Category: physical climate risk

Video: Introducing Acclimatise’s Special guidance report ‘Understanding Physical Climate Risks and Opportunities’

Video: Introducing Acclimatise’s Special guidance report ‘Understanding Physical Climate Risks and Opportunities’

Acclimatise’s special guidance report “Understanding Physical Climate Risks and Opportunities” is designed to help investors assess physical climate risk assessments to their portfolios.

Developed with the Institutional Investors Group on Climate Change (IIGCC), the guidance collates good practice for physical risk assessments across the stages of a typical risk assessment process. The guidance was published in June 2020. It was developed in close conjunction with IIGCC staff, leading investors, and Dr Rory Sullivan of Chronos Sustainability.

In this video, report author and Acclimatise consultant Robin Hamaker-Taylor talks through what the report covers.

Download the full guidance here.

Understanding Physical Climate Risks and Opportunities: New practical guidance for investors launched

Understanding Physical Climate Risks and Opportunities: New practical guidance for investors launched

By Robin Hamaker-Taylor

Acclimatise has led the development of a new guidance document on physical risk assessments for investors. Developed with the Institutional Investors Group on Climate Change (IIGCC), the guidance collates good practice for physical risk assessments across the stages of a typical risk assessment process. The Understanding Physical Climate Risks and Opportunities guidance was developed over the last year, in close conjunction with IIGCC staff, leading investors, and Dr Rory Sullivan of Chronos Sustainability.

Download the full guidance here

The guidance helps investors understand physical climate risks and how they are measured. It also provides investors with practical guidance on how they can begin to analyse, assess and manage the risks and opportunities presented by physical climate hazards.

Written specifically with investors in mind, the guidance can be used without prior climate expertise. Examples of how peers have conducted physical risk assessments and processes are included throughout, and investors are provided with 20 key questions to help them to plan their assessments or sense-check what they have already done.

Report author and Acclimatise consultant, Robin Hamaker-Taylor talks through what the report covers.

Why does physical climate risk matter to investors?

The Earth’s climate has already warmed by approximately 1.0°C above pre-industrial levels, according to the IPCC. Current trajectories show temperatures are expected to rise by 3.2°C by the end of the century, even if all current unconditional commitments under the Paris Agreement are implemented, according to the UN Environment Programme.

More frequent and more extreme weather and climate events, as well as gradual shifts in rainfall patterns, temperature, sea levels, sea ice and glacial retreat, are some of the changes already underway. Physical risks are here now and will continue to unfold, with financial implications throughout the investment chain.

Many asset owners and managers recognise climate change as one of the largest systemic risks to their investment portfolios. To date, however, relatively little attention has been paid to how institutional investors might assess and report on the physical risks and opportunities arising from climate change. This is despite a growing evidence base demonstrating the economic consequences of increasingly severe climate change.

“As a changing climate alters the fabric of economies, societies and environments across the world, it pays to be prepared,” said John Firth, CEO, Acclimatise. “The investors that can act now to both manage physical climate risks and grasp the opportunities to invest in resilience stand to be in the most secure position in the long-term. This guidance acts as a first step to achieving this.”

What does the report cover?

The newly published guidance will help investors to:

  • Better understand the investment implications – both risks and opportunities – resulting from the physical impacts of climate change.
  • Take practical steps to identify, assess and manage climate-related physical risks across their portfolios, through the approaches covered in the guidance.
  • Identify ways to invest in solutions that support greater resilience to climate change as well protecting investments from physical-climate related risks. Both approaches are key to strengthening broader societal adaptation to climate change.
  • Draw on additional available tools and data sources in identifying and assessing specific risks, and opportunities, across different asset classes.

The guidance document provides a comprehensive overview of physical climate risk assessment and management, including the following chapters:

  • Review of physical climate risks and how are they measured;
  • Chapters which follow the steps of a physical risk assessment:
    • Understanding the context
    • Setting the objectives and scope
    • Physical climate risk assessment variable selection (timescale, scenarios);
  • Analysis of physical climate risk-related opportunities; and
  • Monitoring, management and reportingof physical climate risks.

Download the guidance here

Acclimatise CTO Richenda Connell leads GARP webinar on physical climate risk

Acclimatise CTO Richenda Connell leads GARP webinar on physical climate risk

Acclimatise’s Chief Technical Officer, Richenda Connell, led a webinar for the Global Association of Risk Professionals (GARP), providing insights on the ways in which the physical risks of climate change generate financial risks and how technology can be deployed to help banks integrate climate risk into their decision-making.

