Section 1: The climate change risk landscape Climate change is unlike any other environmental problem, any other public policy problem and is characterised by a combination of four unique issues: > Its global nature > Its long-term nature > The fact that it is potentially irreversible > The almost overwhelming uncertainty surrounding its progression and effects Climate change is a global trend as temperature and sea levels rise and contribute to amplifying certain global risks such as extreme weather events and altering the relationship between them. The leading cause of climate change has been the increase in the concentration of atmospheric Green House Gas (GHG) emissions including carbon dioxide which has led to a range of major impacts including an increase in storms and floods, heatwaves and droughts, as well as impacts on human health, biodiversity, ocean acidification and food supply. The Covid-19 pandemic provides us with an indication of what a fully-fledged climate crisis could entail. Both can be considered “Grey Swans”. Experts have been warning about these threats for years and both indicate that the world at large is generally ill-prepared to deal with either. What has been encouraging is how scientists and health professionals have been collaborating and reinventing how they work. Integration of scientific knowledge into risk management is also crucial to building resilience to climate risk. The impact of climate change poses a financial stability risk to the global financial system and various national, international and industry bodies, driven by the Financial Stability Board representing the G20 countries, are working together to achieve long-term regulatory alignment. Although it is easy to feel overwhelmed by the complexity of the problem there is a range of solutions developing which include the need to replace fossil fuels with cleaner, renewable energy like wind and solar power. During the pandemic, there has been discussion of a ‘tilt to green’ in future investments1. It is argued that organisations that are “front-runners”- that adjust to future structural changes and put sustainability at the heart of their strategies more rapidly - may be able to reap the potential benefits that it will bring. These will include; enhanced brand image, employee engagement, innovation, new sources of revenue, enhanced relationships with stakeholders and operational resilience. Climate change and ESG Environmental, Social and Governance (known as ESG factors) are rapidly becoming the single most important business driver of the decade. Although this guide will be focusing on climate change it is important to understand the relationship and relevance to the wider ESG issues that are set to become increasingly prominent features of financial regulation and supervision globally. It is important to recognise that Climate Change accounts for only 1 of the 10 ESG key issues as set out by the MSCI ratings per Figure 2. These rating factors have been designed to measure a company’s resilience to long-term, industry material ESG risks.
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Enterprise-Risk-Summer-2020-Web.pdf – Feature “Tilt to Green”
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