Climate-related risks are already a reality. In August this year, the Sixth Assessment Report of the Intergovernmental Panel on Climate Change found that:
- it is virtually certain that hot extremes have been more frequent and more extreme across most land areas
- there is high confidence that the intensity of heavy precipitation has increased since the 1950s.
Moreover, the science now predicts that global temperatures will continue to rise until the mid-century, and without deep cuts in greenhouse emissions, 1.5°C and 2°C of warming will be exceeded in the 21st century. This will mean that changes in extremes will become larger. For example, a one-in-10-year heatwave currently occurs 2.8 times more frequently than between 1850–1900 with current levels of global warming (1°C). At future global warming levels of 2°C they will occur 5.6 times more frequently.
Although the UK is fortunate in many respects, it is by no means immune, and the UK’s climate will also continue to change, affecting individuals, communities as well as organisations.
Climate resilience is the ability for an organisation to adapt to the changes that climate change will bring — often these challenges will be localised but could be very diverse. Climate resilience includes protecting physical assets from climate-related risks (such as an increasing likelihood of flooding) as well as managing future changes as the world adapts. As such, it also encompasses the ability to harness opportunities as the low-carbon transition takes place.
Currently, many organisations have already recognised the effect of climate and environmental risks on a day-to-day performance, and where there are key concerns, many will have put in place some level of environmental risk management. However, many organisations have not necessarily actioned measures to protect against future climatic risks, or taken this risk management to the next level by fully embedding it into strategic and future operational planning.
A move to carbon resilience requires three key steps.
- Assessing the vulnerability of operations to climate change.
- Looking at future scenarios to assess risks and opportunities around both the transition to a low-carbon future and physical risks to property.
- Ensuring that these risks are fully embedded into corporate risk strategies.
However, before getting started, it can be important to clearly understand the reasons why climate resilience is crucial to the business as this will help build the business case.
Reasons for needing to consider climate resilience could include:
- a known vulnerability to extreme weather events
- wanting to be considered an early adopter, or wanting to add to net zero ambitions
- the need to make decisions that will have a long-term impact (for example, if managing land).
The first step is to conduct a vulnerability assessment that highlights how the organisation is currently able to adapt to external stresses.
The Covid-19 crisis may have highlighted some areas of weakness, for example how staff are able to work if buildings cannot be used, or how resilient the supply chain is to disruption. Other physical considerations might include whether the organisation has been previously affected by extreme weather.
To assess transitional risks, ask whether there are any particular climate change challenges to the business model, and whether the company is part of the solution, or part of the problem? Are there any areas of the business that are experiencing resistance? Have any market or legislative trends caused a significant level of upheaval? Examples might include a demand for more environmentally-sound services, or the impact of new reporting requirements from clients or the Government.
Look at future scenarios to establish how the climate is expected to change and what this might mean for the organisation.
In July 2021, the Climate Change Committee (CCC) published its latest assessment of the UK’s climate risk, with briefings for each nation as well as individual sectors. Priority risks identified for businesses in the UK included:
- the risk of flooding and extreme weather events (such as loss of productivity during heatwaves)
- the risk of coastal change due to erosion, flooding and extreme weather
- water scarcity
- risks to finance, investment, insurance and access to capital
- risks from the disruption of supply chains and distribution networks.
In addition, the report highlighted that climate change outside the UK, for example through investment or supply chains was also a source of risk.
At a more localised level, the Met Office now provides a significant amount of data for specific locations through its UK Climate Projections. Understanding future weather patterns and risk will also help organisations assess whether or not certain key thresholds are likely to be reached, for example, how regularly temperatures become too hot to work.
As well collating high-level information, a critical part of gathering information will also be to incorporate specific input from colleagues across the organisation. This could include the following.
- Business and product development teams who can offer opinions on consumer attitudes and low-carbon technologies and business models.
- Health and safety, facilities managers and operational teams to advise on how extreme weather can affect day-today activities.
- Asset managers to find out if there are any particular assets at risk.
- Procurement experts who can advise on supply chain risk.
- Financial advisers who can provide expertise on access to capital.
As well as risk, there are also opportunities. Businesses have always had to adapt and the climate crisis is undoubtedly another area which will force change. To thrive, businesses will have to consider what future operations, products or services might look like, as well as the impact of changes to the business environment, for example due to changing legislation.
Once risks and opportunities have been developed, then appropriate adaptation actions need to be decided on, and these need to be incorporated into a programme of works and implementation plan.
In its reporting framework, the Task Force on Climate-Related Financial Disclosures recommends that organisations are clear about how climate-related risks and opportunities are embedded into:
- strategy; and
- risk management.
Essentially, this means ensuring that climate-related risks are fully incorporated at every level and into every decision that the company makes. Following this over-arching methodology, regardless of the size of the company, will mean that adaptation actions are not just one-off projects, but become a core part of how business is conducted.
Climate change is not a future risk — it is already here, and the CCC has identified several priorities that organisations will need to consider within the next five years. Climate resilience is the ability of an organisation to adapt to the changes that climate change will bring. This includes both the physical risks, as well as the changes to the business environment brought about by a transition to a low-carbon economy.
Three steps an organisation can take include:
- identifying current vulnerabilities
- scenario planning, and assessing future risks and opportunities
- embedding climate-related risks across the entire organisation’s governance, strategy and risk management functions.