The second part of GARP’s Climate Risk webcast series, the webinar aimed to provide its viewers with an understanding of:

  • The key transmission channels of physical to financial risk
  • Emerging frameworks for embedding the physical risks of climate change into existing risk management practices
  • How new technology can be utilized in assessing and combating physical risk

To register and access the recording for free, click here.

PRA and FCA establish a joint Climate Financial Risk Forum

PRA and FCA establish a joint Climate Financial Risk Forum

By Robin Hamaker-Taylor

The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) of the Bank of England have established the Climate Financial Risk Forum (CFRF) in early March 2019. The Forum is comprised of firms from across the financial system. The fill list of 17 current members is as follows:

  • Banks: BNP Paribas; HSBC; JP Morgan; RBS; Yorkshire Building Society
  • Insurers: Aviva; Legal & General; Lloyd’s of London; RSA Insurance Group; Zurich
  • Asset Managers: Blackrock; Hermes; Invesco; Schroders; Standard Life Aberdeen
  • Others: Greening Finance Initiative; London Stock Exchange Group

Four working groups have been set up, which will develop guidance in each of the following areas: risk management, scenario analysis, disclosure, and innovation. Working groups will allow wider membership, including academics and other members of industry, in order to allow them to draw on expertise as necessary.  

Bank of England Governor, Mark Carney, explained the reasoning behind the establishment of the CFRF during his 21st March speech at the European Commission High-Level Conference. The Prudential regulation Authority (PRA) and the Financial Conduct Authority (FCA) established the Forum as it recognised the need for capacity building within the finance industry and need to develop best practices.

Regulators understand that despite the progress of firms toward climate-related risk management, there is still work to do with regards to their strategic approach to minimise these risks, including scenario analysis. The Forum aims to allow progress in this area by “developing practical tools and approaches to address climate-related financial risks,” according to a statement to the press. The Forum will meet three times per year and will report back to executives of both the PRA and FCA. Each of the four working groups will be chaired by a member of the Forum and will meet more frequently than the CFRF, reporting back at each CFRF meeting.

Photo by Colton Jones on Unsplash

Climate change and the macroeconomy

Climate change and the macroeconomy

By Laura Canevari

Through a critical review of the literature, Sandra Batten of the Bank of England reflects on the key theoretical and modelling challenges facing central banks when trying to analyse macroeconomic risks derived from climate change. The paper explores how climate risks, both physical and transitional, are transmitted to the macroeconomy through either unpredictable economic shocks or as a result of more predictable longer-term impacts. The review offers valuable insights pertaining current challenges and limitations of modelling the macroeconomic impacts of climate change and the ways forward to improve existing modeling techniques.

In this article, we highlight key insights on the effects of physical climate risks on macroeconomic factors and the ways in which these impacts are assessed. This information will be of interest to any financial institution looking to incorporate climate change considerations into their existing macroeconomic models.

Supply and demand impacts of extreme events and gradual global warming

It is important to note that climate impacts can be caused by either gradual (chronic) or extreme (acute) climatic events. Gradual refers to incremental changes in climate (such as changes in temperature or rainfall), whilst extreme encompasses extreme weather events such as hurricanes and drought. From a macroeconomic standpoint, both gradual and extreme climatic events can generate effects in both demand and supply.

Supply and demand impacts caused by gradual global warming include:

  • Demand side
    1. Changes in consumer choices
    2. Changes in labour productivity and migration
  • Supply side
    1. Tradeoff between reductions in GHG emissions and lower short-term growth

Supply and demand shocks caused by extreme events include:

  • Demand side shocks (affecting aggregate demand), such as:
    1. Impacts to households reducing private consumption
    2. Reduced investments due to damage of physical and financial assets
    3. Trade disruptions
  • Supply side shocks (affecting the productive capacity of the economy)
    1. Shortage of inputs and natural resources
    2. Damage to capital stock and infrastructure

Whilst it is possible to describe these effects conceptually, in practice, it is very difficult to quantify these impacts in monetary terms.

