Proadapt Symposium on Climate Risk and Investment

On April 20, 2017, Proadapt hosted the symposium “Climate Risk and Investment: Framing Private Challenges and Opportunities” a conference to discuss common challenges and emerging investment opportunities in climate resilience. Emilie Mazzacurati, Four Twenty Seven founder and CEO, joined the symposium to discuss what climate change means for the financial sector, and innovative ways that funding for climate-resilient projects can be achieved.

Emilie first spoke on the second panel of the event, “Climate Resilience and Emerging Tools for Financial Institutions”, highlighting the recent moves by financial regulatory groups and institutional investors to promote climate risk analysis and disclosure, as well as ways to overcome the challenges of translating climate data into business intelligence.

Joining Emilie on the panel was Wagner de Siqueira Pinto, executive manager of the Strategy and Organization Directorate of Banco do Brasil; Jerri Ribeiro, leader of PwC Brazil´s Risk Consulting practice; and Jennifer Burney, Assistant Professor at the University of California San Diego.

Later in the day, Emilie moderated a panel on “The Role of Blended Finance in Promoting Climate Resilience”, a lively discussion on methods to create new funding mechanisms to leverage public and philanthopic funding in order to raise private capital for environmentally-beneficial projects.

Speaking on the panel was Stacy A. Swann, CEO and Partner, Climate Finance Advisors; Joan Larrea, CEO of Convergence; Virginie Fayolle, Senior Consultant and the Climate Finance Lead, Acclimatise; and Stephen A. Morel, Global Energy Contractor, (OPIC).

Emilie capped the day at Proadapt by providing a few key thoughts on how she and Four Twenty Seven see the demand for climate resilience work in the future, including how companies are looking to see how climate data can be used to identify new opportunities as markets change.

Art. 173: France’s Groundbreaking Climate Risk Reporting Law

National Assembly, Paris, FranceIn the fall 2015, in the run up to COP21, France became the first country to pass a law introducing mandatory extensive climate change-related reporting for asset owners and asset managers, the Energy Transition Law and its now famous Article 173.

The reporting obligations set out under Article 173 and its implementing decree have potentially far-reaching implications, requiring institutional investors to report on the integration of both physical risks and ‘transition’ risks caused by climate change on their activities and assets.

Whom Does Article 173 Apply To?

Article 173 addresses publicly traded companies, banks and credit providers, asset managers and institutional investors, the latter being listed as insurers, pension or mutual funds and sovereign wealth funds, with differentiated reporting obligations depending on their size and nature.

The law applies to French companies, meaning that French subsidiaries of large financial groups are potentially subject to requirements that do not apply to their parent companies.

What Must the Climate Change-Related Reporting Include?

A comply or explain approach

The law provides investors with broad flexibility in choosing the best way to fulfil the objectives, based on a comply or explain approach. It does not impose any specific method, giving leeway to find the reporting methodology suiting best the investment portfolio, for example reflecting specific asset classes or subsidiaries. However, investors must provide information and justification on the methodology used. They are encouraged to draw from current best practices. An assessment of the implementation will be carried out after two years, at the end of 2018, and the best-in-class approaches will be promoted.

Differentiated requirements

Banks and credit providers will be subject to regular stress tests including a climate change component.

Publicly traded companies’ annual reports must disclose the financial risks related to the effects of climate change, the measures adopted by the company to reduce them and the environmental impact of the company’s activities and of the use of goods and services it produces.

Asset managers managing funds below 500 M€ and institutional investors with balance sheets below 500 M€ must report on the implementation of their ESG policies.

Asset managers managing funds above 500 M€ and institutional investors with balance sheets above 500 M€ are subject to extended climate change-related reporting obligations (besides their ESG policies). Those obligations are two-fold:

  1. Assessment of the portfolio’s exposure to climate change-related risks, including both physical risks (physical impact of climate change) and transition risks (impact of the transition to a low-carbon economy).
  2. Assessment of the investor’s contribution to meeting the international and national low-carbon goals, including the low-carbon targets set by the the investor itself and the actions taken to achieve these targets.

