What is the climate risk to your business? With COP26 taking place in Glasgow at the time of writing it’s a topical question. But before you dismiss this as a bandwagon article, or think that by cutting down on areas such as travel or materials wastage you are doing enough, it might be time to think again. 

More importantly, it might be time not just to think again but also to retrain the way you think in order to bring climate risk appreciation into every aspect of the organisation. Larger organisations will find this particularly pertinent in the light of draft regulations which have been put before Parliament. The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021, will apply to all stock exchange listed companies, banks, insurance companies and AIM listed companies which have more than 500 employees. They will also apply to other companies and LLPs with more than 500 employees and turnover in excess of £500 million.

The Regulations, which are due to come into force on 6th April 2022, require companies to disclose their climate-related risks and opportunities. In order to do so, companies will need to build an understanding not only of the actual and potential impact of climate change on their business strategy and model but also how climate related risk is measured and managed.

Reporting under the new regulation is the responsibility of the directors, however it would be prudent for everyone in an organisation to be trained in climate awareness in order to build up a full and relevant picture of climate risks, threats and opportunities. This might include:

• Climate risk awareness. How does the business model impact on climate change? What outside factors could impact the business model? What part do team members play in influencing and managing the business model? How might suppliers, investors, or customers influence the climate risk matrix of the business?
• Measuring impacts. How can even simple changes in business systems or processes affect business climate risk?  How can these be measured? What KPIs should be used and what process is in place for reviewing these on a regular basis to ensure measurements are still relevant?
• Innovating climate change. Climate change brings threats but it also can bring opportunities? How might the business innovate for positive change?
• Communicating change. Making climate risk everyone’s responsibility requires strong communication links to be put in place in order to transfer information and approaches up and down the chain of command and across the organisation.

Although the new regulations currently only apply to larger organisations, smaller entities may well find that they should be paying more attention to the challenges and opportunities brought about by climate change. Following the thought pathways set out in the new regulations may help to identify and manage climate risk. And with investor and business organisations signalling their approval of the new regulations, businesses may find that adopting climate risk awareness and reporting models may not only help the business to better survive, it may also help to attract new investment and build a stronger long term future.