Prior to COVID-19, companies were already under pressure to address environmental issues from governments, consumers and employees, as well as investors and lenders. COVID-19 has shone a light on how difficult it is to comprehend and prepare for major risk events. This has exposed the disconnect between risk management and business strategy for many companies.
As companies move through the 4 R’s of the pandemic – React, Resilience, Respond, New Reality – there will be very few who do not need to reset their approach to emerging risks.
There are 4 key ways companies should respond
- Rethinking reaction – companies need to acknowledge their vulnerability to high-impact shocks such as pandemics and climate-related risks and be better placed to prepare and react to them in the future. For climate risks this means having a plan before the crisis hits by embracing long term discipline, overcoming the biases that prevent us acting on climate change, and integrating mitigation and adaptation planning into business strategy.
- Focus on becoming more resilient – the key to business survival and future success is resilience. Companies need to have a real understanding of the risks they face against a broad set of interconnected scenarios which demonstrate the cumulative impact of direct and indirect climate related risk impacts.
- Understand your supply chain – it has been made clear through the COVID-19 pandemic that knowledge and understanding of the risks facing supply chains is generally unclear. The past four decades have borne witness to almost exponential growth in global trade flows. COVID-19 has demonstrated how vulnerable global supply chains are to any sort of disruption, be it political, economic or human. Businesses of all sizes and complexity need to take time to fully understand the risks in their supply chains and consider how to respond decisively and proportionately if disruption emerges in the supply chain.
- Defining your business in the New Reality – defining a new reality can be seen as a chance to lean into the future and support the ‘just transition’ addressing all elements of the ESG agenda. Organisations should be developing strategies to ensure they are mitigating climate risks and ceasing climate opportunities.
How can we help?
KPMG’s Climate Risk and Decarbonisation Strategy team can help you understand the nature and scale of the risks and opportunities your business faces from climate change, embed effective risk management and implement the right strategic response. Our experts can guide you at every step of the way as you prepare your business to thrive in a low-carbon world. Our 4 step process can help you to:
- identify and quantify climate risks and opportunities across supply chains under a range of scenarios and understand the impact on business performance
- undertake options analysis to help you assess proposals for mitigating and adapting to risks and seizing opportunities
- implement the agreed strategic response to transform your organisation for the future
- measure progress, ensure robust reporting and communicate your climate strategy effectively to investors.
Climate change is the next high impact, high probability risk that requires urgent action. Meeting global decarbonisation targets will require economic transformation, led by fundamental business model change. Failing to act is likely to lead to severe financial implications. Now is the time to mitigate your risks and realise the opportunities that climate change presents.
Read the previous section: How can we use the lessons learnt from COVID-19 to better prepare for climate change?
Download our report : COVID-19: key lessons for climate change