Businesses must remember their AAs in Climate Change Strategy

09 January 2018 | Blog Post

In a previous Russell Group article, we discussed the impact of 2017’s environmental events on major (re)insurers’ profit-loss margins. Consequently, the insurance community is now grappling with the key question of whether Climate Change is insurable.

Yet, what about corporates; how are they tackling the threat of Climate Change?

Interestingly, corporates’ attempt to tackle Climate Change is a symptom of a wider failing to address the potential impact of Climate Change. For tackling Climate Change requires a two-stage approach: Awareness followed by Adaptation. The AA approach!

At the first stage, there is a growing consensus as to the urgency of needing to address the impact of Climate Change but there is a collective failure when it comes to adapting to Climate Change by implementing the correct systems. A failure that in the words of French President Emmanuel Macron could result in the world ‘losing the battle’ against Climate Change.

This mismatch is evident in a new international survey by DNV GL of 1,200 risk professionals. At stage 1, businesses regard climate change as a threat with 1 in 4 claiming that one area of their value chain has been impacted by climate change.

However, it is at stage 2, where businesses are failing. Only 25% of companies (excluding large enterprises) are applying adaption or resilience measures. Meanwhile, 40% of large companies have already implemented these measures.

Worryingly, the drivers behind this action are not internal but external. The major drivers of businesses’ climate change adaption and resilience are laws and regulations (50%) and needs/requests from customers (43%). Areas such as business continuity do not rank as highly.

Yet, there is a silver lining. for the survey has identified a small group of companies, dubbed ‘leaders’. These companies are frontrunners who have already implemented adaption or resilience actions. The key drivers behind the leaders’ action are business continuity (55%), followed by laws and regulations (53%). Interestingly, half of the leaders believe that profitable benefits can arise out of climate change adaption with 35% citing value creation as a key driver.

Climate Change is a perfect AA case study for corporates and insurers operating in today’s connected world. For when dealing with Climate Change, it is easy to fall into the trap of viewing the challenge as a risk. Yet, as the Leaders from the DNV GL report show, it is possible to turn a risk into an opportunity. In other words, to truly succeed in a connected world, an organisation needs to build a winning strategy where aware business anticipate both opportunities and risks and adapt their business models to drive profitability.

Business Interruption, Connected Risk, Corporate Risk, Corporate Risk Managers, Emerging Risk, Energy Exposure, Energy Risk, Political Risk, Supply Chain Exposure, Systemic Risk

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