While Asset management companies have to report separately on each of the above 500 M€ funds they manage, institutional investors must provide a consolidated reporting on their assets.

Note that institutional investors may have a commercial relationship with asset management companies via dedicated funds and/or management mandates. Therefore, asset management companies may be directly or indirectly affected by Article 173, via their institutional investor clients. The terms and conditions of access to ESG information required by institutional clients to meet their own Article 173 reporting obligations are to be defined in the contractual relations between them and the asset management companies involved.

Though investors are free to choose which exact data to report, the implementing decree suggests including the following information:

  • The consequences of climate change and extreme weather events on the assets
  • Changes in the availability and price of natural resources
  • Policy risks related to the implementation of national and international climate targets
  • Measures of past, current or future emissions of GHG (both direct and indirect)

As mentioned above, all assessments must come with an explanation and justification of the methodology used.

As of now, 60 institutional investors are subject to the latter reporting requirements.

The Assessment of Climate Change-Related Physical Risks

What really makes Article 173 groundbreaking is the reporting obligation on climate change-related physical risks. The inclusion of physical impacts of climate change in a financial risk analysis is in line with the industry-led Task Force on Climate-related Financial Disclosures (TCFD) recommendations report, released on December 2016 and discussed in a policy brief and a webinar.

While traditional climate-related reporting focuses mainly (if not exclusively) on the impact of the organization’s activities on climate change, the French Energy Transition Law is truly pioneering as it also emphasizes the impact of climate change on the organization’s activities and assets. This new focus meets the demand of investors for enhancing financial risks assessment through taking better account of climate-related risks.

A Ripple Effect

The French government is hoping for a ripple effect, both internationally and on a national level, across the investment value chain. The service providers of eligible investors are already considering how to enhance their ESG and climate reporting practices in order to meet their clients’ demands and comply with the law.

Moreover, climate-related regulatory efforts are gaining momentum. Article 173 is expected to be the first of a series of national equivalent regulatory frameworks among the G20 countries. The TCFD was established shortly after the Law passed, at the December 2015 G20 summit, and explicitly offers its guidance for compliance with Art. 173.

In March 2016, the Dutch central bank DNB announced it was taking steps to monitor and mitigate climate risk. Last November, the European Union has issued a directive requiring all EU-based pension funds to assess for climate change risk.


Four Twenty Seven helps investorsFortune 500 companies and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain. Our clients rely on Four Twenty Seven’s tools and models to factor into financial and operational planning processes. Learn more about how we are helping our clients assess and adapt to climate risks.


Documents
A handbook on Article 173 published by the French SIF

By Delphine Ly, Climate Analyst at Four Twenty Seven

TCFD: Climate Risk Disclosures Gaining Momentum

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released a comprehensive set of recommendations on December 14. The recommendations provide detailed guidance for companies on how and what to integrate in their financial disclosures related to climate change. The TCFD’s definition of climate risk encompasses both transition and physical risk (see chart below) and recommends companies address climate risk across governance, strategy and risk management, with a set of metrics and targets to show ambition and progress.

How climate risk disclosures and opportunities affect financial impact
Source: Recommendations of the Task Force on Climate-related Financial Disclosures

The recommendations also encourage companies to consider opportunities to be found in climate-related efforts such as cost savings through improved resource efficiency or supply chain resilience. The Task Force recommends the use of scenario analysis to disclose an organization’s planning under future scenarios, most notably one with in a 2°C scenario.

Growing Regulatory Momentum in Europe

With these recommendations, companies will be guided to producing long term outlooks on their value and risk management strategies for financial markets. The recommendations for disclosures of climate-related information are voluntary, but offer transparency that is increasingly being demanded by investors and resonate with recent regulatory efforts in France and the UK to require such disclosures. Indeed, responsible investing received a big boost in Europe, as the European Parliament voted to confirm a law that will require pension fund managers in the EU to account for climate-related risks in their investment strategies. The law introduces new requirements for risk management and reporting.

