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Climate Risk and Resilience

The climate conversation has rapidly shifted and continues to do so. Investors are demanding climate disclosure, central banks are working together to ‘green the financial system’ and expectations of employees and customers alike are becoming ever more demanding. The need to manage climate risk and support an orderly transition to a low carbon, resilient economy is no longer a matter of conscience, but a strategic and financial imperative.

of gross domestic product in 279 of the world’s leading cities is exposed to direct climate-driven risks

Source: Cambridge University Centre for Risk Studies’ 2019 estimate

For public and commercial organisations, specific impetus and motivations for action come from numerous sources, including: legal, liability and regulatory; financial; the need to build asset and infrastructure resilience; corporate responsibility; and reputational impact.

Reflecting this diversity of drivers, climate risk is truly multi-dimensional. The potential consequences vary from physical and economic impacts to liability risks and risk arising from the pace of transition to a low carbon economy.

Circle depicting the following: physical damage to public and private sector assets, change in resource prices, changes in demand for products/services, impact on pensions, emergency response cost, geopolitical transition risks, humanitarian loss, increasing costs of commercial operations, supply chain disruptions, loss productivity, reduced financial investment and economic loss, and climate change litigation
Circular graphic depicting various potential risks arising from climate risk: physical, financial, operational, transition and liability.
Climate risks create impacts at macro and micro levels

To respond effectively, organisations will need to adapt their management of climate risks in several areas, such as:

  1. Assessment and quantification in the short and long term
  2. Transition and resilience planning
  3. Financial reporting and disclosure
  4. Investment strategy and implementation
  5. Capital management
  6. Risk hedging and transfer
  7. Health/demography
  8. Human capital: talent, rewards and culture alignment; non-executive director responsibilities; pensions management; corporate governance.

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