The impacts of climate change are becoming increasingly evident, and businesses worldwide are recognising the urgent need to address climate-related risks. However, the recent PwC Global Risk Survey revealed that 46% of New Zealand respondents considered themselves only slightly or minimally exposed to climate change in the next 12 months. Although most New Zealand businesses are likely to be thinking about climate change in some way, this response suggests that businesses may not have it on the immediate agenda, and as a result may not be adequately preparing for the climate risks that are expected to materialise in the next five to 10 years. We explore the importance of taking action now, and discuss the actions and adaptations businesses should consider to mitigate climate risks in the coming years.
Consensus on future climate risks
Two additional reports, the World Economic Forum's Global Risk Report and the PwC Insurance Banana Skins report, provide valuable insights into the future outlook of climate risks. The World Economic Forum's survey reveals that in the 10-year view, the top five risks are all climate-related. This emphasises the need for businesses to recognise that although the immediate manifestation of climate-related risks may not be material, they will become rapidly more significant in the next five to 10 years.
To effectively mitigate or avoid future climate risks, businesses need to start taking action now. Waiting until the risks become material may leave organisations ill-prepared to respond. It is crucial to understand that not all climate-related risks will manifest immediately. However, investments and changes required to adapt to, mitigate or avoid these risks will take time to implement.
Regulatory and compliance considerations
The PwC Insurance Banana Skins report highlights the increasing regulatory focus on climate risks. In this report, New Zealand respondents ranked climate change the fourth highest risk, while globally it was ranked third. Compliance with climate-related disclosures, such as those in New Zealand and the upcoming Corporate Sustainability Reporting Directive (CSRD) in Europe, as well as sustainability reporting standards in Australia, will require significant effort. Related regulations such as the European Union Deforestation Regulation add to the compliance overhead for specific sectors. Businesses should be proactive in understanding and meeting these regulatory requirements.
Businesses should conduct a comprehensive assessment of their exposure to climate-related risks at an enterprise level. This includes evaluating both physical risks, such as extreme weather events and changing environmental conditions, and transitional risks, such as regulatory changes and market shifts. By understanding their specific exposures, organisations can determine both how and when to react effectively.
Prepare now to mitigate future risks
While climate-related risks may not be at the forefront of every business agenda in New Zealand, the evidence suggests that, in the first instance, business leaders should deliberately assess their exposure to both physical and transitional climate related risks. The impacts of climate change are expected to become increasingly material, and possibly faster than expected, and organisations need to act now to mitigate these risks. By taking proactive measures, understanding exposures, and planning for the future, businesses can enhance their resilience, protect their operations, and seize opportunities in a changing climate and regulatory landscape.
Author: Andrew Jamieson
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