Moving forward, companies should focus on four action points in managing climate-related risks:
1. Prioritize the impact of climate risk to business resilience
The ERM agenda of Boards needs to prioritize the impact of climate risk to business resilience and long-term sustainability. In their oversight role, Boards are integral in driving strategic discussions with management on climate risks. The assessment of climate risks and opportunities can strengthen current and future business strategies and build business resilience.
2. Step up ERM to include the likelihood and impact of climate risk
The ERM of companies can evolve to a more structured process including:
- Ensuring climate-related risk is evaluated according to ERM considerations, specifically on its likelihood and impact
- Conducting periodic assessments of emerging climate-related risks and opportunities in the near, medium and longer-term future
3. Integrate scenario analysis into ERM processes
Integrate scenario analysis into strategic planning and ERM processes and assign oversight to relevant committees or sub-committees. ERM assessments can consider the transition to a lower carbon economy consistent with a 2°C or lower scenario and, where relevant, scenarios consistent with increased physical climate-related risks in the following areas:
- Products and services
- Supply chain or value chain
- Adaptation and mitigation activities
- Investment in research and development
4. Set clear climate-related metrics and targets
With the urgency to mitigate climate risks, companies can set clear climate-related metrics and targets to improve the quality of disclosures. Stronger stakeholder engagement across the value chain and more collaborative enterprise-wide efforts can spur the innovation of solutions in mitigating and addressing emerging issues on climate risks.