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With extreme weather events dominating this year’s headlines, it was fitting to spend the last week of summer in NYC for Climate Week – joining leaders from all over the world to discuss the strides we’ve made with regards to climate action as well as the challenges yet to come. For more than a decade, I’ve been involved in the climate space – a good part of that in the scientific research community – and yet, this was my first time attending Climate Week. It was energizing to engage with a different climate community, learn about new technologies, exchange ideas and, of course, lead discussions at the Verdantix roundtable event.
My discussion was centred on the development of business-relevant climate scenarios that could facilitate improved risk assessments. The current landscape leads to scenario analysis that likely underestimates risks for firms, due to a variety of barriers ranging from data availability to model limitations. With nearly 30 leaders in attendance, key takeaways emerged on the current state of play and the changes needed moving forward:
Internal data obstacles abound. One of the main limitations for firms performing scenario analysis is data, or lack thereof. This topic has been covered in other Verdantix reports (see Verdantix Best Practices: The Role Of Climate Risk In Enterprise Risk Management), and was repeatedly brought up in discussion. Internal, business-specific data are necessary to accurately evaluate climate-related risks. Data availability, accessibility and accuracy are competitive advantages for firms – so they need to step up their internal climate data capabilities.
Evaluating external site-specific climate data is arduous. While internal data are scarce, the plethora of external climate data provided by various vendors has its own challenges, as it is difficult to assess whose data are more accurate or relevant for a specific use case. A potential solution to this challenge is for regulations to provide guidelines around data creation and dissemination. Alternatively, participants suggested there was an opportunity for firms to create niches in specific climate risks (like floods or wildfire), developing the best possible data for that specific risk.
Too many scenarios lead to analysis-paralysis. Along with an abundance of external data, the sheer number of climate scenarios and various time horizons creates confusion and firms are uncertain which scenarios are most applicable to their specific industry. Some suggested the business community should select one to three scenarios to abide by for compliance-based metrics, so there could be some sort of comparison across industries and geographies. Verdantix Best Practices: Climate Scenario Analysis reveals that many firms already view three scenarios as the ideal number for analysis. However, it’s important to note that this method would likely fail to fully assess an organization’s climate-related risks from a risk management standpoint, and it would be critical for firms to carry out additional internal analysis.
Mindsets are shifting from sustainability to risk mitigation. Action on climate-related risks or sustainability has typically been voluntary, with no materially significant consequences for passivity. Historically, it was often cheaper to pay a lawsuit for environment-related risks rather than to change operations, and this mindset was bleeding into climate and sustainability inaction. However, as the reality and costs of climate inaction are becoming clearer, firms are less likely to neglect these risks. It is now evident that addressing climate-related risks is paramount to long-term successes.
After a thought-provoking discussion around these points, one thing is clear: the business community no longer sees climate change as a distant threat. Climate-related risks demand immediate attention, and firms are grappling with the complexity and uncertainty of these risks. Leaders in this group said organizations should strive to meet their targets for a 1.5°C world, but risk management plans are remiss if they do not consider the impacts of a 3°C world. With devasting floods hitting New York City mere weeks after Climate Week, I couldn’t think of a more appropriate conclusion.
Katelyn is a Principal Analyst in the Net Zero & Climate Risk practice. Prior to joining Verdantix, Katelyn was a climate scientist at GNS Science in New Zealand. Katelyn has previously held roles in the energy industry, where she helped projects manage risk due to weather and ocean phenomena. Katelyn holds a PhD in Geology from Victoria University of Wellington and an MS in Earth Sciences from Ohio State University, both focusing on climate science, as well as a BS in Meteorology from Texas A&M University.