Best Practices: The Role Of Climate Risk In Enterprise Risk Management
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Executive Summary
In late 2021 the Institute of Risk Management provided a framework for considering climate change risks, in which it stated: “There is widespread consensus that addressing climate-related risks is a critical component of ERM [enterprise risk management] in supporting an organisation in understanding its future risk profile”. The institute also acknowledged the need to have an “early warning system in place” to improve firms’ resilience. Nevertheless, many firms struggle to account for or incorporate climate-related risks into ERM frameworks. These risks are unique to each firm; they are also hard to quantify and their interrelation with traditional and emerging risks can be unclear. Accounting for climate-related risks requires specific data, analyses and capabilities that many firms lack, generating numerous challenges for their risk management processes. Moreover, compliance-based attitudes towards climate risks inhibit firms from fully capturing their climate risk landscape. Resilience-focused firms should therefore consider embedding climate risks into their ERM frameworks.
Table of contents
Climate risk: a new juggernaut for enterprise risk managementClimate risks are already having costly impacts on organizations
Risk managers will struggle with challenges unique to climate risks
Today’s views on climate risk are poorly connected to organizations’ ERM
Integrate climate risk into your ERM strategy to futureproof your organization
Utilize technology to support your climate risk management process
Table of figures
Figure 1. Definition of climate risk-related termsFigure 2. Ripple of climate risks
Figure 3. Climate risk quantification: an iceberg of uncertainty
Organisations mentioned
AlertFind, AON, Arkema, AuditBoard, European Central Bank, European Risk Management Council, Everbridge, Global Association of Risk Professionals (GARP), Google, Harvard Business Review, Institute of Management Accountants, Institute of Risk Management, Intergovernmental Panel on Climate Change (IPCC), International Sustainability Standards Board (ISSB), Latham & Watkins, N Environment Programme (UNEP), Nature, Origami Risk, Reuters, Science Advances, Strategy&, Sustainability Accounting Standards Board (SASB), Swiss Re, Task Force on Climate-related Financial Disclosures (TCFD), U.S. Chemical Safety and Hazard Investigation Board (CSB), US Senate Committee on the Budget, World Economic Forum, World Meteorological OrganizationAbout the authors
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