The macroeconomics of gradual global warming

Gradual global warming is likely to affect the productive capacity of the economy through a number of channels, such as through impacts to natural capital (e.g. natural resources), physical capital (e.g. infrastructure) and human capital among others. Integrated Assessment Models (IAMs) are the main analytical tool used to assess the damage posed by global climate change to the economy. As highlighted by Batten, IAMs suffer from a number of severe limitations including their broad scope and simplified representation of individual climate and economic components. Despite these limitations, IAMs remain the best available tool to integrate the effects that different GHG emission trajectories exert on changes in temperature. In doing this, IAMs give an indication of the corresponding the effects of climate change (as driven by temperature) on economic variables such as productivity output and consumption.

Many of the IAMs models currently available focus on the relationship between temperatures and output per capita. However, depending the approach taken, models may reach different conclusions. Some, for example, suggest that a 1°C rise in temperature in a given year can reduce economic growth in that year by 1.1 % (see Dell et al., 2012). Others suggest that for each 1°C increase in daily average temperature above 15°C, productivity declines by roughly 1.7% (Deryugina and Hsiang, 2014). Additionally, studies have also looked at the effects of increased temperatures on the labour force. For example, Graff Zivin and Neidell (2014) stipulate that at daily maximum temperatures above 29°C, workers in industries with high exposure to climate reduce daily time allocated to labour by as much as 1 hour, whereas climate-insulated industries do not suffer labour-market impacts.

The macroeconomics of extreme weather events

Impacts from extreme weather events can be direct and indirect. Direct impacts (both market and non-market losses) include effects on mortality, morbidity and damage to fixed assets and infrastructure. Indirect impacts are losses not caused by the disaster itself, but as consequence to impacts on the economy. Indirect impacts can be felt in the long term and may include damages such as the depreciation of the value of physical assets as well as affecting the longevity of infrastructure.

Most of the literature has focused on the short-term effects of extreme weather events and natural disasters. Whilst information on long-term effects is scarce, there are three different hypotheses describing these effects on economic output:

  • The “creative destruction” hypothesis: Extreme events generate demand for goods and services (e.g. for reconstruction) and can thus lead to a period of faster growth –
  • The “recovery to trend” hypothesis: Extreme events slow down the economy in the aftermath of an extreme event and productivity eventually returns to its pre-disaster state
  • The “no recovery” hypothesis: Extreme events destroy productive capital and/or durable consumption and result in the slow-down of the economy.

Although there are studies in support of each of the three hypotheses, the “no recovery” hypothesis is supported by the largest number of empirical studies. Under this scenario, the continued reallocation of capital investment towards adaptation measures (and the use of capital in repair and reconstruction investments rather than in innovation and knowledge transfer) could further undermine economic growth, leading to lower output growth (see Pindyck, 2013). It is worth noting that unlike IAMs used to predict future impacts of gradual global warming, most studies on extreme events lack a forward-looking outlook.

Conclusions and future areas of research

Batten’s review offers valuable insights into the different channels for transmission of climate impacts into macroeconomic outcomes, either through gradual climate change or extreme weather events. The review also reflects on the difficulty of measuring such impacts, especially when trying to capture the effects of gradual changes in the climate.

In light of the increasing need to disclose climate change impacts, it is important to promote the use of techniques able to quantify its macroeconomic impacts and to further advance the development of more refined methods. For this purpose, three key suggestions to improve economic modelling of climate change are proposed:

  • Use recent empirical studies to inform modelling choices for the climate damage function
  • Inclusion of predictive outputs on the occurrence of extreme events in macroeconomic models (both in short and long-term run).
  • Studies that account for both the effects of gradual climate change and extreme events are currently missing

As noted by the author, there is strong potential to design a modelling framework that takes complex global linkages into account and projects near-future climate damage. There is also scope for the construction and calibration of disaggregated multi-sector economic models that include more detailed descriptions of climate changed induced damage. By monitoring and tracking current climate impacts in their activities, financial institutions will be able to improve the calibration of these models and tailor them to their internal use.

Finally, it is important to take climate policy into account when conducting economic modelling of climate risks, as climate policy should not be seen in isolation and it feeds back into the climate system. Rather, it should be considered an integral part of the broader policy agenda to promote economic growth.

To access the full document click here.

