For many organisations, the climate-related disclosures journey can seem a complex and complicated undertaking. That’s understandable given this is the first time organisations in New Zealand have been asked to incorporate climate change as a new risk type, and it’s an undertaking that affects many parts of the organisation. Furthermore, it can be difficult to know where to start without fully understanding how it will unfold.
PwC’s climate change and risk experts have developed this guide to assist organisations in understanding what’s required to undertake climate change risk assessment, and how to manage these within their existing risk processes.
If you are interested in getting up to speed with the basics of climate-related disclosures first, please refer to our guide on how to get started on climate-related disclosures.
“Undertaking a climate change risk assessment is a key step that will enable your organisation to progress its climate-related disclosures journey. Work will be required to develop and maintain a list of physical and transition climate risks that is bespoke to your organisation, and some climate change expertise is likely to be required.”
As clearly outlined in the Intergovernmental Panel on Climate Change’s (IPCC) February 2022 Working Group II report, the world faces unavoidable multiple climate hazards over coming decades, even if global warming is limited to 1.5°C. This presents financial risk to the global economy, hence the importance of the TCFD’s recommendations in driving improvements and greater reporting of climate-related financial information.
The TCFD cites three benefits of better disclosure:
To more effectively evaluate climate-related risks to organisations, suppliers and competitors
To better inform decisions on where and when to allocate your capital
To strengthen strategic planning through better evaluation of risks and exposures over the short, medium and long term
Ultimately a climate change risk assessment underpins and informs all subsequent climate change risk management activities.
A first step is to identify physical and transition climate-related risks which are defined as:
Acute - risk from increasing frequency and severity of weather events
Chronic - risk from longer term changes in weather patterns and other climate impacts
Policy and legal - risk from emerging regulation aimed at addressing climate change or from litigation
Technology - risk from emerging technologies aimed at supporting the low carbon transition or adapting to climate impacts
Market - risk from shifting supply and demand curves as economies react to climate change
Reputation - risk of damage to brand value and loss of customer base from shifting public sentiment on climate change
Download the full report for a list of useful resources
Your organisation will need to actively manage climate change risks and periodically refresh them to identify any new risks, which may emerge from changes to your organisation or through external factors, such as new regulations.
A fit-for-climate change risk assessment methodology is essential to enable a well informed view of key risks, and enable robust discussions on how these need to be managed.
Download the full report for additional information on using your existing risk management frameworks and extra assessment criteria.
Opportunity identification is often facilitated by the climate change risk assessment process. Some organisations find it helpful to identify climate-related opportunities at the same time, for example recognising a quick move into green technology it presents as a competitive opportunity, rather than a risk. Appendix 1 of the TCFD’s implementation guidance provides examples of climate-related opportunities and associated potential financial impacts.
Both the TCFD and the draft XRB standards prompt a discussion of identified climate-related opportunities (alongside risks) within the Strategy pillar, in the context of how an organisation may evolve its strategy to seize opportunities while managing risks.
Sources of risk and complexity associated with sustainability and climate change are constantly emerging and present both major challenges and tremendous opportunities for business. More than ever, businesses are being judged by their customers, employees, society and investors on how they deal with these issues.
PwC helps businesses to look at the bigger picture, by striking a balance between staying competitive, driving innovation and preserving our natural environment.
We have the resources and expertise to assist you and your organisation to stay ahead of the curve. We can support your organisation to develop climate change risk assessments, and respond to the challenges and opportunities that a transition to a low carbon future represents, as we all work together to create a sustainable, environmentally responsible Aotearoa.