A new survey of US and UK business decision-makers shows climate volatility is impacting physical assets and the bottom line for nearly 9-in-10 organisations, yet their focus is on decarbonisation, not resiliency. Ahead of COP26, we’re bringing you the insights that matter on the climate crisis.
Eighty-three percent of decision-makers at large businesses in the US and UK believe climate volatility poses a tangible risk to their corporate bottom line. Additionally, almost half place a greater emphasis on managing climate risk than on imperatives like revenue growth, digital transformation, and profitability. However, there is a wide gap between organisations’ awareness of climate-related risk and their readiness to mitigate its impact, even as extreme weather activity threatens more and more of their assets.
These are key findings from the Cervest 2021 Climate Intelligence Outlook, published on October 19th, 2021. Based on input from more than 800 senior executives responsible for climate-related strategies in the US and UK, the survey further highlights that despite the bottom line implications of climate risk, and a whopping 87% of respondents believing their organisation understands the financial risks that climate change poses, nearly half (47%) of organisations have yet to integrate climate into their financial risk management. A similar proportion of respondents state their organisations are not actively assessing and managing relevant physical climate risks. In addition, over a third (36%) believe their company has not allocated enough resources — including budget and people — to effectively manage the risks and opportunities of climate change.
Decarbonisation Is Critical, But Alone It’s Not Enough
The Outlook highlights the two key climate-related challenges enterprises must address at once: decarbonisation and physical risk. The vast majority of executives (80%) admit they are heavily focused on achieving net zero carbon emissions over adapting to physical climate risks. By contrast, just over a third (37%) agreed their organisation plans to adapt to climate change by modifying physical assets or processes for future climate scenarios.
“Decarbonisation is critical, but it’s not enough to protect organisations and investors against the risks of climate change,” said Iggy Bassi, Founder and CEO of Cervest.
“Decades of greenhouse gas emissions have locked us into decades of accelerating climate volatility which translates into trillions of dollars of assets at risk. Even if we were to reach net zero tomorrow, it would not reverse the persistence and intensification of today’s extreme weather events. Organisations need to understand how to adapt with climate change and build resilience into their strategy.”
Unlock the Full Cervest 2021 Climate Intelligence Outlook
Conducted in September, following Hurricane Ida, the California Wildfires, and the flooding and droughts across the UK and Europe, the Cervest Climate Intelligence Outlook finds the impact of climate-related risks on corporate physical assets may be more significant and broader in scope than previously forecasted.
To see the full scale of the impact, and ahead of the COP26 summit on Sunday 31st October, 2021, download the full survey now.
Companies Becoming Aware of Climate Volatility Risks
Last year, S&P Global reported that 60% of companies in the S&P 500 Index owned physical assets at high risk of climate-related events. But the Cervest survey finds 88% of companies have already had a corporate physical asset, such as an office, warehouse, or other building, affected by extreme weather. Flooding (61%) topped the list of climate hazards that executives say pose the most significant risk to assets, followed by extreme precipitation (59%), heat stress (46%), wind stress (40%), and drought (33%).
“Businesses are becoming increasingly aware of the complex transitional and physical risks posed by climate volatility,” added Bassi. “Our survey results clearly bear that out. However, despite their best intentions, decision-makers across organisations are struggling to factor climate change into their decision-making. All internal and external stakeholders need to see the projected impact of climate change on the same physical assets. When this happens, we will create a network of climate intelligent organisations driving transformative change at a global level.”
In an effort to take that next step, 56% of respondents believe software leading to actionable insights would enable their organisation to quantify and manage climate risk more accurately. In addition, nearly half (48%) of businesses reported using in-house data and analytics to develop insights, and 38% stated they receive bespoke data and analytics from consultancies.
The vast majority of executives (80%) admit they are heavily focused on achieving net zero carbon emissions over adapting to physical climate risks.
COP26: A Turning Point for the World?
The climate crisis is an indisputable fact at this point. The Outlook also showed that 88% of companies have already had a corporate physical asset affected by extreme weather, such as an office, warehouse or other building. Flooding (61%) tops the list of climate hazards that executives say pose the most significant risk to assets, followed by extreme precipitation (59%), heat stress (46%), wind stress (40%), and drought (33%). Despite 87% of respondents stating their organisation understands the financial risks that climate change poses, nearly half (47%) of organisations have yet to integrate climate into their financial risk management. In fact, almost half place a greater emphasis on mitigating or managing climate risk than on imperatives like revenue growth, digital transformation, and profitability.
It’s clear that resiliency should be factored more into the thinking behind corporate climate action, and that this should be combined with efforts to decarbonise. The COP26 summit this weekend should act as a catalyst to get this kind of thinking off the ground. But with the UK’s Prime Minister saying that success at brokering deals adequate enough to curb irreversible climate change is ‘touch and go’ at best, a stark picture is being drawn.
Instead of waiting for government action, it would benefit global and domestic businesses alike to take the initiative and commit to climate action themselves. Time and resources should be dedicated, internally, to preparing the organisation for extreme weather, while working rapidly towards a net-zero future – or, better yet, a carbon-negative future.
