what a time to be a risk manager: navigating climate change risk
by Elisabeth A. Wilson With the Intergovernmental Panel on Climate Change (IPCC) issuing increasingly dire warnings about humanity’s ability to thwart the most serious implications of climate change, and with more extreme weather patterns and events exacting catastrophic tolls on life and property, it is clearer than ever that we stand at a stark tipping point.1 Climate change and its sister subject Environmental, Social and Governance (ESG) are considered by many to be emerging risks. These might not be new topics, but they have seen a rapid rise in prominence since 2020 thanks to the COVID-19 Pandemic, which has demonstrated in real time the potential economic and existential consequences of a low likelihood/high severity event. The current pandemic seemed unimaginable to a society resting on its scientific and technological hubris. However, the increased 100-year hurricanes and floods, wildfires and mudslides and unprecedented heatwaves and rains we have witnessed in the last two years are more unnerving harbingers. The resultant shocks to our economies, fundamental infrastructures, and supply chains are only the beginning. What a time to be a risk manager. The possible negative outcomes of climate change—environmental, geopolitical, economic, social—seem endless, difficult to predict and even harder to quantify. Couple this with a lack of historical context to forecast future climate change-driven events and ramifications and you have the modern equivalent of the Gordian Knot, one that is even more challenging due to burgeoning regulations and limited global cohesion on how to tackle the necessary transition to a netzero economy. Increasingly, it looks like this transition will be a disorderly one, with various countries, regions and sectors taking maverick approaches regarding climate change-related regulations, laws, targets and methodologies.2 Luckily, risk managers do not have to go it alone. Current regulatory and risk approaches are still haphazard, but there are areas of solidarity. Thanks to the International Standards Stability Board (ISSB), there is the promise of future global consistency regarding climate change-related financial disclosures.3 The Financial Stability Board’s Task Force of Climate-Related Disclosures (TCFD) has been so widely adopted across the financial industry that it is being touted, not only by ISSB, but by other regulators such as the Security Exchange Commission (SEC) as the basis for future formalized regulatory guidance.4 The Network for Greening the Financial System (NGFS) also offers periodically-refined scenarios to support an initial scenario analysis, central to engaging business leadership in wrapping their minds around potential financial and economic climate exposures—and solutions. Subsequently, key facets of TCFD, NGFS and other standards like the Global Reporting Initiative (GRI) can become the foundation of a risk manager’s climate change arsenal. Intelligent Risk - April 2022
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