The law echoes Art. 173 in France‘s Law on the Energy and Ecology Transition (Loi TEE), which requires asset owners and asset managers to disclose financial climate risks ranging from carbon and energy risks to physical impacts of climate change.

A Market Imperative

Climate risk disclosures are more important than ever. In the context of the Trump Presidency and the latest round of cabinet appointments, it may be tempting to dismiss the risk associated with the “Energy Transition” – the rapid transition to a low-carbon economy. It may be tempting to ignore the need to disclose risks from the physical impacts of climate change in a context that promises fewer regulations and a dismissal of climate policy.

Yet, there’s no escaping the science and the reality of climate change, and the Trump administration’s stance on climate change gives even more urgency to both transition and physical risks of climate change.

Climate change and its impacts are not going away, and will likely worsen at an increasing rate if we continue to ignore them. Looking out a few years, these same physical impacts from climate change will eventually force us to transition rapidly away from fossil fuels to stop further degradation of the climate, leading to a ripple effect across the economy as entire value chains relying on fossil fuels, including major energy and transportation systems, will need to adapt – potentially at a high cost. The only question is how fast, and how expensive.

Markets have a chance to avoid being blindsided by a predictable risk. The TCFD offers a market solution, by the market, for the market. Mark Carney and Mike Bloomberg point out in an Op-Ed in The Guardian that “early disclosure rules allowed 20th-century financial markets to grow our economies by pricing risks more accurately.”

Disclosures are a small step that can help set in motions much larger changes through market forces, by pricing risk accurately, rewarding companies that take appropriate steps to prepare and adapt, and unlocking finance for resilience. Climate risk disclosures are an opportunity and a necessity for markets to both accelerate the energy transition and prepare for growing climate impacts.

Tools for Identifying Risk

Climate Risk Portfolio Screening: the Right Tool for the JobThough the TCFD recommendations do offer guidance to disclosing climate risk, the process of scanning assets for exposure raises a number of challenges — from accessing raw climate data to selecting appropriate indicators and time frame, and interpreting the output while accounting for climate data’s unique complexity and sources of uncertainties.

To support corporations and investors looking to identify hotspots and quantify value at risk in their portfolio of assets, facilities or across their supply chain, Four Twenty Seven has developed a suite of enterprise applications that provide rapid, cost-effective screening across portfolios of 10,000+ assets.

Learn more about CREST, our Climate Resilience Support Tool for corporate climate risk management, and our climate data analytics services for financial institutions.

 


 

Four Twenty Seven in partnership Crowell & Moring LLP hosted a webinar on January 12th to present key recommendations from TCFD and discuss feasibility, next steps, and issues to consider for implementation. View the webinar recording.

Supply Chain Risk, on SustainabilityDefined

Supply Chain Risk on SustainabilityDefinedSustainabilityDefined is the podcast that seeks to define sustainability, one concept (and bad joke) at a time. Hosted by Jay Siegel and Scott Breen. Each episode focuses on a single topic that helps push sustainability forward. They explain each topic with the help of an experienced pro.

CEO Emilie Mazzacurati joins the show for Episode 14 to discuss supply chain risk, leading with the dire news that the world may run out of coffee and chocolate by 2050! How is that possible, you ask? Emilie helps Jay, Scott, and their listeners understand why supply chains are so critical to delivering the goods we love, and how understanding the effects of climate change could help us avert a world without coffee and chocolate. Click the audio player above to listen in!

Do Federal Agencies Address Climate Risk in the Supply Chain?

The United States Government Accountability Office (GAO) recently released a report on how federal agencies are identifying, evaluating and addressing the impacts of climate change on their supply chains and suppliers.

Current efforts to build resilience in federal agencies

The report set out to identify the key challenges facing 24 surveyed federal agencies who where responsible for 98 percent of procurement budgets in 2013-2014. The agencies included the Department of Defense, the Department of Homeland Security, and NASA. The report was prompted by a question from Congress.