Other sources cited in this article:

  • Deryugina T. and S. M. Hsiang (2014) ‘Does the environment still matter? Daily temperature and income in the United States,’ NBER Working Paper 20750.
  • Graff Zivin, J. and M. J. Neidell (2014) ‘Temperature and the Allocation of Time: Implications for Climate Change,’ Journal of Labor Economics, 32(1):1–26.
  • Pindyck R. S. (2013) ‘Climate Change Policy: What Do the Models Tell Us?’ Journal of Economic Literature, 51(3):860–872.
Cover photo by Vlad Busuioc on Unsplash
Advances driving climate risk disclosures since 2017

Advances driving climate risk disclosures since 2017

By Laura Canevari

Following the release of the TCFD recommendations in July 2017, numerous events, initiatives, and publications have helped to progress climate-related financial risk disclosures in the banking sector. This article offers a summary of some of the key advances since 2017.

A summary of key developments since the publication of the final TCFD recommendations. Own image.

One of the first was established by the UN Environment Finance Initiative (UNEP-FI) which brought together 16 of the world’s leading commercial banks, established in autumn 2017. The group, supported by Acclimatise, developed and piloted publicly available methodologies which aided their responses to the TCFD recommendations. In late 2017, at the One Planet Summit in Paris, eight central banks and supervisors established a Network of Central Banks and Supervisors for Greening the Financial System (NGFS). This voluntary platform, which grew to 24 participating entities by the end of 2018, has amongst its aims to define and promote best practices that enhance the role of the financial system to manage and disclose climate risks.

January 2018 saw the release of the Final Report of the European Commission’s High-Level Expert Group (HLEG) on sustainable finance. The report set out a series of recommendations and aims to reform the European financial system to better support the EU’s targets under the Paris Agreement and goals of the 2030 Agenda for Sustainable Development. The HLEG called for effective disclosure of climate risks in line with the TCFD recommendations and requested the Commission to explore how the Non-Financial Reporting Directive (NFRD; Directive 2014/95/EU)requirements could be better aligned with that of the TCFD in its forthcoming review. Not long after, in March 2018, the European Commission’s action plan on financing sustainable growth was published, setting a clear roadmap for strengthening sustainability disclosure and accounting rule making. The Commission then began to develop a series of legislative proposals and amendments to existing EU Directives and developed a Technical Expert Group (TEG) to facilitate this.

Several other initiatives and reports helped to advance the foundations for future climate-related financial risk disclosures. In May 2018, the European Bank for Reconstruction and Development (EBRD) and Global Center on Excellence in Climate Adaptation (now Global Center on Adaptation) report “Advancing TCFD Guidance on Physical Climate Risks and Opportunities”, co-authored by Acclimatise, put forth 18 recommendations for corporates looking to disclose their risks and opportunities with regard to physical climate impacts. The report therefore provides important guidance for the development of metrics for standardising climate risk disclosures. In July 2018, UNEP-FI published the physical climate risk assessment methodologies its pilot group of banks had developed together with Acclimatise, as mentioned above. This is the first set of guidance and methodologies for assessing physical climate change risk and opportunities for the banking sector.

Throughout 2018, support for the TCFD recommendations continued to grow with many banks acknowledging the need to align with the TCFD recommendations in their annual report. This includes bankssuch as ANZ, BBVA, Barclays, UBSStandard Charter, Commonwealth of Australia and the Bank of Montreal. The first climate-related financial disclosures were released as well, building on the outputs from the UNEP-FI TCFD pilot initiative (see climate disclosures from CitiBank, for example). According to the TCFD Status report released in September 2018, supporting banks had disclosed information aligned with the TCFD recommended disclosures in their financial filings more than any other finance group examined and their most common disclosure related to information on climate-related risk identification and assessment.

Apart from the collective action of the NGFS, individual central banks have also started taking steps forward to encourage the assessment and disclosure of climate-related risks in the banking sector. In late September 2018, the Bank of England’s (BoE) Prudential Regulation Authority (PRA) released its first report on the potential impacts of climate. Through information collected from 90% of the banking sector surveyed, the report finds that most banks are starting to treat climate change risks as financial risks, as opposed to considering is as solely an ethical issue. The BoE study also finds that these risks are starting to be considered at the board level. Shortly after the release of their report, the PRA published a consultation paper in mid-October setting out expectations regarding banks’ and insurers’ approaches to managing the financial risks from climate change. The PRA accepted consultation responses until 15 January 2019. BoE’s Financial Conduct Authority (FCA) simultaneously published a discussion paper on the impact of climate change on other financial services , and is accepting responses until  31 January 2019. In this discussion paper, the FCA has requested feedback on a series of issues such as on the challenges faced by security issues when determining materiality from climate change, how comparability of disclosures would help investors, and what information should be disclosed in climate risk reports.

