Climate Risk Attenuation

by Alianne Rance

In working in the dynamic field that is adaptation to climate change, it is often exhausting trying to navigate the politicization and media coverage of the ‘big CC’, and encourage stakeholders in various industry contexts to ‘proactively’ adapt. It often gets me thinking though, when will climate risk become a component of the traditional risk profile for corporations? Isn’t it inevitable?

Recent calibration of historical climate and carbon cycle data indicates with higher certainty than ever before, that we have “locked in” warming exceeding (on average) 2oC by 2100, uncertainty is no longer an excuse for inaction in the face of climate change. The response and planning for the associated consequences and impacts, otherwise known as adaptation, is a key strategic issue for the corporate sector. Unlike mitigation and corporate social responsibility, adaptation has a direct benefit for an organisation’s operations. However, most Australian companies struggle to progress adaptation planning for a host of reasons while many global businesses proactively seek to manage their climate risk within their operations and the operations of their suppliers.

The Australian private sector must begin to understand that climate risk reaches across many sectors and spans traditional risks such as regulatory risk, litigation risk, insurance risk and reputational risk and think beyond the next quarterly report. Adaptation is context specific and continues process; therefore CEOs must start to consider what climate impacts will mean for their organisation and commence planning to attenuate these impacts, because adaptation is context specific and continuous process.

In my opinion, there will be various triggers that can prompt industries within the private sector to adapt. Take for example the property industry in Australia. It is obvious that with urban population growth and our increasing propensity for coastal living, our exposure to climate impacts will only increase and the property industry faces a significant challenge.

In considering what would motivate property developers to adapt, I ponder on what I have fondly come to call the ‘three P’s’…

Penalty
Profit; and
Periphery Stakeholders

Regulation and policy are often the agents of change when it comes to planning and property development, especially in the context of addressing environmentally associated risks. Although various States hold differing positions on the inclusion of climate impacts in policy, inevitable changes in regulation in the light of increased understanding of climate impacts will eventually require end users to adapt. We see this movement reflected in the consideration of climate risk in industry standards, for example the Green Building Council of Australia’s ‘Green Star Communities Pilot’ which attributes credit to adaptation and resilience.

Money makes the world go round and unless there is a profit to be made or change to the bottom line, there is little motivation for the private sector to address climate risks. We are now seeing an evolution toward climate risk being recognised in the insurance and financial sectors, from both an equity and debt consideration. It is only a matter of time before lenders and investors will consider climate risk in the traditional risk profile and the tolerance of these risks will be significantly determined by the insurance market. Moreover, we are seeing an education of the consumer by the insurance market, with household risk rating tools in development through the Insurance Council of Australia. It will not be long before the home buyer demands a climate adapted property. Additionally, brand, image and reputation are hallmarks in property development and will be the ground breakers that set the standard in this arena.

By periphery stakeholders I mean the legal sector, financial institutions and industry associations to name just three. Through the combined pressure that can be exerted through these groups, the transformation of the property development industry to consider climate risk will be inevitable.

This is my obsession and passion, and yes I am an eternal optimist. But I am not alone in recognising adaptation and attenuation of climate risk as the sustainability of a decade or so ago. We never thought we would see sustainability and ‘green thinking’ so embedded in the private sector today, likewise, adaptation is only a matter of time – so let’s be proactive.

To learn more about the three P’s and adaptation in the private sector, feel free to contact me for a chat.  

Alianne Rance is an Associate of Net Balance (alianne@netbalance.com),
one of the world’s leading sustainability advisory firms.
Alianne is based in Melbourne
.

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