The report surveys how and whether federal agencies have planned for climate change disruptions in their adaptation plans. Indeed, in November 2013, Executive Order 13653 established a directive to these organizations to build adaptation and resilience measures into their organization: “In doing so, agencies should promote:

(1) Engagement and strong partnerships and information sharing at all levels of government;

(2) Risk-informed decision-making and the tools to facilitate it;

(3) Adaptive learning, in which experiences serve as opportunities to inform and adjust future actions; and

(4) Preparedness planning.

Few agencies are planning for climate risk in the supply chain

The report found 25 percent of agencies surveyed did not include climate risk to the agency’s supply chain, and most agencies had only included some information – general or agency-specific risks. Only three agencies had gone as far as identifying potential agency-specific actions, and one had a long term plan and strategy to address those risks.

GAO Analysis of agencies' climate adaptation plans
GAO Analysis of agency climate adaptation plans

Knowledge gaps and lack of tools are the biggest barriers

The report outlined some of the barriers to action on building resilience, citing hurdles such as planning timelines not aligning with federal budget cycles, a lack of institutional knowledge on best practices for assessing risk, and a lack of cross agency coordination to integrate adaptation strategies into shared supply chains.

It also identified information asymmetries about how adaptation success is measured as a hurdle for federal agencies. Of the 24 federal agencies surveyed, only four identified agency specific actions around building supply chain resilience. One in 24 had gone as far as mentioning budget needs to achieve their goals, and seven out of 24 did not attempt to identify the risks of climate change on their supply chains, feeling intimidated by “a lack of defined best practice.”

Getting over the barriers

Supply chains raise complex issues for organizations trying to prepare for climate change. The lack of visibility of supplier location and vulnerability make it difficult to fully assess risks, let alone identify effective measures to address and prevent or mitigate those risks.
At Four Twenty Seven, we have created tools to help large organizations in the government and private sector identify hotspots and quantify climate risk exposure in their supply chain. Learn how we can help your organization map risk across commodities and suppliers and build resilience into your organizational framework.

Climate Change and the Maritime Industry

Maritime shipping boat
Maritime shipping is particularly vulnerable to climate change. (Image source: www.internationalshipping.com)

If there is a front line in the war on climate change, it is the world’s coasts. And if there will be casualties from the hard-fought battle, the hardest hit could be the maritime shipping industry.  This was the case in 2005 when Hurricane Katrina charged into Louisiana, battered the Port of Gulfport, handily tossed aside shipping containers, prompting $250 million worth of repairs.

The maritime shipping industry, comprised primarily of ports and shipping companies, is positioned in a truly difficult spot when it comes to dealing with the adverse effects of climate change, which will be hitting the industry from all angles.

First and foremost, sea level rise – caused by melting glaciers and the expansion of ocean water as it warms – threatens port infrastructure, which is by necessity situated at sea level. It’s worth noting that the rate of sea level rise is slow and varies a great deal from location to location. According to a 2011 survey, many ports note that they tend to plan with less than a 10-year outlook, although infrastructure is built to last multiple decades. So although sea level rise will occur at what may seem like a snail’s pace, the change is certainly large enough to be a factor when considering the current state of the industry’s planning and building practices.

Ships pile up on land after Hurricane Katrina
Ships pile up on land after Hurricane Katrina (Source: NOAA)

Of course, sea level rise itself is not the main direct impact, it is what happens because of it – more frequent and intense flooding. As sea level rises, it will take increasingly weak storms and their resulting storm surges to impact infrastructure on land. This is not just an issue for port infrastructure. Inundation from storm surge can impact the operations of port facilities by preventing laborers from getting to work, by increasing downtime and consequently delays, or by raising costs from relocation or repair of flooded facilities.

 The list of direct impacts for the maritime shipping industry are numerous: higher temperatures increase refrigeration costs, increased storminess could force longer and more expensive shipping routes, or intensified rainfall events delaying loading/unloading of cargo at ports.

 While these impacts are highly concerning, the degree of their impacts can be reasonably well understood, and actions can be taken directly by ports and shipping companies to mitigate their risks.

Perhaps more disconcerting are the indirect impacts that climate change presents to this industry. Widespread climate change will bring macro-level changes to the demand and supply of goods handled by shipping companies and passing through ports.

