VIEW: On managing climate change risk with a sustainable long-term strategy

Following COP26, most responsible leaders will be thinking about what they need to do to make their organisations part of the response to the climate emergency and the resulting collective action to address environmental and social challenges.

Many forward-thinking businesses are already highlighting their commitment to achieving carbon neutrality and promoting their sustainability agenda, but it’s never been more important to move from talk to action. The only way an organisation can contribute to a sustainable future is to place sustainability at the heart of its organisational purpose and strategy and turn this into concrete steps.

The climate crisis is not going to be solved by someone else. It can only be solved by us all behaving differently. Most people, anxious about climate change, already believe they are doing what they can – and that governments and institutions now need to step up.

Age-period-cohort analysis is often used to assess how changing attitudes work through the population. Age, or lifecycle, effects explore variation by age, cohort effects relate to the unique, common experience of a group of people, and period effects are those that affect everybody equally.

Generational differences in attitudes towards sustainability were abundantly evident at COP26. Generally speaking, young people are more likely to be pro-environmental in their views, while older people are less likely to embrace measures that affect their own lifestyles, such as reducing energy consumption, favouring public transport, or reducing meat consumption. Our experience over the past few decades has shown how ‘period’ effects can lead to rapid change – such as after the financial crisis or through COVID-19. As more of us experience wildfires, heatwaves, drought and flooding, the need for change will become even clearer.

This means the focus on organisations to deliver rapid progress will become relentless. Young people are demanding change now. Older people are looking to institutions and organisations for action. Governments, under pressure, will introduce regulatory frameworks and seek accountability. The appearance of the heads of major oil companies before the US Congress at the end of October this year may, for example, prove to be a turning point as consequential for oil as congressional hearings into smoking were for big tobacco in 1994.

Putting sustainability at the heart of your business is not only about managing downside risk, but also about responding to an opportunity. Tesla has grown to one of the world’s largest companies as cities worldwide begin to limit or ban fossil fuel cars.

As risk leaders, the next step is to start a conversation about how your organisation is thinking about sustainability, how this translates into your approach to ESG, and what action is needed now. The IRM has recently published a practitioner’s guide to managing climate change risks that will help you assess your organisation’s risk maturity, engage with stakeholders, and start to measure and report on environmental and social outcomes.

Positive action on climate change requires risk leaders to focus on long-term risks and outcomes. This isn’t so much about the risks in the business today as your ability to identify and manage risks and opportunities based on long-term planning horizons. Responding to the challenge of the climate emergency requires a really positive role for risk leaders, providing the opportunity to have a significant impact on how effectively businesses and organisations understand and manage climate change risk and build sustainable long-term strategy. It’s both a challenge and an opportunity, and it’s not one that can wait.

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