Climate change risk is recognised as one of the biggest threats facing economies and communities. At the World Economic Forum's annual event for 2020, climate change topped the agenda against a background of fires in Australia, heatwaves across Western Europe, and the increasing activity of climate activists driving corporate leaders to acknowledge the need for change.
Action is gathering momentum following the creation of the Task Force on Climate-Related Financial Disclosures (TCFD), which created a set of recommendations to help organisations disclose information on climate-related risks and opportunities in a consistent, comparable, and reliable way. A key recommendation is for companies to follow a roadmap that includes disclosure in line with TCFD by 2022. Indeed, in the UK the post COVID-19 rebuilding of the global economy will feature a "green recovery" with mandatory reporting for UK companies.
Furthermore, consumers and investors are increasingly making decisions based on environmental, social, and governance (ESG) factors. Many institutional investors are putting climate change at the centre of their investment strategies.
How can businesses across the industry best understand, quantify, and manage ESG expectations? It's a process that can be daunting to businesses who don't have the resources of the major players. Questions that should be asked include:
The TCFD and other legislators are focusing on three key areas when it comes to climate related risk: Physical risk, transition risk, and liability risk. We recommend a three-step reporting strategy:
TCFD and ESG have considerable emerging risk implications, which should be identified, analysed, controlled, and monitored through an enterprise risk management (ERM) framework. Marsh is helping its clients navigate, plan for, and manage this area of risk through climate modelling and the application of ERM expertise.
Companies who understand climate-related risks and opportunities will be able to make better decisions for their future business to build resilience to survive in this competitive marketplace.