Less than 40% of FTSE 350 companies assess risk of climate change

by GreenWire.org.uk. Published Fri 24 Apr 2009 14:54
Big business fails to assess risk of climate change

Only a small minority of the UK's leading companies have conducted analysis into the impact of climate change risks to their investors, according to a new report by Acclimatise and IBM.

The report, “Building Business Resilience to Inevitable Climate Change”, is based on responses to the Carbon Disclosure Project's annual request for investor information, analysed using the Acclimatisation Index.

The report highlights the need for FTSE 350 companies to adapt their businesses to make them resilient against the risks arising from inevitable climate change and the direct and secondary impacts on their business.

There is scientific consensus that the world's climate is changing due to human activity, and we face many years of unavoidable change due to the emissions we have already put into the atmosphere.

The report findings highlight the reality we face - businesses and the financial markets are advised to both reduce emissions and adapt to climate change or they will only be addressing half the picture of climate change risks.

The data shows that few companies conduct any risk financial analysis, but 87% of respondents admit they are exposed to the effects of climate change.

The report reveals that companies need to start adapting their business models and build resilient business processes and facilities to help protect their supply chains, operations and markets and to help understand the risks to their workforce, customers and the communities in which they are located.

The findings indicate that building business resilience to climate change remains a relatively new task for the FTSE 350. Environmental events over the last few years show our global climate is changing.

We have already seen the possible effects, including flooding in the UK in 2007, increasing hurricane activity, drought in Australia and the European heat wave of 2003.

The report was developed to help companies prepare for the risks and opportunities these impacts will have across business models from the board room, strategic and project planning, finance, investor relations, operations, marketing, to social and environmental teams.

This highlights the fact that all aspects of a business can be impacted including raw materials and commodities, supply chains, essential utilities, business continuity and emergency plans, workforce health and safety, contractual agreements and market share.

“Climate change risk management and adaptation planning are crucial to business success, said Jon Bentley, Energy & Environmental Partner, IBM Global Business Services. “Our environment is changing and business leaders need to make smarter decisions to ensure plans are integrated throughout their business models to build truly resilient companies.

It is not just the direct impacts of gradual climate change or extreme weather events that should be of concern. As people, companies and governments react to these changes, there is a risk of significant disruption to many of the markets in which businesses operate.”

The data highlights some key issues that companies need to recognise as they begin preparing a resilient business:
Core business issue: understanding that adaptation is a core business issue rather than purely an environmental concern - only 15% of respondents explicitly state adaptation is integrated into their corporate governance
Globally integrated companies: realising that climate change risks have the potential to be spread across the globe at unprecedented speed, potentially impacting the stability and financial aspects of a business
Opportunities not just risk: recognising that adapting to climate change is not just about monitoring risk, it is about making the most of the opportunities of a changing environment. Markets are opening up in new locations and products and services are being developed – only 32% of respondents identified business opportunities from the impacts of climate change that have the potential to increase profit, market share or goodwill

Long lead times: it will take time to make many of the changes to business operations or products and services that adaptation requires, highlighting the need for action now

“As each year goes by and we delay action the costs of making changes to business will increase, threatening the sustainability of some companies”, said John Firth, Chief Executive Officer and Co-Founder, Acclimatise.

“For those companies that recognise the signals and build business resilience, there are significant opportunities to be explored. Businesses need to operationalise climate change risks.”

The report discovered good news across certain industries that are openly responding to the adaptation challenge. Responding companies in the water industry achieved the highest overall score on the Acclimatisation Index. Electric Utilities also performed relatively well. These sectors scored highly as they quantified the business risks and opportunities of climate change as part of core strategic and operational functions.

Acclimatise and IBM have jointly developed the ‘Prepare-Adapt’ set of 10 Director’s questions to help companies start building business resilience to climate change, focused on risks, opportunities and responses.

The first step is to work with colleagues, suppliers, customers, governments and regulators to understand the operational impacts, the sensitivity of demand for products and services, and future regulatory impacts. The next stage is to assess the opportunities for new products and services, how will your markets change?

Finally develop a risk assessment culture operating at strategic, operational and project levels, fully integrated with management responsibilities and governance processes.

“This report shows that some UK companies have a long way to go in understanding the importance of adapting to climate change”, said Paul Dickinson, CEO, Carbon Disclosure Project.

“It is obviously hugely important that we cut emissions in line with scientific recommendations, but we must also take into account the fact that climate change is already happening - that we will have to adapt to the potential impact of increased flooding and extreme weather conditions and UK companies may be affected, both in terms of impact to operations, but also in terms of providing adaptation solutions.”

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