Strategic Focus: The Role Of Climate Risk In Enterprise Risk Management

Executive Summary

In late 2021 the Institute of Risk Management provided a framework for considering climate change risks. In this, 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 their ERM frameworks. Leaders’ typical compliance-based attitudes prevent them from fully capturing all their climate-related risks. Climate risk professionals face challenges in moving firms beyond compliance mindsets, due to the specific data, analyses and capabilities required to assess climate risk. By focusing on stakeholder engagement and value creation, climate risk professionals can gain support for embedding climate risks into ERM frameworks, thereby building organizational resilience.