DroughMississipiRiver
The 2012-2013 drought in the Midwest stranded dozens of ships on the Mississipi and impacted supply of agricultural goods (Source: Bloomberg)

Take for instance the largest port in the country, the Port of South Louisiana, which lies along the southernmost stretch of the Mississippi River and processes 60% of the Midwest’s grain exports. As drought and extreme heat continue to ravage the region, corn, soybean, and wheat output from states like Missouri, Iowa, and Illinois, which traditionally export their product via the Mississippi River, will plummet. The indirect consequence is that shipping companies will have less demand for their services, and ports will not earn as much profit as the quantity in business diminishes.

The maritime shipping industry is directly in the cross hairs of climate change, and yet strikingly few port administrators are planning for its consequences. Depending on location, infrastructure, and products, there are myriad negative consequences that will be felt by shipping companies and ports. It is time for this sector to prepare for changes and ensure that they can rebound from disasters and be responsive to a changing climate.

By Colin Gannon

What are businesses doing to prepare for climate change?

Climate change has brought millions of dollars of damages to businesses over the past years, yet little is known about how businesses are preparing and planning for the physical impacts of climate change going forward.

Four Twenty Seven, in partnership with the University of Notre Dame Global Adaptation Index (ND-GAIN) and with support from Business for Social Responsibility (BSR), have launched the first annual State of Corporate Adaptation survey. The survey will provide a timely analysis of how businesses are addressing the need to adapt complex business operations to a changing climate.

Survey

  • How are global corporations preparing for climate change impacts?
  • What are the most pressing climate risks for your sector?
  • How are your competitors planning for extreme weather events?
  • What climate impacts should you be monitoring and why?

These are some of the questions at the heart of our research – this year’s answers and analysis will provide valuable insight for companies struggling to prioritize sustainability activities and will create a solid foundation to advance best practices in corporate adaptation.

While the public, nonprofit and philanthropic sectors have made great strides on issues associated with adaptation planning and implementation in recent years, the status of resilience building in the private sector is unclear at best. The CDP has successfully motivated some companies to prioritize transparency in sustainability reporting, however, as our climate continues to change, it becomes more and more imperative that we have a collective understanding of current corporate adaptation activities and the barriers that are inhibiting real progress.

Understanding how the private sector is preparing for the impacts of climate change is crucial to socio-economic resilience at large.
Climate adaptation will require public-private sector collaboration.

As our understanding of global climate risks continues to grow, companies are struggling to efficiently prepare for climate induced shocks and stressors that threaten global economic stability. In recent years, the CDP supply-chain analysis has shown that more than 70 percent of corporate respondents anticipate that climate impacts will disrupt their supply chains.

Our goal is to further our collective understanding of the challenges corporations face when addressing climate risk as well as to highlight best practices and potential strategies that advance resilience building across sectors and communities.

We know that the potential costs of corporate inaction are great. Missed opportunities to reduce recovery costs, increase resilience and leverage public sector adaptation efforts are not only unfortunate, but could greatly diminish the private sector’s ability respond to climate threats in a way that keeps our economy thriving.

The first annual State of Corporate Adaptation survey will create a critical baseline of knowledge for all stakeholders and will highlight the issues that are most critical to corporations striving to stay competitive in a changing climate.

The completely anonymous survey results will be summarized to reveal important insights and will be released in a public report along with practical guidance and ideas for next steps in corporate adaptation at the National Adaptation Forum on May 11th, 2015.

Help support our collective understanding of business climate resilience, take the survey now.

About the partnership:

ND-GAIN is a university research center dedicated to enhancing the world’s understanding of the importance of adaptation and facilitating private and public investments in vulnerable communities, Four Twenty Seven is a climate risk analytics and adaptation firm, and BSR is global nonprofit business network dedicated to sustainability. We work with companies and organizations around the globe to address climate risk and build resilience and conduct research to advance these efforts.

For more information on the survey or to provide additional feedback please contact Aleka Seville.

