Climate Change Opportunities and Risk
Overview
Welcome to this brief introduction to the climate opportunities and risks for business. This section will introduce you to the pivotal role of board directors in steering your business through a net-zero and just transition that maximises the opportunities and minimises the risks.
Why now?
In recent years, the duties of board directors have evolved significantly in relation to climate action due to an increased understanding of the financial risks associated with climate change. As a board director, you are now expected, and in many jurisdictions legally mandated, to ensure that your organisation has established appropriate mechanisms and resources to identify and assess significant climate opportunities and risks¹. It is also seen as your duty to ensure that these issues are properly addressed and disclosed.
It is important for board directors to understand that effective climate governance goes beyond focusing solely on risks. By adopting a narrow focus, you might overlook potentially significant opportunities that good climate governance can bring to your organisation.
What you need to do
As a board director, you should ensure that climate risks and opportunities are well understood and are being effectively managed in a way that is integrated throughout your organisation's governance structures and operational teams. Whilst appointing specific climate experts (such as a Head of Sustainability or a Sustainability Team) will be useful in driving change, this will not, in itself, deliver the broader climate integration required.
Aim for climate management to be a shared responsibility and send a clear message that climate competence is a top priority in your organisation.
To achieve effective management of climate opportunities and risks, you may want to enable your organisation to:
- Measure its greenhouse gas (GHG) emissions.
- Report and disclose those GHG emissions and set targets to reduce them.
- Establish a credible transition plan towards net-zero GHG emissions.
- Deliver the climate ambitions of the plan, monitoring progress and adjusting accordingly.
Transition plans should be updated every five years and progress should be reported annually. These must include²:
- Short, medium and long-term GHG emission reduction targets.
- Third party verification and auditing methods.
- Adjustments to budgets, capital expenditures, research and development investments.
- Objectives to align all areas of the business to such plans.
- References to trajectories of other organisations from the same sector that have implemented adequate actions.
Climate opportunities for business
Climate change is often presented in terms of risk, but there are also many opportunities arising from the low-carbon transition. By taking climate action, your organisation can benefit from reduced operational costs, climate-smart innovation and longer-term resilience.
This can be achieved in several ways:
Greenhouse gas (GHG) emissions reduction
Switch to renewable energy
Ecosystem-based adaptation (nature-based solutions)
New products and services
Innovative financing solutions
Greenhouse Gas Removal (GGR) technologies
Climate risks for business
It is estimated that between now and 2100, the potential financial losses arising from climate change could run from $4.2 trillion to as much as $43 trillion. Addressing climate change now not only outweighs the cost of climate mitigation in a warmer planet, but also helps to reduce risks of increasing climate impacts while offering social and economic benefits.
Physical risks
Risks resulting from the physical effects (acute or chronic) of climate change – such as hurricanes, floods, droughts and sea level rises. Physical risks could seriously damage or disrupt the organisation’s operations and supply chain reducing its capacity to operate profitably and sustainably.
Transitional risks
Entail risks that the organisation fails to anticipate when transitioning to a low-carbon economy. Transitional risks include policy and legal, technology, market and reputational changes amidst climate change. Transition risks are taking precedence over physical risks at this stage.
Broader context
Environmental and climate concerns dominate more than half of the top 10 global risks, according to a survey among businesses, governments, and international organisations carried out by the World Economic Forum³.
In the short term, failure to mitigate climate change ranks as the fourth most critical global risk.
In the longer term, climate change will become the foremost global risk – and is the risk for which we are least prepared.
How to take action
Invite your organisation’s board to reflect on the following questions:
- Are we thoroughly assessing our GHG emissions, climate risks and opportunities, both within our operations and across our whole value chain? If not, what steps must we take to do so?
- How aware is our board of the risks and opportunities presented by climate change and climate action?
- Has our organisation conducted a risk and opportunities analysis, for example, scenario-based analysis, to understand its climate implications across its operations and value chain?
- How is climate risk and action embedded in our board operations and governance structure?
- How climate competent is our board? Is there a good understanding of climate ambition and transition plans?
Mark section as complete
Join a Chapter
Your regional Chapter can support you with tools and resources to enable effective corporate climate governance in your region.
Join a ChapterResources
1 Climate Governance Initiative (2022). Primer on Climate change: Directors’ Duties and Disclosure Obligations, 2nd edition. https://hub.climate-governance.org/primer/directors-duties
2 UN High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities (2022). Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions. high-levelexpertgroupupdate7.pdf (un.org)
3 World Economic Forum, in partnership with Marsh McLennan and Zurich Insurance Group (2023). The Global Risks Report 2023, 18th edition. Online access: WEF_Global_Risks_Report_2023.pdf (weforum.org)
Further Resources
More information on practical steps you can take to manage climate opportunities and risks in ‘Ambition to Action: Briefing for Board Directors’