Coming to Grips with Climate Risk

Summary: As climate change causes more enterprise risk, businesses must develop mechanisms and strategies to monitor and manage climate-related risk vectors. However, only a small minority of businesses are currently observing progress against this imperative. This blog series explores what is motivating such businesses to act, and the methodologies they are using to come to grips with climate risk.

Extreme weather events in 2017 resulted in billions of dollars in property damage and caused millions of people to be temporarily displaced or left without power. Fueling these natural disasters is a changing climate driven by warmer global temperatures, which have averaged at 0.1˚ C/0.3˚ F per decade since the 1970s.[1] Though the rate of warming temperatures seems insignificant on its face, these fractions of degrees have led to a rise in ocean temperatures, higher sea levels, severe drought, stronger wildfires, and longer heat waves. Global warming has led to more intense hurricanes, destructive landslides and floods thanks to intense precipitation, as well as an increase in disease and public health problems. In 2017, the United States spent approximately $265 billion on repairing the destruction from Hurricanes Harvey, Irma, and Maria, surpassing the previous record of $214.8 billion spent in 2005[2][3]. Additionally, public health costs have amounted to around $240 billion in the United States over the last decade from climate-related illnesses such as chronic respiratory disease from air pollution, a rise in insect-borne diseases such as Zika and West Nile Virus from ecological changes in climate, and malnutrition from impacted water and food supplies caused by extreme weather events.[4][5]

With climate risks increasing costs and putting human health and well being in danger, why aren’t we focusing more attention and resources towards climate risk? In a world where “long-term” trajectories start at five-years from present day, perhaps planning and mitigating risks out by decades seems too out of reach and too far into the future. Regardless of the cause, the disconnect between enterprise risk management and climate risk is pronounced, with only around 29% alignment between a company’s risk filings and its disclosed sustainability issues.[6]

There are a variety of reasons why companies are not actively planning long-term risk management, although some remain unknown. While there is limited understanding around how companies incorporate climate risk in enterprise risk management, there are leading approaches on how this can be done. Over the next few months, we will focus on nascent approaches such as TCFD (Task Force on Climate-related Financial Disclosures) and SBTI (Science Based Targets Initiative), and pioneering approaches such as the Deutsche Bank/Four Twenty Seven’s climate risk study as well as PCAF (Platform Carbon Accounting Financials). Stay tuned to find out more about how these methodologies can be incorporated in enterprise reporting systems.

Ellen Shieh is a Sustainability Advisor with UL EHS Sustainability.

[1] https://www.ucsusa.org/global-warming/science-and-impacts/impacts/hurricanes-and-climate-change.html#.WpXLTKinFPY

[2] https://www.climate.gov/news-features/blogs/beyond-data/2017-us-billion-dollar-weather-and-climate-disasters-historic-year

[3] https://news.nationalgeographic.com/2017/09/climate-change-costs-us-economy-billions-report/

[4] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(17)32464-9/fulltext, pg 6

[5] https://www.cdc.gov/climateandhealth/effects/default.htm

[6] http://docs.wbcsd.org/2018/01/COSO-WBCSD%20ESG%20ERM%20Executive%20Summary-2.pdf