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How to manage climate risk without a dedicated sustainability team or CSO

10 / 06 / 2021

According to the United Nations Office for Disaster Risk Reductions, there has been a rise in climate-related disasters during the past 20 years. That said (and the global pandemic aside), the events of 2020 alone should leave no one in any confusion over the reality of climate-related risks:

  • ·        January 2020: Flash Floods in Indonesia kills 66
  • ·        January - March 2020: Australian bushfires kill roughly 478
  • ·        May 2020: Cyclone Amphan kills 85 people in Bangladesh
  • ·        August 2020: Hurricane Laura kills 77 in Louisiana and Texas, the Dominican Republic and Haiti
  • ·        August 2020: Flash floods kill 150 in Afghanistan
  • ·        November 2020: Hurricane Eta kills 150 in Central America
  • ·        December 2020: 2020 was joint hottest year for the planet with 2016 

In our report, Climate risk: Is the financial services industry prepared?, we explore the very real impacts that climate-related risks could have on businesses and risk teams, including:

·        Market risk: Natural disasters and/or climate policy changes leading to the re-pricing of various financial instruments, including equities.

·        Credit risk: Potential increases in defaults by businesses and households due to extreme weather events. Climate events causing collateral depreciation.

·        Liquidity risk: Climate-related risks adversely affecting refinancing opportunities. Greater liquidity needed to cope with climate risks.

·        Operational risk: Supply chain disruptions and facility closures as a result of physical risks. Broader business resilience problems and the associated effect on brand reputation.

Businesses and leaders are becoming increasingly aware that climate-related risk needs to be managed effectively to secure the future of their organisations and industries.

Indeed, according to Harvard Business Review, environmental, social and governance issues (ESG), were at the top of senior executives’ priorities at over 43 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard, and State Street). Giant asset owners such as the California Public Employees’ Retirement System (CalPERS), and the government pension funds of Japan, Sweden, and the Netherlands were also concerned. What’s more, those organisations who have not adopted adequate climate risk policies are facing pressure from other levels on the corporate ladder, as over a third (35%) of UK businesses claim staff have left roles because they are dissatisfied with their employer's stance on climate-related issues. 

Who has a fully-formed climate change risk assessment framework in place?

A climate change risk assessment framework is a formal structure that is aligned with governance standards that identifies and evaluates potential climate-related risks and the impact they could have on the organisation. They are typically enacted by a climate risk team, ideally lead by a Chief Sustainability Officer (CSO).

Apart from Big 4 consultancies, the larger UK banks and financial services firms, research shows that most organisations do not yet have a dedicated climate risk team or CSO, instead preferring to deploy specialist staff within existing credit, market, operational and liquidity risk functions.

This is often a strategic choice, with companies recognising that climate risk affects all areas of risk management. Some firms are also too small to warrant separate climate risk teams, in which case the climate risk responsibility typically falls upon the CEO or MD.

How to implement climate risk management without a risk team

Regulatory pressures mean that companies don't have long to fully embed their climate risk frameworks before the end of this year. Many also recognise that climate change preparedness extends beyond their immediate regulatory obligations, however without a dedicated risk team in place the challenge lies in being able to properly implement changes to risk management without overloading the CEO or MD.

One viable option for many organisations is to explore the expertise that interim managers bring. Contractors and other interim specialists can provide essential support whilst organisations build towards recruiting a climate risk management team, helping businesses deliver the necessary changes to achieve regulatory compliance and climate risk futureproofing.

Building your permanent or agile climate risk management team

Barclay Simpson is an international recruitment consultancy that specialises in recruiting professionals for the interrelated disciplines of Governance, namely Information/IT Security, Risk, Resilience, Audit, Compliance, Legal and Treasury. Our risk team mirrors our clients’ needs by dividing our expertise by discipline; Investment Risk, Operational Risk, Liquidity Risk, Quant Risk and Credit Analytics.

When you’re looking to build and secure your organisation’s climate risk management capability, Barclay Simpson can help you quickly build a technically proficient multi-skilled risk management function and team either on a permanent or contract basis.


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