Climate change removes the option of business as usual, and presents the challenge of change to all types of organizations. Action on climate change, resulting from international agreements, is creating not only the necessity of change but also dramatic opportunities.

The implications of the Paris Climate Agreement on the way we do business are profound, daunting and exciting. Once implementation of the Paris Agreement sets in, it will bring deep changes to the framework within which businesses operate, and the choices open to both companies and their customers.

In a recent publication on climate change and poverty, the World Bank states: "The goal of maintaining climate change below a 2°C increase in global temperature above preindustrial levels—the very goal the international community has committed to—will require deep structural changes in the world economy" ¹

There is much debate within the finance and insurance sectors on the issue of proper assessment of carbon-intensive assets and the risks of climate change.

The Task force on Climate Related Financial Disclosures (TCFD), chaired by Michael Bloomberg, reported to the UK Financial Stability Board in December 2016² noting:

“One of the most significant, and perhaps most misunderstood, risks that organizations face today relates to climate change. The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making. . . Because this transition to a lower-carbon economy requires significant and, in some cases, disruptive changes across economic sectors and industries in the near term, financial policymakers are interested in the implications for the global financial system, especially in terms of avoiding severe financial shocks and sudden losses in asset values."

The TCFD recommendations propose climate-related financial disclosures to enable due diligence on the part of investors, lenders, insurance underwriters, credit-rating agencies, stock exchanges, consultants and analysts. Increasingly, investors and insurers will consider it an essential part of due diligence to assess any company in terms of the predicted impact of climate change on assets and operations, as well as the cost of adapting to the new conditions and new laws, and the liabilities that may arise from losses incurred as a result of a business failure to respond to the known facts about climate change.

It is in the interest of all business to face this emerging challenge head on. Risk management and fiscal responsibility justify climate smart strategies alone. To these can be added the change management benefits presented by early adaptation, green business opportunities, and unpredictable brand threats and social license challenges. This includes the avoidance of expensive last-minute catch up as low-carbon legislation tightens up.

Insightful business leaders have an essential role in helping governments navigate the challenges ahead in a way that achieves real results and which enables business to apply their skills and resources to meet the challenges.

Working for a zero-carbon future is the only serious survival strategy for the business sector in the face of all the evidence. Laggard companies will grudgingly adapt at great, sometimes fatal, cost.

In short, company boards and management have to become climate-competent, and time is running out.

• Risks to physical assets and operations can arise from failure to adapt to the extreme weather, health and migration events and hotter working conditions already attributed to climate change. These can be acute, sudden disruptions or chronic and cumulative problems.
• Liability risks from investors, insurers and other stakeholders may face those organizations that cannot demonstrate they have taken account of climate related risks and carbon-intensive assets and the potential for loss and damage in strategies and disclosure.
• Accurate and timely decisions are required to minimize the costs related to making the transition to the low-carbon economy agreed for the second half of the century, both in terms of price changes in energy sources, the obsolescence of polluting technologies, and in terms of readiness for and compliance with the new regulations that will inevitably emerge in all countries seeking to achieve their national contributions as signatories of the Paris Climate Agreement.
• Not least, there are brand risks for any organization seen to be failing to play a positive part in the transition to a more sustainable, low-carbon economy, and multiple reputational problems if they are seen as more part of the problem than part of the solution in combating climate change.

¹ World Bank Group (2016) : Shock Waves: Managing the impacts of climate change on poverty. International Bank for Reconstruction and Development / World Bank, Washington 2016

² Task Force on Climate-related Financial Disclosures, Financial Stability Board (2016) “Recommendations of the Task Force on Climate-related Financial Disclosures”, Basel, December 2016