rainfall and the already dry nature of the region. Several adaptive measures are already in place, including developing alternative supplies and launching a campaign to reduce water use among its customers. The company relies on asset performance indicators to monitor its climate change resilience. Anglian Water believes that a flexible approach to adaptation is critical. It plans to use an ongoing review process to identify new risks and the firm’s corresponding adaptive responses.56

 

[49] UK Climate Impacts Program 2010c
[50] Marsh 2011b
[51] Odendahl October 27, 2011
[52] Canadian Securities Administrators 2010
[53] Canadian Institute of Chartered Accountants 2008
[54] Canadian Securities Administrators 2010; Ceres 2011
[55] Greater Toronto Airports Authority 2011
[56] Anglian Water 2011