October 2018 also saw action amongst European and international actors. The UN Intergovernmental Panel on Climate Change (IPCC) published a special report on the impacts of 1.5 °C warming which have implications for the banking sector, including credit and market risks. Additionally the first NGFS progress report was released, summarising the preliminary findings of its stock take exercise of relevant national, regional and international initiatives. In addition to other reflections, the report notes that financial supervisors are starting to actively assess the prudential risks of climate change and beginning to set supervisory expectations to enhance financial risk management of supervised firms. A more comprehensive report from the NGFS is due to be published in April 2019. Furthermore, the European Financial Reporting Advisory Group (EFRAG) advanced the Commission’s action plan this month by appointing members to the European Lab Steering Group.This Group is expected stimulate innovations in corporate disclosure of climate risks in Europe.

To conclude 2018, a side event was held in December during COP 24, which looked at adaptation finance and the TCFD Recommendations. Hosted by Acclimatise, EBRD and the Global Reporting Initiative (GRI), this event discussed how multilateral development banks can help foster the TCFD recommendations among commercial banks, and how they can help advance metrics and methodologies for reporting climate finance in their portfolios.

This long list of events, initiatives, and publications shows that climate-related financial disclosures are increasing in importance within the banking sector, but what does 2019 hold? The Commission’s TEG has been quick off the mark, releasing their Report on Climate-related Disclosures on 10 January 2019. This is the first final report from the Group and proposes a set of guidelines in alignment to the TCFD recommendations. The guidelines will assist listed companies, banks and insurance undertakings in developing high quality climate-related disclosures that comply with the NFRD. Worth highlighting is the specific guidance for banks provided in the report, in particular for lending and investment activities. Together with the wider changes in EU legislation around the sustainable finance system currently unfolding, 2019 is expected to be a year of significant activity for climate action.

Acclimatise – experts in physical risk for responding to TCFD recommendations

Acclimatise has worked on physical climate risk and adaptation with corporates and financial institutions for over a decade, helping them identify and respond to physical risks and to take advantage of emerging opportunities generated by a changing climate. We have witnessed the corporate, societal and environmental benefits stemming from the promotion of resilience-building strategies.

To discuss how your organisation can meet TCFD requirements, and assess and disclose physical climate risks and opportunities, please contact Laura Canevari: L.Canevari(a)

Cover photo by Florian Steciuk on Unsplash.
IIGCC puts forth guide for investors on climate scenario analysis

IIGCC puts forth guide for investors on climate scenario analysis

By Georgina Wade

The Institutional Investors Group on Climate Change (IIGCC) latest report, Navigating climate scenario analysis: A guide for institutional investors, offers a practical guide to applying the principles of scenario analysis in understanding climate risks and opportunities in portfolios.

Recognising climate change as a potential systemic risk to the financial system, the IIGCC says that investors must access and evaluate the material risk implications for their assets. Made up of seven sections, the report pulls from recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), with the aim of establishing a consistent global standard for climate-related financial risk disclosures, covering both corporates and the financial sector.

In a five-step framework aimed at helping asset owners and managers use scenario analysis, the guide highlights how different climate scenarios could affect future returns and identify new investment opportunities. Amongst others, the document also features the methodologies developed by Acclimatise with UNEP FI and 16 commercial banks to assess physical climate risks to bank’s loan portfolios.

As Stephanie Pfeifer, CEO of IIGCC, explains: “Perhaps the most important conclusion of the guide we’ve published is that the journey is often the destination. Many benefits of scenario analysis for investors come through undertaking the process, experimenting with methodologies and learning about the ways in which climate change drives financial impacts. For some investors the exercise can affect strategic asset allocation, for others it is about evolving their understanding of risk and opportunity for parts of their portfolio”.

Case studies throughout the guide demonstrate that several investors are emerging as ‘early adopters’ of scenario analysis, despite the TCFD reporting that no asset managers surveyed have described how their strategies might change under different climate-related scenarios.

