Managing Corporate Risk Must Include Understanding Climate Risk

by David Kuhn, Lead, Corporate Resilience, World Wildlife Fund

A growing number of companies have responded to the climate change threat by championing sustainable solutions like deforestation-free production and clean energy. But as laudable and essential as these efforts are, climate change has progressed to the point where sustainability alone is no longer a sufficient measurement of a company’s health. Even as companies help to restore balance to nature, they must also contend with the realities of an imbalanced world.

Those realities are in constant flux, because climate change continuously exacerbates and adds to existing threats. The most pressing environmental threats that a company faces today are unlikely to be the same ones they faced a decade ago or will face a decade from now. And, frankly, the systems and variables involved in climate change risk are so complex and dynamic that it’s impossible for a company to be sure exactly what the future will bring.

To remain profitable, therefore, companies need to do more than manage for persistence. They must manage for change and uncertainty, by anticipating risks and developing flexible strategies to prepare for unforeseen shocks. In other words, companies must be not only sustainable but also resilient.

Building resilience is a journey, not a destination. It can’t be a one-and-done and it can’t be limited to a company’s direct operations and supply chains. Companies must also account for climate change’s ever-shifting, system-wide effects on the communities that provide their workforce and consumer base, as well as the natural systems that sustain their products and services.

Nature can be a powerful ally in this journey, but it’s also under siege from climate change. That’s why it’s so important for companies to align their sustainability and resilience strategies—to help ensure a functioning economy, society and environment in the face of climate change without causing additional harm to nature or simply shifting the ecological burden to other places and people.

Thus far, few companies have taken this step. Trying to manage the complexities and uncertainties of climate change—particularly when it comes to impacts outside a company’s fence line—can be a daunting prospect, especially when business leaders find themselves torn between planning for the problems of tomorrow and dealing with the problems of today.

A newly released guide from the World Wildlife Fund helps demystify the challenge, laying out four detailed steps for companies to build resilience the right way. 

First, companies need to re-assess their approach to climate risk analysis. They must consider the risk that climate change poses beyond their own fence lines and operations, to the communities and environment that provide for a healthy business. Companies should consider long-term climate information and an expanded time horizon in their risk analysis and planning to avoid making short-sighted decisions that could compromise their sustainability. And by gathering on-the-ground perspectives and information in addition to top-down climate projections and modeled data, companies can have a better understanding of key vulnerabilities for people and places.

Second, companies need to design strategies to manage risk that look to the long-term, address risk to communities and nature, and are revisited regularly to be flexible as things change. While confronting and managing the impacts and risks of climate change will require entirely new actions and strategies, no company with a robust sustainability and risk management strategy is starting from zero; existing efforts form a strong foundational core of a resilience plan.

Third, companies must implement local solutions that are nature-friendly, responsive and flexible. Solutions can be engineered approaches like infrastructure to protect from flooding and other hazards, workforce training on climate risks, and other investments in human capacity and nature-based solutions. These natural benefits provided by healthy, intact ecosystems will help people and nature persevere in the face of an increasingly inhospitable world. All of these approaches are critical, but nature-based solutions for climate resilience remain underutilized and their importance underappreciated.

Mangroves, for example, can be a potent tool for both sustainability and resilience. In addition to being the world’s most efficient ecosystem at sequestering carbon, they also help protect against flooding, maintain water quality and serve as nurseries for important species of fish. But if a company plants those mangroves in a way that doesn’t account for rising sea levels, already one of the main drivers of global mangrove loss, their efforts will be all for naught.

Companies must consider the efficacy of their nature-based solutions on a multitude of levels: from how they affect individual households to entire communities. Once companies begin to better understand the system-scale risks they face, it quickly becomes clear that others are impacted by these same threats in varying ways. That’s where forging partnerships and scaling ideas and solutions become powerful tools for change.

Fourth, companies need to monitor, evaluate and adaptively manage their resilience strategy. They have a number of ways to measure success. They can assess how their business performance is affected by climate-related shocks and stressors to the system. They can evaluate progress toward implementing a resilience strategy. And, finally, they can evaluate how well the company has managed to avoid harming nature and implement nature-based solutions—and how well those solutions are faring amid ongoing climate impacts.

People and all of our institutions are intrinsically linked to the health and sustainability of our natural world. A resilient private sector requires a resilient natural world and a resilient society—all of which are at risk by the climate crisis. Yet companies have the potential to be some of our best advocates for action and are well-positioned to help nature and people adapt to and prepare for change.

 

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