Date: 25 March 2021
- Julie Baddeley, Chair, Chapter Zero
- Nigel Brook, Partner, Head of Climate Risk Practice, Clyde & Co
- Rowan Douglas, Head of Climate Resilience Hub, Willis Towers Watson
- Mat Gorman, Carbon Strategy Director, Heathrow
Jo Paisley, Co-President, GARP Risk Institute
This session of the CGI’s Global Summit was designed to equip boards with the tools to factor the implications of physical risks into their plans for climate risk adaptation and resilience, their net-zero strategies, and their investment programmes. To do so, a fictional company (‘OurCo’) was invented, with ‘board members’ asked strategic questions on four scenarios related to physical climate risk.
The first scenario put forward involved a new manufacturing plant facing a flood risk. The panel warned that boards aren’t always aware of the extent of physical climate risks and need to think more like insurers to understand the extent of those risks. Humidity and its associated health risks were next, with OurCo on the verge of suffering public humiliation over its failure to protect against contamination. The panel warned that with risk management being unpredictable in such circumstances, companies must have excellent crisis communications.
The experts went on to analyse a hypothetical supply chain issue resulting from deforestation, exploring how a company might engage with local communities while acknowledging that climate change is only part of the issue in such situations (biodiversity being another key concern). Finally, the closing scenario looked at the failure of OurCo to address physical climate risks in the long-term viability statement of the annual report. The panellists discussed the need for data and for boards to give climate risk the attention it needs, not least because of banks and investors increasingly focusing their attention on the subject.
These scenarios led the experts to conclude that while opportunities are there to be made with each choice a board might make, they have to be more sophisticated in the way they think about physical risk – asking themselves about risks that may not seem critical now but may become so in the future.
“Things are moving fast… the pressure on companies to address climate change is growing,” Nigel Brook, head of climate risk practice at Clyde & Co, explained. And to ensure fingers are on the pulse, companies need access to the relevant data, as outlined by Heathrow’s carbon strategy director Mat Gorman: “Getting the best data (is crucial to making) bottom up risk assessments”. Engaging as many of the right experts as possible within an organisation is key to understanding those possible scenarios.