By Anna Haworth
Acclimatise’s Anna Haworth recently contributed to an article for Risk Magazine focused on the increasing pressure energy firms are facing to assess physical climate risks. In the article, Anna shares a number of insights, developed through our long-standing experience of helping corporate clients, particularly in the oil, gas and extractives sector, position themselves to effectively manage physical climate risks.
In the article, Anna highlights that climate change doesn’t necessarily create new risks, but instead acts to change existing risk profiles – by altering their frequency, severity and spatial distribution. She reflects that the energy sector, and others with large, fixed assets and complex supply chains (e.g. mining and metals), are very experienced and well-equipped to identify and manage risks. Future climate-related risks have been on companies’ radars for a long-time, particularly from an operational, business continuity and supply chain management perspective. “What they are struggling with a bit more is bringing in the longer-term dimension and understanding how those risks might change over time, driven by changes in the climate and evolving stakeholder expectations” reflects Anna.
Anna describes the step-changes in the last few years in the positions of many key stakeholder groups around the imperative to understand and manage physical climate risks, with associated calls for disclosure. Arguably the most significant recent development is the publication of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations, in 2017. The TCFD set out a framework for the voluntary disclosure of climate-related risk and opportunities (governance, strategy, risk management, metrics and targets). The TCFD identifies physical risk as one of two categories of climate-related risk, alongside transition risk to a lower-carbon economy.
Anna reflects that corporates are encouragingly viewing the TCFD’s recommendations as being more than just disclosure: meeting the recommendations is also changing corporate behaviour and driving action. “The TCFD’s recommendations have really created an impetus for companies to progress their climate risk and opportunity assessment and management,” says Anna. “Oil and gas companies are increasingly aligning their climate change activities with these recommendations,” such as improving governance, strategic planning, risk management and reporting on targets, including progress in meeting these. We are also witnesses a flow-through of this information into companies Integrated Annual Reports or the development of stand-alone TCFD-style climate reports.
Anna, and others in the Acclimatise team, are at the forefront of developing methodologies and metrics that help corporates to identify, quantify, and disclose physical climate risks and opportunities. Anna has been instrumental in the development of our bespoke TCFD benchmarking and audit toolkit, which we have successfully deployed for several of our FTSE100 and major corporate clients. If you would like to discuss your needs, Anna Haworth would be delighted to hear from you.
The full Risk Magazine article published on 10 October 2019 is available here