By Julien Hornacek, Director - Risk & Analytics and Moiz Bohra, Climate Transition | Energy Systems | Research & Consulting, WTW
Such delays may tempt some to pause or deprioritize climate risk management, particularly as economic pressures mount, capital becomes more expensive and supply chains remain under strain. But regulatory stays should not distract from the fundamentals of climate risk management.
The reasons any business needs to understand the climate-related threats to its resilience remain unchanged. That means stepping back from efforts to grasp your climate risks could put your business at a disadvantage in terms of investment, supply chain opportunities, the cost of insurance and more.
To help risk and sustainability professionals continue to drive forward the climate and sustainability agenda, we examine why and how to maintain focus on building your organization’s understanding of its climate risks, regardless of regulatory changes.
How do CSRD threshold changes affect climate risk management?
Recent CSRD developments have increased applicability thresholds and delayed reporting for many companies. While significant, these changes aren't the key driver of how climate risk is impacting businesses, your investors, supply chains and customers. Climate risk remains a business risk.
CSRD thresholds and timings have moved, the principles for climate risk management haven't.
Why does climate risk management matter to investors, regardless of reporting requirements?
Your organization may now be able to choose to pause on climate risk reporting, depending on your geographic location, but doing so could impact how investors and partners across your value chain may view your business.
External stakeholders continue to judge and value your business on your response to climate-related risks and regulations. Many lenders and investors in particular continue to embed climate and sustainability factors into their own processes and decision-making.
If your organization can’t demonstrate a detailed understanding of its climate risks and plans to manage them effectively, including commitments to stay on the front-foot by embracing climate reporting requirements, capital may become more expensive or move toward organizations with more persuasive positions on climate risk.
Better disclosure and understanding of your risks, including climate, can also influence IPO success. Even a ‘compliant but minimal’ approach could risk underperforming those peers going further.
Your customers may be shifting toward products and services with stronger climate and sustainability stories. Across your supply chain, existing and prospective partners may also be evaluating partners based on their climate risk management credentials.
How can your climate risk management approach impact insurance costs?
Climate-related risks cut across and amplify other risks. They impact your existing assets, revenue streams, workforce, supply chain and directors’ and officers’ exposures.
Regardless of your regulatory reporting requirements under CSRD or any other framework, both climate change and the net zero transition are key drivers of your business’ risk profile.
Climate is, at its essence, a set of risks; threats to resilience you can better understand using analytical techniques and a wide-angle view on your assets, supply chains and the interconnections across these.
Insurers use risk models to price your coverage and offer capacity. If your organization appears to have a poorer grasp of its risks, climate or otherwise, when compared to peers, this can lead to higher premiums or challenges securing capacity at all.
What are the enduring principles of climate risk, regardless of regulatory changes?
Climate risk is a risk like any other. To manage it, you need information. Effective climate risk management starts with a clear view of both physical and transition risks. Physical risks include extreme weather, flooding and wildfires, while transition risks stem from policy, technology shifts and changing markets.
Advanced analytics and industry-specific data sets will help you understand both your physical and transition risk exposures, translate these into financial impact and prioritize the actions to mitigate, adapt, manage or transfer these risks more effectively and efficiently.
In doing so, you can show stakeholders across your value chain you’re taking informed strategic decisions, while also remaining aligned with evolving regulatory and stakeholder expectations.
Investors, insurers, supply chain partners and customers can take confidence in your response to climate-related volatility, even as uncertainty continues.
Understand your climate risks and make more of the opportunities with industry and climate risk specialists, advanced analytics and data sets.
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