Understanding the real risks that climate change poses to a business and developing pragmatic programs to manage and mitigate those risks is one of the most complex issues businesses face today.
The world’s response to the challenges of climate change is creating a wide range of changes that businesses must understand and manage:
- Governments are implementing and proposing a wide range of new laws and regulations targeted at reducing greenhouse gases. However, these policies are not consistent across the world and timing is uncertain.
- Financial institutions, governments and shareholders are beginning to expect increasing levels of reporting and disclosure on climate risks, performance and plans.
- Stakeholders, including non-governmental organizations, employees and customers have increasing expectations for visible progress towards more sustainable business practices.
- Energy markets and energy technologies are rapidly changing across the world, presenting new low carbon options and economic opportunities.
- Global supply chains and operations are facing increased risk of business interruption and additional investment for extreme weather adaptation.
Developing and executing a plan that not only manages risk but also identifies the new business opportunities created by these changes requires a unique combination of strategy, business acumen and deep environmental expertise
Assessing risks, identifying opportunities
ERM works with companies around the world to comprehensively assess the impact of climate change on their business and then develop an integrated program that cost effectively mitigates the material risks, captures opportunities and tracks progress. Our deep experience in climate policy, carbon markets, economics and risk management provides our clients with the broad range of insights required to build these plans.
ERM has 20-years of experience assessing and delivering broad environmental services. Our energy and climate change capabilities include:
- Comprehensive GHG inventory and management, from advice on policy and regulatory change to strategy and project planning, permitting and implementation;
- A proven approach to lifecycle assessment, which helps clients manage environmental factors and emissions more effectively throughout the product value chain;
- Effective energy management using our custom methodology (Quick Environmental Savings Technique (QUEST), which is focused on driving operational excellence and generating rapid energy savings;
- Local knowledge of regulatory requirements combined with global experts and multidisciplinary teams;
- Information systems experience that helps companies make fact based decisions, track progress, measure risks and report performance as required; and
- Economic and financial insights to help develop risk based strategies for compliance and mitigation.
- Development of quantitative risk assessments and response plans designed to protect businesses across their supply chains from the physical risks of climate change.
Low Carbon Transition, Climate Change and the TCFD
The G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) was set up to develop guidelines for analysis and disclosure of climate-related financial risk and opportunity for the benefit of investors, lenders, insurers, and other stakeholders. ERM was the sole consulting firm engaged by the TCFD and wrote the technical supplement on the use of scenario analysis in relation to climate-related financial risks and opportunities to determine strategic response options.
Through our extensive work with clients we understand the key concerns on potential challenges in implementing TCFD for a range of companies, including financial and corporate. We engage with a variety of industry consortiums, reporting organizations, and companies around the world to share approaches and support their delivery on the TCFD recommendations. Using our deep understanding of the TCFD requirements, we assist clients to assess financial risk from climate change and to deliver strategic responses to capture opportunities emerging from the low carbon transition. We offer a range of services for our clients that include:
- Readiness Review: An independent assessment of the client’s current processes and disclosures relating to climate-related risk and opportunity, providing a clear action plan to prepare for, or improve disclosure and supporting processes in line with the TCFD recommendations.
- Leadership Engagement & Training: Assisting relevant functions, such as Risk, Portfolio Analytics, Investment Teams, etc. to understand climate-related financial risk, TCFD aligned processes and establish implementation plans.
- Top Down Portfolio Screening of Climate-Related Financial Risk and Opportunity: ERM’s proprietary tools allow clients to understand portfolio risk, identifying parts of the portfolio which are particularly exposed to climate-related financial risk and opportunity. Both transition and physical risk are considered. The client can then focus resource on those industries, asset classes, and geographies which present the greatest risk and opportunity.
- Asset Specific Assessment of Climate-Related Financial Risk and Opportunity: Assisting investors to develop a detailed understanding of the climate-related physical and transition risk and opportunity for specific parts of a portfolio. The analysis could include identification of asset-specific financial drivers and creation of scenarios for asset financial models to understand financial impact.
- Strategic Response: Assisting clients to develop and implement strategies to address risk and seize opportunity, and align with associated frameworks particularly TCFD. This may include: portfolio analytics, embedding in risk processes, supporting evaluation of ‘green’ assets, product development and engagement with employees.
- Signpost Indicators: We work with our clients to establish tools to monitor market “signpost” indicators that indicate an inflection point or movement from one scenario trajectory toward another, enabling quick responses and exposure adjustments. These indicators may be at a macro level or sector specific.
- Climate Resilience: Detailed asset specific consideration of vulnerability and resilience to physical climate hazards, including development of adaptation plans and business cases.
- Climate Due Diligence: We work with our clients to establish tools to monitor market indicators within a sector that indicate an inflection point or movement, from one scenario trajectory toward another, enabling quick responses and exposure adjustments.Consideration of climate risk as part of the due diligence process for potential acquisitions. ERM can also develop due diligence tools, embedding these into established processes.
Protecting and creating value
Climate change provides the challenge and opportunity for companies to not only protect shareholder value, but also create value. By proactively and pragmatically assessing climate change impact on a business, executives can make informed decisions about where and how to invest across their business.
Reducing energy consumption, future-proofing operations and major capital projects, adapting supply chains, changing product development priorities and proactively engaging stakeholders are among the choices executives are making today. ERM is uniquely qualified to help organizations make the right choices for their business.