The growing impacts of climate change pose urgent material risks to businesses, threatening operations and value chains, and jeopardizing the ability to achieve market objectives. In addition, stakeholders have increased expectations for businesses to measure, manage and disclose exposure to climate risks.
And yet, very few companies are managing climate risks effectively; most lack risk management frameworks, tools, and other resources that have a climate-specific lens. If unprepared, business functions may struggle to adapt and adequately cope with climate impacts.
A preemptive approach to building climate resilience can create internal capacity to withstand these risks and unlock climate-related opportunities.
BSR, in collaboration with a group of companies, has developed innovative approaches and methodologies to support business action in managing climate risks. These materials support companies through the steps of building climate resilience, a process that allows business to incorporate climate risk management in existing systems and across business functions. BSR’s proposed process for corporations to manage climate risks, and associated supporting materials, can be found below.
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Corporate Climate Resilience Process
The six-step process below should be repeated on a regular (e.g., annual) basis to consider any changing risks, learnings, and developments.
1. Set Strategy and Objectives
The process of setting a climate risk management strategy is key to initiating internal conversations and engaging stakeholders across business functions. The strategy-setting exercise should be framed around external trends and the level of risk a business is able to accept to create value. A climate scenario analysis can serve as a first step to initiate strategic conversations.
2. Build and Strengthen Governance
The responsibility of building and maintaining climate resilience is shared across the business, including boards, management, and functional teams. A corporate culture that recognizes the cascading impacts associated with climate-related risks is needed to implement an effective response to those risks. The Climate Risk Integration Framework shares a perspective on best practice board-level and management-level climate governance as well as the key functions to leverage.
3. Identify Risks, Analyze Impacts and Prioritize; Integrate into ERM Processes
Risk assessments to identify and prioritize climate risks are the first step in a company’s journey to better understand and manager its climate risks. The Climate Risk Integration Framework guides companies through the process of identifying, assessing, and prioritizing climate risks, and integrating that process into existing risk management systems. Integrating climate elements into existing assessment and management processes brings these issues in the mainstream, improves resource deployment, and enhances internal engagement. Many climate risks fall into conventional enterprise risk categories, introducing an additional variable or ‘climate multiplier’ to an existing risk, affecting its impact or likelihood of materializing. Others are independent and need to be added as discrete risks.
4. Establish Response Plans and Implement Response
The purpose of response plans should be to reduce exposure to or potential impact of priority climate risks. The Risk Mitigation Guidance and Index supports operational functions responsible for risk mitigation decisions to properly consider the cascading impacts associated with physical climate risks, resulting in more effective and responsible selection and implementation of physical climate risk responses.
5. Monitor and Review Performance; Revise Risk Mitigation
Through an iterative monitoring and review process, businesses should determine the effectiveness of response actions in building resilience and reducing their exposure to climate shocks. The Reslience Metrics Framework and Index supports companies in developing customized and robust metrics to measure resilience outcomes. Based on such measurement, they should consider any needed revisions to the risk mitigation response.
6. Communicate and Report
ESG disclosure will be mandated across various jurisdictions. Multiple disclosure standards are adopting a ‘climate first’ approach and will draw heavily from the recommendations developed by the Taskforce from Climate-related Financial Disclosure (TCFD), the most broadly recognized guidance to communicate climate-related risks to investors and other stakeholders. Understanding climate risks will be necessary to prepare for upcoming regulations that will require companies to report on ESG.
Who’s with Us
Managing climate risks in a systematic way is fundamental to ensuring business continuity, and can unlock climate-related opportunities, including resource efficiencies, development of innovative products & services, and strengthened community resilience. By managing evolving climate risks, companies will be better prepared to maintain sustainable operations in a changing and unpredictable environment. Businesses are recognizing that climate shocks have the potential to impact business performance and must be prioritized along with other financially material risks.
“Climate change affects us all and is one of the greatest challenges that humankind will face in the future. Bayer considers climate protection and the related reduction of greenhouse gas emissions to be a top priority. We participated in the Value Chain Risk to Resilience working group of the international Business for Social Responsibility network. Through dialogue in this forum, we improved our own analyses and the identification of regulatory and physical climate risks and climate resilience measures throughout companies' supply chains. The exchange with the other member and peer companies is of great importance as climate change impacts will be felt across value chains. We will continue to build up of the work of the working group to detail out our scenarios, understand impacts and set strategies.”
—Nicolas Schweigert, Bayer AG
The climate risk management resources featured on this page were co-created with members of BSR’s Value Chain Risk to Resilience collaborative initiative. Value Chain Risk to Resilience was established to increase the ability of companies to diagnose physical climate risks and implement climate resilience measures throughout their value chains, to deliver both business and broader societal value. The group decided to open-soruce these materials to promote business action on resilience, with a vision towards company value chains and communities that sustain each other and trive in the face of climate change.
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