City Adaptation in the Spotlight

 

ND-GAIN's upcoming climate change adaptation index of US cities' highlights the vulnerability and critical role of cities in preparing for climate change. MOMA
ND-GAIN’s upcoming climate change adaptation index of US cities’ highlights the vulnerability and critical role of cities in preparing for climate change. MOMA

The University of Notre Dame Global Adaptation Index (ND-GAIN) is delving into new territory by partnering with the Kresge Foundation to create a new index measuring US cities’ climate change vulnerability and adaptation progress. Five indicators will be identified by resilience experts to determine the most important identifiers of a city’s ability to continue functioning during and bounce back after environmental catastrophe. Five urban areas will undergo pilot assessments, scoring, and ranking before the system expands across the US.

The ND-GAIN Index currently only ranks countries. The new index will rank US cities.
The ND-GAIN Index currently only ranks countries. The new index will rank US cities. ND-GAIN

ND-GAIN’s existing global adaptation index takes over 50 variables into account to rank over 175 countries according to climate change vulnerability and readiness. Indicators include access to water, infrastructure development, climate exposure, governance, and the economy.

The ND-GAIN Index has been instrumental in providing a comparable global measure of climate risk. The index is free and open-source and has been applied to such evaluation as analyzing climate change risk to businesses and supply chains. As risk becomes more apparent and companies encounter more and more supply chain stoppages due to extreme weather, companies may begin to move operations to countries that rank higher in climate change readiness. The CDP reported in 2013 that 77% of S&P 500 corporations reported risks from climate change. That number was up from 61% the year before and is likely to continue increasing. Risk managers of major global corporations are already taking climate change vulnerabilities into account when making critical business decisions.

US economic activity is concentrated in cities, with only about 20 urban areas making up 50% of the US economy.
US economic activity is concentrated in cities, with only about 20 urban areas making up 50% of the US economy. The Guardian

Cities are bound to be at the forefront of climate change adaptation for a number of reasons. Decades of urbanization currently has 54% of people living in cities globally, with this concentration even further exaggerated in the US at 80.7%. Cities also generated 85% of the US GDP in 2010. This concentration of population and wealth represents greater vulnerability to climate change as more lives and economic value are clustered in such a small area. The denser the center of activity, the more damage a single storm can cause. Hurricane Sandy alone is estimated to have caused as much as $30 billion in losses to businesses from damages and lost revenue.

Hurricane Sandy damaged and shut down businesses throughout NYC, causing an estimated $30 billion in losses.
Hurricane Sandy damaged and shut down businesses throughout NYC, causing an estimated $30 billion in losses. Reuters

Another reason cities have led the charge on adaptation action has been necessity. Until very recently, lack of initiative and a unified adaptation plan from the federal government has made US cities unusually vulnerable to climate change. However, the long-term impact of President Obama’s 2013 “Executive Order on Preparing the United States for the Impacts of Climate Change” and the recent launch by the White House of the “Climate Toolkit” paves the way for greater support from the Federal government to local communities across the country.

As businesses increasingly take climate change as a serious consideration in core business decisions, ND-GAIN’s new city-focused index may become a yardstick dictating future business strategy. Just as the index may expose a city’s vulnerability and risk as a site for new business development, it will also promote cities with effective adaptation strategies. The most vigilant cities will be repaid with private investment. When cities compete to be the safest and most prepared in the face of climate change, residents, businesses, everybody wins.

By Sasha Merigan

Five Ways to Improve your Climate Risk Reporting

CeresS&P500DisclosureRate
Climate Disclosure By S&P 500 Companies: 10-Ks Filed 2009-2013. Source: Ceres 2014.

More companies report climate risks, but few do it well

According to Ceres, just shy of 60 percent of S&P 500 companies report climate risks in their financial disclosures (10-K), but the quality of disclosures is going down over time. “Most S&P 500 climate disclosures in 10-Ks are very brief, provide little discussion of material issues, and do not quantify impacts or risks” writes Ceres in Cool Response: the SEC & Corporate Climate Change Reporting. Companies typically include no more than “one short paragraph or a couple of lines focused on climate-related risks or opportunities.”

