By, Tracy Reinhold, Everbridge CSO and Dominic Jones, SVP, Everbridge Business Development & Partner Development
Despite growing concerns surrounding climate related ESG (environmental, social and governance) issues, many organizations have yet to prioritize the topic on their corporate agendas. Ignoring the risks associated with climate change, however, isn’t an option, as climate events are only becoming more frequent and severe. Organizations that fail to address climate risks, and implement effective strategies against them, are likely to find themselves accountable for inadequate action. This may result in legal ramifications, reputational damage, and serious financial consequences. Regulations are Forcing the Move From Inaction to Action Organizations are under increasing regulatory pressure to acknowledge their ESG initiatives. These regulations require organizations to exhibit transparency and openness regarding risks associated with climate change, and promptly implement necessary measures to comply.
In 2022, the US Securities and Exchange Commission (SEC) proposed comprehensive disclosure requirements regarding climate change. These requirements encompass disclosures related to emissions, board oversight, and other relevant aspects. Additionally, the SEC is ramping up its oversight to ensure compliance with its existing rules, in addition to creating a more comprehensive framework that will require organizations to produce consistent, comparable, and reliable climate-related disclosures.
In the UK, regulations were updated in 2020, making it mandatory for companies and limited liability partnerships to report on their climate-related risks and opportunities. This also ensures that organizations are accountable for their environmental impact.
Similarly, in 2021, the European Commission announced the adoption of the Corporate Sustainability Reporting Directive (CSRD) in line with the commitment made under the European Green Deal. This initiative to improve the quality and comparability of corporate ESG disclosures came into force in January 2023, and amends the existing Non-Financial Reporting Directive (NFRD). It will increase reporting requirements for companies falling within its scope. Increasing Pressure From Investors The effects of climate change have also prompted many large institutional investors to exert increasing pressure on organizations to address their ESG agenda. These investors often seek commitments from organizations to reduce emissions and undertake tangible actions related to climate change. Consequently, there is an expectation that corporate boards will expand their oversight to evaluate their organization’s role in climate change and consider necessary changes. Some investors emphasize sustainability efforts, aiming to ensure the organization’s long-term viability and growth, while others advocate for a broader approach to addressing climate change. The Need to Act Now According to Deloitte, 82% of executives said they have been personally impacted by climate events over the past year. Nonetheless, it remains uncertain how many organizations have sufficiently evaluated the consequences of climate change and the financial, legal, and reputational risks it brings. By adopting a proactive stance towards the risks stemming from climate change, organizations can position themselves favorably to navigate the intricate and rapidly evolving environmental landscape. Progressive organizations are shifting their approach to climate change, recognizing that it should be elevated to a topic that warrants oversight at board level. This oversight role must encompass active monitoring facilitated by appropriate management-level leaders or working groups, and to comply with new regulations, the monitoring must be diligently documented in corporate records. The new regulations stipulate that boards must incorporate climate-related risks into their risk management plans and enhance their reporting on the subject, aligning with other reporting requirements. Merely updating a plan annually is no longer sufficient, given the volatile and unpredictable nature of climate change. The Financial Impact Climate change has significant financial implications for organizations. Research by Deloitte suggests that if organizations don’t act now, over 900,000 job opportunities per year could be lost due to climate change, in the US alone, over the next 50 years.
New climate related legislation also has a significant impact on an organization’s growth strategy. In 2022, 90% of the global economy was under the parameters of a net-zero pledge, up from just 16% in 2019. Although most countries’ net-zero commitments are focused on the target date of 2050, countries are creating interim goals and pressuring organizations to do the same. Climate change further affects financing availability and costs, as financial institutions increasingly consider climate risks. This development is expected to result in heightened financing expenses or restricted capital access for organizations deemed high-risk. Consequently, organizations must adopt robust risk management practices, conduct comprehensive climate risk assessments, and formulate strategies to thrive in an evolving low-carbon economy.
The occurrence of severe weather events also poses a direct threat to physical assets and infrastructure, which would lead to substantial financial losses. Supply chains are particularly vulnerable, experiencing escalating costs and mounting pressure to embrace eco-friendly alternatives. The Litigation Impact Since the Paris Agreement in 2015, public awareness of climate change has grown, putting pressure on governments and organizations to act. Governments are implementing regulations to mitigate climate change, and non-compliance can lead to fines and legal consequences. These regulations encompass a wide range of areas, such as emissions standards, adherence to energy efficiency objectives, and the fulfilment of renewable energy mandates.
Globally, there has been a significant increase in litigation concerning climate risks, ESG disclosure requirements, and the efforts of campaign groups to highlight the lack of action on public commitments. Executives are now confronted with the potential consequences of inadequate risk management, which include reputational damage, financial penalties, and legal proceedings. Climate change can also increase insurance costs and limit coverage, posing additional risks to exposed industries. Organizations may be held liable for property damage, injuries, and economic losses resulting from climate change impacts. The Reputational Impact Climate change poses various risks to an organization’s reputation, stemming from negative media coverage, activist campaigns, and investor perception. Consumers are more aware than ever about the environmental impact organizations create and are inclined to support businesses deemed environmentally responsible.
When organizations fail to take sufficient action, they run the risk of damaging their reputation and brand image. How an organization responds to an environmental crisis such as a wildfire or hurricane for example can leave significant and lasting reputational damage. Environmental activists are likely to target faltering organizations through campaigns, protests, and boycotts, drawing attention to their perceived lack of action. This negative publicity can significantly harm their reputation, leading to a possible decline in market share and/or revenue.