With climate change on our doorstep and the physical impacts becoming increasingly clear, there is an added urgency to ensure that investors are including climate change in their risk management processes. Christina Olivecrona, Sustainability Analyst at AP2, said: “The publication of the IPCC’s 1.5°C report […] was a powerful reminder that the physical impacts of climate change are not a distant and theoretical risk, but a present one. Investor methodologies in this area lag the corporate sector and we believe this area will need more attention from investors going forward.”

To access the full report, click here.

Cover photo by Evgeni Tcherkasski on Unsplash.

New study: Companies around the world are vastly underestimating climate change risks to their business

New study: Companies around the world are vastly underestimating climate change risks to their business

By Anna Haworth

A new study, published this week in the journal Nature Climate Change, analysed disclosures from more than 1,600 global companies and found that many companies are failing to accurately characterise their climate change risk or adequately prepare for its physical impacts.

The study, authored by Conservation International and CDP, was based on responses to CDP’s annual climate change questionnaire, which asks companies to report on climate risk management strategies.  The study represents the first comprehensive analysis of climate risk reporting across multiple industries and sectors of the global economy.

Companies are recognising and reporting physical climate risks – from droughts, floods, cyclones, and changes in precipitation patterns and in average and extreme temperatures. Two-thirds of risks identified were viewed by companies as ‘more likely than not’ or ‘virtually certain’ to occur, and more than half of companies said that they expect climate change to increase their costs or disrupt production capacity.

Company strategies for managing the impacts of climate change were sorted by the researchers into three categories: ‘soft’ strategies, such as conducting risk assessments and updating emergency response plans; ‘hard’ approaches that involve capital investments in technology or infrastructure, such as flood control and air conditioning; and ecosystem-based adaptation, such as grasslands restoration, sustainable agriculture and forestry, or conservation of coastal ecosystems.

Types of adaptation strategies being reported by companies, divided into soft, hard and Ecosystem-based Adaptation (EbA). The size of the circles represents their relative use overall.

The most common approach to climate change, employed by 39% of companies, involves a mixture of soft and hard strategies. One third of companies use soft strategies only. Notably, 18% of companies did not disclose any adaptation strategy for the physical climate risk identified.

The researchers state that “companies’ disclosures on climate risk reveal a preference for incremental or reactive adaptation strategies.” Companies are retaining the language of risk management and “too often translate the complex challenge of climate change into solutions that align with business-as-usual practices.”

The study finds that while many companies are trying to incorporate climate change into their risk management practices, five key ‘blind spots’ are preventing businesses from adequately preparing for its impacts:

  1. The magnitude and costs of physical climate change risks. Of the companies surveyed, which represent 69% of global market capitalisation, they are collectively underreporting climate risks to investors by at least 100 times. This reflects the fact that a large number of companies do not report financial impacts and those that do, are probably underestimating them.
  2. Climate change risks and adaptation strategies ‘beyond the fenceline’. Despite evidence that climate change will have wide-ranging impacts for businesses, most companies have focused their adaptation strategies on a small set of impacts to direct operations, not taking into account supply chain, customer, employee, and wider societal impacts.
  3. The potential for Ecosystem-based Adaptation (EbA). The huge win-win potential of ecosystem conservation, restoration and sustainable management, to both reduce the physical impacts of climate change and deliver other co-benefits, is largely being ignored.
  4. The costs of adaptation. Only a limited number of companies are reporting the up-front cost of climate change adaptation measures. These are largely framed in terms of ‘management costs’, which do not necessarily represent additional expenditures on adaptation. Few companies are calculating the return on investment, the relative cost effectiveness of different strategies, or the cost of doing nothing. The near-absence of these cost comparisons limits investors’ ability to understand or assess the strategy against available alternatives.
  5. Nonlinear climate risks and the need for radical change. Most corporate adaptation strategies assume that climate change risk is basically linear. But science increasingly suggests the existence of ‘tipping points’ – such as sudden permafrost thaw, ice sheet loss, or Amazon forest die-back – that could lead to more abrupt changes and severe risks to businesses and society as a whole. The authors conclude that “radical adaptation for radical change, it seems, is not yet part of the business agenda.”

