by Scott Williams ,
ESG Coordinating Director, Marsh Middle East and Africa
01/02/2023 · 5-minute read
The breadth of environmental risks related to corporate activity are broad. Corporations are being called upon to not only avoid impacting the environment as a result of their operations, but also to manage emerging issues such as new contaminants, changes in regulations, product liability, and a changing environment, including more frequent and more severe weather events.
To make matters more complicated, multinational companies have a responsibility to adhere to a wide range of regulations globally. Environmental policies can vary significantly from country to country, making compliance a major pain point. This is especially true in regions where liability for environmental damage tends to be quite high, including the European Union. Mishaps or lapses in oversight can have devastating consequences on a company’s employees and communities, public image, and bottom line.
Marsh’s environmental risk specialists – with backgrounds in engineering, consulting, underwriting, and risk management – can help your company understand the risk implications of the complex landscape of environmental regulations and their impact on stakeholder expectations. We also can help you put in place appropriate risk management solutions, so that you can remain focused on achieving your business goals.
In a region used to harsh weather conditions, organizations in the Middle East and Africa face a wide range of both familiar and emerging environmental risks. Here are some of the key risk factors MEA businesses should consider:
Governments across MEA will be watching closely as environmental reporting frameworks like the Taskforce for Climate-related Financial Disclosures (TCFD) gain traction. As important trading partners and big overseas markets make TCFD or similar disclosure requirements mandatory, pressure will grow for Africa and the Middle East to follow suit.
Tough new climate-related disclosure requirements would mean not only much greater transparency, but they would also mean that businesses need to model different scenarios, set targets and make changes to their business strategy. Where TCFD or similar frameworks have been enshrined in domestic law, firms face fines for failure to comply.
Even before climate-related disclosures or other environmental regulations are mandatory businesses failing to embrace sustainability face the risk of damaging their brand and harming stakeholder relationships.
There is growing interest in environmental, social, and governance (ESG) issues. Customers, investors and other important stakeholders want to see that businesses are serious about ESG and that they are prepared to change how they operate in order to improve their ESG credentials.
Businesses that are too slow to move in this area are likely to find it harder to attract the best employees, find new investors and achieve sustainable, long-term growth.
Perhaps the most tangible environmental risk MEA business face is damage to property, infrastructure, and other physical assets. The changing climate is leading to higher temperatures, rising sea levels and an increase in extreme weather events.
One of the elements of TCFD-aligned climate-disclosure frameworks is the requirement for reporting firms to model different climate scenarios. The aim is to help those firms understand the climate risks they face now and in different potential future circumstances.
There are two key elements to managing environmental risk.
The first is to understand what those environmental risks are. How, for example, does the changing climate impact your business model? What existing and emerging environmental risks are most relevant to you?
Once you have identified and quantified those risks, you can take action.
Taking action could mean changing your business strategy. For example, exiting a geographical location where physical assets will be at risk from rising sea levels. Or operational changes, such as switching to electric vehicles to avoid higher oil prices and reduce your own carbon emissions.
But taking action can also mean risk transfer. One of the benefits of robust ESG policies and disclosure frameworks such as the TCFD is that insurers like evidence of good risk management. Responsible, proactive and transparent organizations should find insurance more affordable and easier to obtain.
An environmental risk review and policy audit seeks to compare the impact, or potential impact, of certain activities on the environment, as compared to existing standards. The purpose of an environmental risk review and policy audit is to identify and understand existing risks posed by normal business operations ― based on the collection of objective data ― to help better inform your insurance purchasing decisions. This information can also help your company’s leadership assess future risks based on existing exposures, in hopes of engaging in preventative actions.
Environmental risk reviews and policy audits have become more popular in recent years, as companies are being held to higher standards of responsibility and environmental stewardship. The information obtained from an environmental risk review and policy audit can be used as a valuable management tool, creating a trail of documentation.
It can also help customers and industry regulators appreciate your company’s willingness to take an active role in monitoring environmental practices, which can promote trust and help align your company’s mission with public opinion.
Finally, an environmental risk review and policy audit can help to maximize your recovery in the event of an insurance claim.
Businesses often look for external support when it comes to environmental risk. Every business is different. The environmental risks you face will depend on factors such as the type and size of your organization, your industry, and the geographical locations in which you operate.
Businesses will be at different stages of the journey when it comes to identifying, measuring and managing environmental risk.
We can provide tailored, end-to-end support on environmental risk. From helping your organization to prepare for mandatory climate-related financial disclosures to reviewing and updating your risk transfer strategies. Get in touch today to start the conversation.