To mitigate these risks, organizations should take proactive measures to address climate risks and transparently communicate their efforts to stakeholders. This involves implementing robust processes to address climate-related challenges and actively engaging with stakeholders to foster trust and understanding. By demonstrating a commitment to sustainability and climate action, organizations can not only safeguard their reputation but also attract environmentally conscious consumers and secure the confidence of investors. Four-step plan for effective climate governance To facilitate discussions regarding effective climate resilience and expedite exploratory efforts, Everbridge has developed four principles that serve as a framework to develop climate resilience strategies and plans, while effectively managing associated risks. 1. Assign Ownership Organizations need to become accountable for effectively managing climate-related risks, and prioritize the development of comprehensive strategies to safeguard against challenges posed by ESG issues. Leaders should allocate responsibility for addressing these risks and provide resources and frameworks to empower individuals to understand, manage, and communicate the risks effectively. This involves explicitly assigning oversight at the board level and entrusting the issue to a supporting leader or working group. 2. Assess the Relevant Data It’s imperative for organizations to have access to up-to-date data concerning climate risks. The Task Force on Climate-Related Financial Disclosures (TCFD) provides the leading framework for assessing and responding to risks. Use of such a framework is enhanced using data insights on climate risks and opportunities, and the platform provides specific, consistent, reliable, objective, and timely data. This empowers an organization’s leadership team to make well-informed decisions and take proactive measures in addressing potential challenges. When any risk assessment is undertaken, consideration should always be given to both the likelihood of occurrence and potential impact.
For instance, where historical data or recent alerts suggests a risk of exposure to flooding or wildfire, those are hazards to prepare for using robust workplace safety measures, effective communication systems, and adequate training and resources to employees.
Having access to the right data is vital for effective critical event management and being able to proactively respond to crises. This includes managing notifications from government guidance, travel advice, reports from reputable media outlets, and advice from non-governmental organizations, like the World Health Organization (WHO). Access to additional data that will aid with crisis management is also important – such as knowledge of employee locations, what messages need to be sent, and the status of individual sites and suppliers. A critical event management platform, for instance, uses technology to take manual processes and automate them. Curating ad hoc data feeds to provide richer intelligence, and correlating threats with locations of assets and people, ensures more rapid and comprehensive incident assessment and remediation. 3. Implement Best Practices Frameworks A key mitigation action technique involves implementing an effective framework for organizational resilience, using established best practices. Several notable frameworks, including ISO 22301, ISO 31000, The BSI Organizational Resilience Model, Carnegie Melon’s CERT Resilience Management Model, Disaster Recovery Institute’s Professional Practices for Business Continuity Management, and the Everbridge Best in Resilience™ certification, can serve as valuable references. By incorporating key components from these frameworks, organizations can develop a comprehensive approach to fortifying their overall resilience methodology, including effective mitigation of climate-related risks. Frameworks such as these also provide a tool for management-level working groups to report on program maturity to the board. 4. Report Openly Organizations that adopt a data-driven approach and leverage a platform-supported resilient response framework will find it easier to comply with the growing disclosure regulations and confidently report on climate-related risks to stakeholders, investors, and regulators. Staying abreast of best practices by maintaining consistent communication with climate experts and seeking guidance from reputable third-party organizations is also key. By doing so, organizations can acquire valuable guidance on the latest regulations, reporting requirements, and the most effective strategies to address these issues. The Role of Parametric Insurance in Climate Resilience While traditional insurance to cover climate events remains the norm, there is opportunity for a new resilience model. Insurers play a key role in transferring risk, which helps organizations build operational, financial, and regulatory resilience against complex climate-change-related events. However, due to the uncertain nature of these events, traditional insurance and reinsurance models might overlook risk and may delay the dispersal of funds, preventing customers from being able to react in a timely fashion to these events. Research from Verdantix found that around a third of organizations are likely to pursue alternative finance or parametric insurance. Parametric insurance offers organizations a non-traditional option that protects against predefined events, such as extreme weather events caused by climate change. Instead of a payout being determined by the magnitude of losses, a payout is a set amount based on the magnitude of the event; this alternative eliminates the claims adjustment process, and gets money or remediation aid into the hands of those affected quicker. How Everbridge Plays a Vital role in Building Climate Resilience When an extreme climate event happens, organizations have a duty of care, and must respond swiftly to help keep people, assets, and facilities safe from harm. With the Everbridge critical event management platform, organizations can minimize the impact of climate-related disruptions, recover quickly and with less damage, and maintain their ability to operate and grow in a changing climate—ultimately remaining more competitive in an ever-evolving economic and environmental landscape. In conjunction with our partners, Everbridge can develop a customized, insurance-backed resilience solution that provides customers easy access to capital or remediation resources in the event of a catastrophe. When combined with our industry-leading CEM platform, organizations benefit from holistic business continuity support and a quantifiable return on investment. Conclusion According to the Global Risks Report 2023, published by the World Economic Forum, climate-related concerns emerged as the predominant factors among the top ten most severe risks worldwide for the upcoming decade.
Given the escalating concerns surrounding climate-related ESG issues, it’s crucial for organizations to acknowledge and address the associated risks, as part of their broader risk mitigation strategy. This means establishing processes, implementing plans, and enabling appropriate reporting. Investing in climate resilience as well as climate adaptation measures now will enable organizations to not only protect themselves from potential harm, but also increase their long-term viability and success.
Everbridge (Nasdaq: EVBG) empowers enterprises and government organizations to anticipate, mitigate, respond to, and recover stronger from critical events. In today’s unpredictable world, resilient organizations minimize impact to people and operations, absorb stress, and return to productivity faster when deploying critical event management (CEM) technology. Everbridge digitizes organizational resilience by combining intelligent automation with the industry’s most comprehensive risk data to Keep People Safe and Organizations Running™.
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