Climate change risk – what to do about it

Did the unbearably high temperatures and wildfires earlier this week give you a taste of what might be to come? How did it make you feel? You wouldn’t be alone if it left you feeling anxious, scared, overwhelmed and unsure of what you can do about it. I know I felt like that.

The current droughts, heat and wildfires across many parts of the Northern Hemisphere have shown us that climate-related changes are coming, whether we like it or not. There’s a lot we can do to minimise how extreme this gets (e.g. reducing yours and your business’s carbon footprint, choosing where you invest your money) but that’s the topic of another blog. Today, I’m going to talk about the importance of preparing for the change that is to come.

As a business leader you need to understand the risks to your business and ensure climate risk is embedded in your approach to risk management and strategic planning.

The risks have changed

Don’t just take my word for it. Or your own lived experience. The World Economic Forum’s annual risks report for 2022 said that the biggest risks facing society, economies and businesses are sustainability related – the top three are environmental.

There are some big changes from a few years ago so businesses need to be thinking about different things when planning and forecasting. That means asking yourself different questions and looking at different data.

What are the risks?

The Taskforce on Climate-related Financial Disclosures has created a really helpful risk framework – it lists six types of climate-related business risk.  I recommend you go through each of these and ask yourself how they might impact your business (include the whole value chain) over the short, medium and long term (e.g. 1 / 5 / 10+ years).

These are framed as risks – they might also present some amazing opportunities for you to add value in new ways. For example, a new technology could create a new revenue stream for you. Make sure you are set up to spot these opportunities and grab hold of them!

Transition risks

• Policy & legal risks.

  • What policy or regulation changes are coming down the line that will support and incentivise a shift to a low-carbon economy? How do these impact your current business and operating model?  What new opportunities might these create for you?

  • Climate-related litigation claims are becoming real. Is there a risk that you might be taken to court for actions you’ve taken or avoided taking in the past?

• Technology risk.

  • New technologies are emerging to enable the transition to a net-zero world – how will these impact your business? What new opportunities might this create and when’s the right time to explore these?  When is the right time to invest?

• Market risk

  • We’re seeing shifts in supply and demand for different types of product – e.g. changing demand for meat and meat substitutes. How will changing demand impact your business?  What opportunities does this create?

• Reputation risk

  • How might your company’s climate-change communications, plans and actions be perceived by your different stakeholders?  Will the impact on your reputation be positive or negative?

Physical risks

Physical risks may damage assets or disrupt supply chains. There are various future scenarios that have been built (e.g. those suggested by the Intergovernmental Panel on Climate Change) – this can help you understand what the future might look like.

• Acute risk – shocks to the system due to a specific event, e.g. extreme weather events or social unrest (increasingly likely due to climate-induced anxiety, inequalities, price rises and constrained resources)

  • If you look at your whole value chain, what are the chances of it being impacted in the short, medium and long term? How might you adapt to that?  Or mitigate against those risks?

• Chronic risk – due to longer-term changes in climate – e.g. average temperature changes or sea level rise

  • If you look at your whole value chain, what are the chances of it being impacted in the short, medium and long term? How might you adapt to that?  Or mitigate against those risks?

Getting on the front foot

Here are five practical things you can do to put your business on the front foot:

1. Identify and understand the different types of climate-related risk a business is exposed to.

2. Carry out scenario planning to understand the possible impacts and likelihoods of each risk – how resilient is the business to different future scenarios? 

3. Put in place mitigation and adaptation plans. How much will it cost?  How easy will it be to implement?  What funding is available to support with mitigation and adaptation?

4. Measure risks and consider how the value of the business might be impacted, even if this involves large amounts of estimation and judgement. Investors want this information.

5. Put in place an ongoing risk management process that incorporates climate-related risk.

Make your business more resilient

The terrifying extreme weather events that we’ve been experiencing can be so overwhelming that it’s tempting to bury your head in the sand and carry on as normal. The thing is – these events aren’t going away.  The businesses that prepare for them will be better set to weather the (literal and metaphorical) storm.

Taking the time to understand these risks and plan for them (just like you would for any other risks) will make your business more resilient. And that will give you a competitive advantage. 

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For more practical advice on how to get clarity on what steps to take to scale up your impact, check out my FREE Scale Up Your Impact Guide: