Climate Change: Managing Risks
Climate change, measures taken to address climate change, and the transition to a clean energy economy can all present material risks for businesses, investors and the global economy. These risks can take a variety of forms including physical risks, regulatory risks, litigation risks and competitive and reputational risks. Physical risks include the ways that businesses – their facilities, suppliers, customers, raw materials, etc – are susceptible to the physical impacts of climate change including sea level rise, changing weather patterns and increased intensity and frequency of severe weather events such as droughts, floods and storms. Regulatory risks include the ways that businesses and investors could be affected by regulations seeking to limit greenhouse gas emissions and hasten the transition to a clean energy economy. These risks are particularly acute for companies with significant emissions or energy-intensive operations and products – and for the wide range of companies and organizations that finance them, insure them, supply them, buy from them and so forth. Litigation risks involve the susceptibility of companies, particularly those in carbon-intensive industries, to lawsuits concerning corporate contributions to global climate change. Should the courts find against companies in some of the cases that have been filed the potential liability or effects on business practices could be immense. Even if some of the suits are unsuccessful, the costs of litigation and the reputational damage incurred by companies involved could be harmful. Competitive and reputational risks involve companies’ preparedness for the transition to a clean energy economy and for shifting consumer, shareholder and regulatory demands. Those who fail to manage the risks and seize the opportunities – those who fail to shift to climate-friendly product lines, cleaner energy sources, more energy efficient operations and products, etc. – might see their reputations and competitiveness suffer and find themselves lagging behind their peers.
Where there is risk, however, there is also opportunity. Companies are increasingly recognizing that addressing climate change can offer significant business opportunities.
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