The study closes on a more positive note, stating that these barriers to improved disclosure and ultimately better climate change adaptation strategies are not insurmountable. The authors highlight that corporate governance structures matter for climate change reporting. Furthermore, mandatory reporting requirements and standardised performance indicators would facilitate more transparent and robust reporting. The 2017 Task Force on Climate-related Financial Disclosures (TCFD) recommendations has provided impetus for companies to report the financial implications of climate risks and many companies are now reporting in-line with these recommendations. In 2018, CDP has also aligned its reporting with the TCFD recommendations, meaning that companies can more clearly communicate their risks and management approaches to their investors and customers. Finally, in cases where adaptation action offers benefits for multiple actors and become ‘public goods’, new partnership models may be required to enable costs to be shared, both with other companies and with governments.

Goldstein, A., Turner, W., Gladstone, J. and Hole, D. (2018). The private sector’s climate change risk and adaptation blind spots. Nature Climate Change. (paywall)

Cover photo by Lieut. Commander Mark Moran, NOAA Corps, NMAO/AOC (CC BY 2.0): Views of inundated areas in New Orleans following breaking of the levees surrounding the city as the result of Hurricane Katrina. September 11, 2005.
Australian companies not disclosing climate risks properly at risk of legal challenges

Australian companies not disclosing climate risks properly at risk of legal challenges

By Elisa Jiménez Alonso

Recent research has concluded that while Australian companies are increasingly aware of the need to disclose their climate risks, the majority are failing to demonstrate strategies to actually do so – this could lead to legal challenges.

To complete this research, Market Forces analysed the public disclosures of the 74 ASX100 companies (as of July 2018) that operate in sectors highlighted by the Taskforce on Climate-related Financial Disclosures (TCFD) as facing the highest levels of climate risk.

According to Market Forces companies are now disclosing more detailed discussions of the risks and opportunities they face from climate change. But only 12% of them have disclosed detailed analyses of how their business will cope under different climate scenarios. Even fewer have actual plans to reduce their emissions.

Of the 74 analysed companies only 3, South32, AGL, and Stockland, were found to disclose in line with all the TCFD recommendations. Commonwealth Bank, BHP, Westpac and ANZ each come close to fully satisfying the recommendations while Macquarie and Mirvac are among the companies that have committed to addressing all recommendations in their 2019 reporting.

These findings are especially important since Australian regulators are increasing their scrutiny regarding climate risk disclosure. A recent report by the Australian Security & Investments Commission (ASIC) found many companies were actually breaking the law by failing to adequately consider and disclose climate risk.

According to Market Forces, This is perhaps unsurprising, given legal warnings that companies and their directors must consider climate change risks and disclose all material business risks.

However, regulators need to clarify what specific climate-related disclosures are required of companies operating in even the most exposed sectors and also mandate a TCFD-compliant climate risk reporting for all companies operating in ‘high risk’ sectors, as well as financial institutions.

Read about Acclimatise’s work on assessing physical climate risks and opportunities with UNEP FI and 16 commercial banks by clicking here.

Cover photo by Holger Link on Unsplash
Majority of companies in Scotland say climate change a risk to business

Majority of companies in Scotland say climate change a risk to business

by Georgina Wade

A study, commissioned by the World Wide Fund for Nature (WWF) Scotland, found that nine in 10 large companies in Scotland believe climate change poses a risk to their business.

The October poll indicates that 85% of large businesses and SME’s in Scotland say they want the Scottish Government to be a global leader in tackling climate change. The finding comes just after the release of an IPCC report warning that we have 12 years to limit climate change.

Additionally, the Bank of England only recently declared that banks and insurance companies will be required to appoint a senior manager to take responsibility for protection from climate change risk.

Responding to the poll’s findings, Dr Sam Gardner, acting director at WWF Scotland, said:

“These findings make it clear climate change is no longer a concern of a few ‘green’ businesses. Climate change poses many chronic and severe risks to our planet’s natural and financial systems. The best way for Scotland to minimise the threat posed by climate change and maximise the opportunities arising from our response is for Scotland to continue to take a world-leading role, as businesses across Scotland clearly seem to understand.”

Matt Lancashire, Scottish Council for Development and Industry director of policy, believes that Scotland’s transition to a low-carbon economy is a great opportunity for the Scotland’s economic growth.

“Our renewable energy sector has generated sustainable economic growth and created thousands of high-quality jobs, directly and in an extensive supply chain, while also reducing emission and making the air we all breath cleaner.”

The survey of 300 Scottish businesses was conducted by Censuswide on behalf of WWF Scotland and included 150 businesses with over 250 employees and 150 SME businesses.

Cover photo by Adam Wilson on Unsplash