Uncertainty or Complacency?

three wise monkeysWhy are companies so shy in disclosing climate risks? Part of the answer is that the uncertainty around climate change hazards – their magnitude, timeliness or location – make it difficult for companies to assess whether the risks qualify as “material”. More often than not, however, the timid reporting has more to do with the lack of a systematic risk analysis, backed by an established methodology and solid benchmarks. Politics and concerns over liability also play a role in a hushed reporting tone, whereby companies may think they are better off avoiding the topic altogether rather than providing partial and potentially inaccurate information.

Thinking Beyond Carbon Regulatory Risk

The potential for quality climate risk disclosure is often much higher in CDP reports, which effectively prods for detailed answers. In its Global 500 Climate Change 2013 report, CDP points to “a seismic shift in corporate awareness of the need to assess physical risk from climate change and to build resilience.”
Yet, the same report highlights a common shortfall among reporters: “Companies tend to focus on tangible risks in areas such as carbon taxes or energy prices, whereas the benefits from climate related opportunities are often less tangible, such as changing consumer behavior. (…) This suggests that businesses may be missing some significant risks and opportunities because valuation methods are unavailable.”

Most risks and opportunities reported to CDP are related to carbon regulations.
Most risks and opportunities reported to CDP are related to carbon regulations. Source: CDP 2013

Five Ways to Improve your Climate Risk Reporting

Accurately identifying risks and opportunities and developing a strategic adaptation plan are crucial to a company’s long term’s profitability. How can you better identify climate risks & opportunities, reduce your vulnerability, and improve your reporting score?
Focus on the Big Ticket Items: for an initial risk screening, you’re better off focusing on your assets and facilities with the highest embedded value. While imperfect, this will help you identify low-hanging fruits and gain support from your management for a more comprehensive analysis.
Be Timely: climate change is not all about floods, drought or hurricanes. When looking at assets with a long life span, you should consider gradual changes in temperature and precipitation, which could drive utility costs up, as well as sea-level rise and the increased likelihood of storm surge.
Think global: an effective analysis will identify and benchmark risks and opportunities across your entire value chain, not just your own operations. Examine your suppliers and your extended supply chain network, your distributors and your customers. The main source of risk could be in your market or in one of the raw materials you depend on.
Act local: your adaptation response needs to be crafted individually for each location. You may need to consider traditional risk management tools, such as insurance, along with non-traditional methods geared specifically to the local circumstances of your facility, supplier or distributor.
Be a Team Player: climate change is not a problem that can be solved alone. A robust adaptation strategy will require meaningful engagement with local stakeholders and partnerships with public agencies.

Get an early start on the 2015 reporting season!

Our new climate risk Forecasting and Adaptation Strategic Tool (FAST) is a rapid and effective way to screen your value chain and reduce vulnerability to climate change risk. Get a customized report, with maps and graphics ready for use in your CDP and DJSI reports. Present compelling visuals and cost estimates to your company’s leadership team and start pro-actively managing your climate risk exposure.

Special offer: pre-order your climate risk analysis with our Forecasting & Adaptation Strategic Tool by December 31st, 2014 and save 40%!

Lima’s Tragedy of the Climate Change Commons

Delegates talk during a break at a plenary session of the U.N. Climate Change Conference COP 20 in Lima December 12, 2014. REUTERS/Enrique Castro-Mendivil
Delegates talk during a break at a plenary session of the U.N. Climate Change Conference COP 20 in Lima December 12, 2014. REUTERS/Enrique Castro-Mendivil

The UN Climate Summit in Lima has been reluctantly considered a success in preparing the world for a global climate action plan to be signed next year in Paris. Despite the recent symbolic accord between the US and China to cut future emissions, developing nations such as China, Saudi Arabia, India, and Brazil took a hard-line stance on the issue of financial climate assistance. A unified front of developing nations successfully maintained language differentiating their role in causing climate change and limiting the burden they will bear in the final agreement.

