BusinessGreen.com casts its eye over the advice that is available to help firms measure their climate risk profile.

As a businessperson clicking to read this article you are already several
steps ahead of your peers.

Numerous surveys have shown that the majority of companies, both large and
small, are still not far-sighted enough to take the assessment of
climate-related risks seriously. There are exceptions of course, in industries
such as insurance and to a lesser extent the utilities and public sectors, but
climate change risk assessment is mainly confined to the back-burner.

Smaller companies have an excuse of course. Britain is only just coming out
of the worst recession in decades. According to Rodolphe d’Arjuzon, author of a
recent report by London-based research company Verdantix that examines how
businesses assess the impact of climate change, "most smaller companies are
focused on the short term" rather than the longer-term threats posed by climate
change. "It’s about surviving financially and keeping going," he adds.

However, the pressure on larger organisations to take climate risk
assessments is mounting.

Not only are there huge operational benefits to be had from knowing which
areas of your supply chain, operations or investment portfolio could be at risk
from expected climate impacts, there is also increasing pressure from
shareholders for firms to get a handle on their climate risk profile. Investors
backing projects that could take several decades to deliver a return, want to
know how their investment will be impacted by anticipated changes in rainfall
patterns, sea levels and extreme weather risks, not to mention potential changes
in legislation and consumer behaviour. As a result, growing numbers of
investors, led by the Ceres sustainable investment group, are lobbying for
businesses to include details of climate risks in annual reports.

Significantly, these investors recently secured the backing of the Securities
and Exchange Commission (SEC) when in January it issued guidance to companies on
how to report their exposure to climate change in their financial filings. The
SEC highlighted four areas where climate related disclosures may be required:
physical impacts of climate change; impact of legislation and regulation; impact
of international accords; and the indirect consequences of regulation or
business trends.

That broad template gives all companies a good outline of what they should be
looking for when undertaking climate risk assessments. However, the SEC provided
little information on how best to undertake such an assessment and ensure that
risks are adequately accounted for.

Fortunately though, there is plenty of information and advice available to
help firms find the answers. The Pew Center on Global Climate Change; a
coalition involving IBM, consultancy Acclimatise and the Carbon Disclosure
Project (CDP); and the UK Climate Impacts Programme UKCIP), have all separately
published recent advice designed to help businesses assess how climate change
could affect their operations.

The first step all firms should undertake is to check whether they need to
carry out a detailed climate risks assessment.

It could be argued that every company will be impacted by climate change and
should be aware of the risks. However, some firms are more vulnerable than
others and it is these high-risk operations that should invest more in working
out their risk profile.

In its report
Adapting to
Climate Change: A Business Approach, the Pew Center advocates a
screening process to identify the potential risks of near-term and long-term
climate change, as the first step in determining whether or not a risk
assessment is necessary to identify further actions.

It recommends that simple early screening should answer three important
questions: is climate important to business risk? Is there an immediate threat
or are long-term assets, investments, or decisions being locked into place? Is a
high value at stake if a wrong decision is made? If a business answers yes to
one or more of the questions then it is likely to be in the businesses interest
to undertake a more comprehensive assessment of climate risks.

IBM, Acclimatise and the CDP offer a good introduction to assessing those
potential climate risks, setting out
10
questions – that inevitably lead to many more – which company executives
should ask to help their companies improve their resilience to inevitable
climate change.

The list includes a number of questions relating to risk: what are the
operational impacts of climate change on your company? Which of your company’s
key operating assets are located in areas vulnerable to climate change impacts
and what are the implications? How sensitive is demand for your products and
services to climate change impacts? How could current and future climate change
regulations and industry standards affect your organisation and its reputation?

Then they deal with how climate change can also equate to opportunity: what
new and enhanced existing products and services can you offer your customers?
What operational benefits could you enjoy from managing your response to climate
change?

Finally, they analyse a company’s response: how clear and effective are your
company’s internal management responsibilities for climate change and your
engagement with stakeholders? How well structured is your company’s approach for
managing climate change? How can you ensure your company’s approach is based on
robust information and assumptions? How can you demonstrate that your company’s
climate business resilience plans are realistic and financially viable?

Answer each of those questions accurately and comprehensively and you will
end up with a pretty robust climate risk assessment.

The UKCIP, meanwhile, has taken a more step-by-step approach to helping
organisations assess their climate risks with the development of its so-called
Adaptation
Wizard. The online guide takes companies through a five-step process
designed to help them assess their vulnerability to current climate and future
climate change, identify options to address key climate risks, and develop a
climate change adaptation strategy.

The wizard is a work in progress, but version 2.0 has ironed out many of the
teething problems found in the initial version. It also includes an additional
step called: "Am I vulnerable to the current climate?", which was inserted after
the UKCIP realised that people tend to find it easier to think about how they
will be affected by future climate change if they start by looking at how they
are affected now. This new step makes the need to adapt more real, says the
UKCIP, by making a connection between vulnerability to current weather and
potential vulnerability to future climate change.

According to Megan Gawith, scientific officer at the UKCIP, the wizard "is
designed for application by a broad range of users, from an architect planning
the design of a new building, to a biodiversity manager developing a climate
adaptation strategy and can be applied equally to a plan, a project, a programme
or a policy".

The UKCIP and related
UK Climate Projections
also provide much of the detailed information that should underpin any corporate
climate risk assessment and provide firms with information on whether their
property is likely to face increased flood risks, for example.

Comprehensive climate risks assessments are likely to require plenty of work
and, as Verdantix’s d’Arjuzon points out, the Big Four accountancy firms have
joined specialist consultancies such as Acclimatise and Maplecroft in developing
services to help firms navigate their way through the task.

However, regardless of whether businesses turn to a consultancy or undertake
the assessment themselves, more and more firms are going to face pressure from
investors and suppliers to provide evidence that they understand and appreciate
the climate risks they face. In addition, those that undertake successful risk
assessments will find themselves in a stronger position for having identified
those vulnerable areas of the business that could suffer as a result of climate
change.

By: John Sterlicchi, BusinessGreen