The Morgan Stanley Institute for Sustainable Investing published a new report on climate-related risks. According to the report, “companies and investors often overlook the costly knock-on effects of climate change”. Morgan Stanley is not alone in this conclusion; earlier this year the CEO of the world’s largest asset manager, BlackRock, also warns against high sustainability-related risks in his annual letter to chief executives. To practice what he preaches, Larry Fink said BlackRock would avoid investments in companies that present a high sustainability-related risk.
Although the climate-related risks companies are facing should be relevant enough to start tackling the topic, these sounds from investment banks and investment managers make understanding the climate-risks for your organization even more urgent if you want to stay an attractive investment in the long-run.
The COVID-19 outbreak shows us what can happen when a risk-assessed as “unlikely and high impact” does happen. Would the situation we are all in now be any different if we took any preventive actions? Are we planning to face climate-related risks in the same way or do we opt for a more prepared approach? We touch upon these questions in our blog on climate change.
Luckily, some institutions have been ahead of the curve and can guide our approach to understand and integrate climate-related risks. The Intergovernmental Panel on Climate Change (IPCC), already created in 1988, has the objective to provide regular assessments of the scientific basis of climate change, its impact and future risks. The climate-related hazards researched by the IPCC can create acute risks for organizations (e.g., due to flooding rivers or increasing wildfires as we saw during the 2019-20 fires in Australia) or pose a more chronic risk (e.g., due to rising sea level or changes in temperature leading to droughts). Moreover, the Task Force on Climate-related Financial Disclosures (TCFD), initiated by the Financial Stability Board in 2015, provides recommendations for voluntary, consistent climate-related financial risk disclosures for companies, banks and investors in providing information to stakeholders.
Sustainability experts at Sustainalize and Risk Management experts at NARIS combined forces and developed a vision and approach to help organizations to get a clear insight into the climate-change-related risks and their impact on the organization. A full database of potential risks for all climate change scenarios identified by IPCC is available for organizations as a blueprint. The approach supports organizations to select the relevant risks and to assess the risks in accordance with existing risk management methods together with all relevant departments in the organization. In addition to the first climate change risk assessments, the approach support embedding climate change in a sustainable way in strategy and governance.