Secretary-General ban Ki-moon addresses the UN Climate Change Conference in Lima, Peru. UN Photo/Mark Garten
UN Secretary-General Ban Ki-moon applaudes “…important advances” achieved at the Lima COP. UN Photo/Mark Garten

Although this language helped get everyone on board and paves the way for countries to begin making concrete pledges on emissions cuts to be submitted in May of 2015, this stipulation could excuses less ambitious pledges. Another ambiguous success is the removal of the vital review process providing transparency and allowing for direct comparisons between national plans after pressure from China. The talks also punted on whether or not an agreement would be legally binding, a question that will have to be answered in Paris. Nations have six months to submit their national emission reduction targets, to be signed next year at COP 2015.

Discussions at the UN climate talks in Lima, Peru hit familiar hurdles as developing nations demanded increased funding to combat climate change. Developing countries adhere to the argument that the developed world needs to pay more as it is most responsible for historic CO2 emissions that cause climate change. In contrast, the developed world says it is time for up-and-coming economies to begin doing their part in cutting emissions. The developing world was exempt from making emissions cuts in the Kyoto Protocol, but will be asked to share the burden in its successor agreement.

In addition to being less responsible for causing climate change, poorer nations are also generally at greater risk from the impacts of climate change due to their location and lack of resources and resilient infrastructure. Exemplifying this disparity in risk, Typhoon Hagupit barreled through the Philippines last week only one year after the devastation from Supertyphoon Haiyan. This rapid succession of debilitating onslaughts has given the developing nation little time to recover between storms. Due to the lack of resources and a slow bureaucracy, only 6 ports and 3 bridges have been repaired out of the 43 and 34 damaged by the storm, respectively. Although the storm caused less devastation than Haiyan, over half a million people were evacuated and business ground to a halt throughout the archipelago. Climate change is expected to increase the frequency of extreme storms.

Soldiers carry in emergency supplies as normal trade routes are shut down from Typhoon Hagupit. Erik De Castro / Reuters
Soldiers carry in emergency supplies as normal trade routes shut down from Typhoon Hagupit. Erik De Castro / Reuters

Even though Typhoon Hagupit weakened before reaching the Philippines’ coastline, it still had significant and far-reaching effects in the modern global economy. The Philippines is a manufacturing-based economy, exporting semiconductors and electronics, transport equipment, and textiles across the globe. Although tentative estimates of local damage exceed $71 million, real losses are even more significant from flights, cargo shipping, and trucking still affected even a week out from the storm. These disruptions cause a chain reaction impacting supply routes in the US, Japan, China, and Singapore among many others. This example of shared risk and interconnectedness shows the commonality climate change impacts. Reaching a global accord between all nations to limit the effects of climate change and mitigate drags on the global economy needs to be approached with that same commonality in consideration. A problem for one is a problem for all.

The high risk to developing nations contrasts heavily with their limited role in contributing to climate change. The basis for developing nations’ demands for financial assistance in reducing emissions and preparing for and recovering from impacts stems from the premise that developed nations are responsible for up to 80% of total historical greenhouse gas emissions.

The developed world is responsible for as much as 80% of historic GHG emissions, creating a conflict over who should pay for cuts now. Source: Petrolog.
The developed world is responsible for as much as 80% of historic GHG emissions, creating a conflict over who should pay for cuts now. Source: Petrolog.

One counter argument takes the stance that developing nations’ emissions are reduced through the use of modern technology during their current industrialization, which would not have been possible without technological advances resulting from the West’s industrial revolution. However, there is a general understanding that it is time for developing nations to participate in making cuts, the remaining question is simply “How much?”.

In a step towards compromise, wealthy countries have already contributed $10 billion to the Green Climate Fund, which is scheduled to reach $100 billion annually by 2020 to be distributed among developing nations to support concrete climate change mitigation initiatives. Developing nations question the likelihood of reaching this goal and whether it constitutes sufficient financial support to offset the contribution of historical western emissions to climate change.

While the outcome from the Lima negotiations is not ideal, the agreement sets the stage for countries to submit emissions reductions targets ahead of the final negotiations in Paris. The remaining tough questions will ultimately need to be answered, and will ultimately decide the success or failure of a global climate change accord.