“Flaky assumptions” increase business risk

“Flaky assumptions” increase business risk | Insurance Business

“Flaky assumptions” increase business risk

A recent report has revealed that a growing number of Australian companies are now considering how climate change is going to impact their business – but there’s still some serious room for improvement.

Released by the Centre for Policy Development, the Climate Horizons report outlines how companies, regulators and policymakers can build on recent progress and keep pace with international advances.

Featuring input from ClimateWorks Australia, the report suggests that businesses with a questionable knowledge of climate change face significantly greater risks than their informed counterparts. The report also pointed to in-depth scenario analysis as one of the most effective ways to reduce risk and test organisational resilience.

“Companies that don’t understand the possible impacts of climate change and climate policy on their business, or rely on flaky assumptions and resources for this ‘scenario analysis’, overlook big risks and opportunities,” said Sam Hurley, CPD policy director and co-author of the publication.

Hurley also noted that more organisations are using ambitious scenarios that consider major emissions reductions as well as significant policy and social changes to test their resilience. However, scenarios which rely on “business-as-usual” assumptions will no longer cut it.

“Some of the early scenario exercises have employed questionable climate transition assumptions, and many are still overlooking physical impacts and providing little indication that these exercises have influenced decisions,” said Climate-KIC Australia policy director and co-author Kate Mackenzie.

Anna Skarbek, CEO of ClimateWorks Australia, agreed scenario analysis can be incredibly beneficial for businesses but said many still don’t appreciate the scale of the transformation ahead.

“Done well, scenario analysis is a vital tool for companies to think through the implications for their business of a hotter world; one where we must reach net-zero emissions as fast as possible and how their business can help to achieve that,’ she said. “Proper analysis can show how better governance, strategy and risk-management credentials will drive long-term value and profitability.”

 

Related stories:
Swiss Re introduces group-wide coal policy
Chubb highlights how environmental insurance is being hit by social media