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 management
Climate 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 terms 
Figure 2. Ripple of climate risks
Figure 3. Climate risk quantification: an iceberg of uncertainty

About the authors

Katelyn Johnson

Senior Manager, Risk Management
Katelyn is the Senior Manager in the Verdantix Risk Management practice. Her current research agenda focuses on climate risk and its integration into risk management frameworks. Prior to joining Verdantix, Katelyn was a climate scientist at GNS Science in New Zealand. She 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.

Bill Pennington

VP Research, EHS & Risk Management
Bill is the VP Research for the Verdantix EHS & Risk Management practices. His current agenda focuses on understanding the evolution of EHS and enterprise risk management, evaluating emerging strategic risks and benchmarking technology buyers’ budgets, priorities and preferences globally.

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