The business of climate risk

Near-term target-setting and long-term action planning, to assess and manage ESG and climate risk, are now high on many agendas.

Jenny Hyndman

Jenny Hyndman

01 Sep, 2023

The business of climate risk

ESG and climate risk stem from factors like extreme weather events, regulatory changes, and shifts in consumer preferences. These events can impact operations, supply chains and financial stability and can be felt across the market, affecting institutional investors, financial services, companies and solution providers. 

There is a need for collaboration among these groups so that investors and financial stakeholders can review a company’s ESG and climate disclosures and understand the risks and impacts.

Fortunately, companies are increasingly aiming to align with global commitments to a fair and affordable low-carbon transition. Near-term target-setting and long-term action planning to assess and manage ESG and climate risk are now high on many agendas.

flood in an urban area

How businesses can identify and address climate risk 

Addressing climate risk is crucial for businesses to ensure their long-term sustainability and resilience. By being proactive in this area, businesses can not only minimise potential damages but also seize opportunities for innovation and responsible growth in a rapidly changing business landscape.

To mitigate these risks, businesses must adopt comprehensive strategies. This involves conducting thorough risk assessments to identify vulnerabilities; setting emission reduction targets; and integrating climate considerations into decision-making. Some of these actions include:

  • Embracing renewable energy sources, enhancing resource efficiency, and diversifying supply chains can help reduce exposure to climate-related disruptions.

  • Collaborating with stakeholders, such as investors, customers, and communities, also fosters strong and transparent communication about climate actions.

  • Staying informed about evolving climate science and regulations is crucial for adapting strategies over time.

Steps for operationalising ESG and climate action

Operationalising ESG factors is essential for businesses aiming to integrate sustainability into their operations company-wide. This process involves translating high-level ESG and climate goals into tangible actions and practices across the organisation. 

Companies must identify KPIs aligned with ESG and climate objectives - embedding them into day-to-day operations and measuring progress consistently. This includes improving energy efficiency, reducing emissions, promoting diversity and fair labour practices, and ensuring transparent governance structures. 

Incorporating ESG and climate criteria into supply chain management and product development also helps mitigate risks and identify market opportunities. 

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Engaging employees, stakeholders and investors through transparent reporting showcases a corporation’s commitment to sustainability. 

Successful operationalisation of ESG and climate factors enables businesses to navigate regulatory changes, meet consumer demands, enhance resilience and contribute positively to the environment and society while securing long-term value and reputation.

How reducing carbon emissions can help de-risk business

The low-carbon transition significantly de-risks businesses by reducing exposure to climate-related vulnerabilities. 

Shifting towards sustainable practices, renewable energy sources and efficient resource utilisation will minimise reliance on fossil fuels and mitigate regulatory, operational and financial risks. The transition also fosters innovation, enhances supply chain resilience and appeals to environmentally conscious consumers and investors. Embracing low-carbon strategies also prepares businesses for evolving regulatory landscapes by avoiding potential penalties and facilitating long-term growth in a changing market.

It’s clear the low-carbon transition acts as a proactive strategy to safeguard against climate-related disruptions, bolster reputation and secure business continuity.