A featured contribution from Leadership Perspectives: a curated forum reserved for leaders nominated by our subscribers and vetted by the Construction Tech Review Advisory Board.
Youi Insuranc
New Risk Exposures Facing Insurers Tackling Climate Change
Alison Cameron
What do we know so far? Environmental, Social Governance (ESG) refers to frameworks in place for organizations to manage risks and opportunities related to environmental, social and governance criteria. It should be considered as part of a holistic sustainability strategy. ESG is commonly used for investment and capital allocation decisions, as a company’s corporate policies relating to addressing climate change, community relationships and ethical practices, plus internal controls and audits. Organizations can determine their ESG risk through an ESG risk score. This measures the level of exposure to environmental, social and governance risks. Most commonly, a
100-point scale is used to rate the company’s ability to balance its financial performance against sustainabilityrisks
ESG has three risk categories:
Environmental risks: Impact on the environment such as Carbon footprint; Waste management; Water usage Social risks: Ethical practices and the company’s relationships with stakeholders. For example, impacts on communities in which it operates and supply chains, labour practices, equality, and diversity
Governance risks: Decision making and governing policies. How a company communicates to shareholders and stakeholders; structures, ESG disclosures.
Addressing Climate change risks
To develop a risk management strategy to address Climate change risks, it is important to consider the broader context of environmental and sustainability risks, so they can be assessed against the organizational risk profile. Climate-related financial risks can be broken down into the following:
● Physical risk: This looks at the changing climate conditions and direct impacts
● Transition risk>: Innovation from technology and social adaptation within the economy
> ● Liability risk: > Defined as the risk of no action and regulatory enforcement
Organizations that have already developed ESG frameworks and climate risk working groups may have implemented targets. This can be effective in developing measures and monitoring actions. For instance, companies who are looking to support low–carbon economies with set targets can conduct audits to demonstrate tracking and improvement activities.
.Physical risks can be further described as natural peril events, sea level and temperature impacts. Transition risks focus more on policy and legal requirements (emissions reporting or cost to transition to lower emissions; carbon tax), technology, supply chain and reputational damage. Liability risk is the cost of exposure to fines or regulatory enforcement actions or losses suffered as part of inaction.
Plan of action To develop an effective strategy, it is critical to have a full understanding of the company’s current status and identify exposures. A climate risk assessment will evaluate organizational readiness and awareness of climate-related risks and build the foundation for effective climate risk management.
ESG has three risk categories:
Environmental risks: Impact on the environment such as Carbon footprint; Waste management; Water usage Social risks: Ethical practices and the company’s relationships with stakeholders. For example, impacts on communities in which it operates and supply chains, labour practices, equality, and diversity
Governance risks: Decision making and governing policies. How a company communicates to shareholders and stakeholders; structures, ESG disclosures.
Addressing Climate change risks
To develop a risk management strategy to address Climate change risks, it is important to consider the broader context of environmental and sustainability risks, so they can be assessed against the organizational risk profile. Climate-related financial risks can be broken down into the following:
● Physical risk: This looks at the changing climate conditions and direct impacts
● Transition risk>: Innovation from technology and social adaptation within the economy
> ● Liability risk: > Defined as the risk of no action and regulatory enforcement
Organizations that have already developed ESG frameworks and climate risk working groups may have implemented targets. This can be effective in developing measures and monitoring actions. For instance, companies who are looking to support low–carbon economies with set targets can conduct audits to demonstrate tracking and improvement activities.
.Physical risks can be further described as natural peril events, sea level and temperature impacts. Transition risks focus more on policy and legal requirements (emissions reporting or cost to transition to lower emissions; carbon tax), technology, supply chain and reputational damage. Liability risk is the cost of exposure to fines or regulatory enforcement actions or losses suffered as part of inaction.
Plan of action To develop an effective strategy, it is critical to have a full understanding of the company’s current status and identify exposures. A climate risk assessment will evaluate organizational readiness and awareness of climate-related risks and build the foundation for effective climate risk management.
The articles from these contributors are based on their personal expertise and viewpoints, and do not necessarily reflect the opinions of their employers or affiliated organizations.
