Tackling climate change

A fundamental business challenge for every organization is to understand and manage the risks associated with climate change across its value chain, now and into the future. ERM works with clients to:

• Map carbon risk across all the activities and geographies in which the business operates;
• Verify and increase disclosure of current and future risks and opportunities to investors and other key stakeholders; and
• Develop and implement a plan of action to manage the risks and maximize business opportunities resulting from the transition to a lower-emissions future.

Forward-looking, scenario-based, climate risk management

The impacts of climate change are increasingly recognized as a material financial risk to businesses. This is requiring a greater focus on issues like the management of supply chains and physical assets that are becoming more important to investors. We partner with our clients and other organizations to understand the business implications of the Paris Agreement – and in what ways companies will need to contribute to a lower-emissions future.

ERM’s approach enables businesses to pursue forward-looking management of climate-related risks and opportunities. This not only helps satisfy investor and shareholder demands for transparency and disclosure, it empowers businesses to make more informed business risk decisions and implement more effective operational changes.

We have deep experience in evaluating transition and physical risk for many industries across a range of geographies, providing consistent technical advice in a business context with a unique and up-to-date perspective of the sustainability and climate change agenda. What sets ERM’s advice in this area apart is our ability to build on our deep technical expertise from working on these issues for more than 20 years, our strong understanding of societal expectations and our commercial acumen.

For many organizations, climate change will generate both risks and opportunities over the coming decades. Their timing and scale is uncertain, driven by policy, regulation, carbon pricing, technology, stakeholder and market sentiment, as well as physical climate change. Faced with this uncertainty, we believe scenario analysis is critical to developing a robust response to both challenges and opportunities.

ERM supports major companies – across a range of sectors – for which both policy and technology related “transition” risks and climate-related “physical” risks could have material financial implications.

ERM was the lead author of a groundbreaking approach for investors and businesses to assess climate financial risk – supporting the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), which is chaired by Michael Bloomberg.

ERM understands the risks and opportunities that the transition to a lower-emissions future presents for companies and investors alike. We have developed a robust scenarios-based approach built on a range of data sources, aligned to our advice to the TCFD, to assess and manage emerging risks and opportunities. Our methodology is adaptable to the client’s needs: holistic or events-based scenarios, top-down portfolio screening and bottom-up asset, value chain and company analysis, as appropriate.

We also work with asset owners, asset managers, and insurers to understand the impact of the carbon transition on their portfolios. For example, a key question for insurance companies is how to assess the materiality of transition risks across different infrastructure investments that will vary greatly by geography, sector and time horizon. As outlined by Mark Carney, the Chair of the Financial Stability Board, the risk of a disorderly transition to a lower-emissions economy could materially impact the global financial markets and hence the financial performance of insurers’ investments in infrastructure.¹

Climate change presents profound implications for businesses. There is, for example, increased regulatory and financial pressure to reduce the greenhouse gas (GHG) intensity of energy supplies resulting in a growing demand for renewables. Physical assets and supply chains are vulnerable to weather and climate change (e.g., sea level rise, increased frequency and severity of extreme weather events, stress on water resources). International shipping is under pressure to reduce emissions, but advances in technology are necessary to generate alternatives to fossil fuels. Leading cities around the world are pursuing lower-emissions development strategies.

The complexities of transitioning to a lower-emissions economy also present significant environmental and social challenges. For example, we are working with companies to develop more sustainable methods of mining to meet market demands for mineral and metal inputs that are integral to lower-emissions technology, from electric car batteries to wind turbines and solar panels.

Businesses increasingly understand that they need to take new approaches to address climate change impacts. They are signing up for leadership initiatives such as Science Based Targets, We Are Still In and RE100, and need to determine how to deliver on their commitments. ERM helps companies do this by assessing their readiness; conducting scenario, risk and opportunity analyses; satisfying stakeholders with regulated and voluntary disclosures; and creating value and mitigating risk across their asset base, value chain and business portfolio mix.

ERM provides technical expertise to enable clients to think more broadly about corporate strategy and anticipate the future. We understand how technical issues and societal challenges and impacts fit into a broader business agenda. Globally, ERM provides climate change strategy and associated risk assessment and risk management support to clients with broad portfolios across different sectors.

To build resilience to climate change and prepare for a lower-emissions future, ERM is helping organizations develop both mitigation strategies and adaptation response plans.

Renewable energy sources are part of the mix in moving to a lower-emissions future. ERM is involved in a range of wind energy projects where we combine technical expertise with an understanding of the wind energy development process, local regulatory systems and stakeholder concerns with a strong appreciation of the commercial context of these developments. We understand that the development process consists of a number of key elements, from site selection, environmental studies, stakeholder engagement and permitting through construction, transmission and operation. Each of these steps is critical to the successful and commercial development of wind energy.

Mainstream investors increasingly are demanding transparency, and shareholders are demanding financial disclosure. As demand for transparency and disclosures increases, organizations can leverage sustainability reporting processes to drive improved business performance and value through a focus on material issues.

The process of developing sustainability reports, inherently a cross-functional exercise, can help drive internal collaboration, innovation and improved decision-making. It becomes a tool to help organizations crystallize their sustainability approach within their business strategy, mitigate risks, improve sustainability and operational performance, strengthen internal management systems and improve relationships with key stakeholders.

ERM collaborates closely with leading international organizations, such as the World Business Council for Sustainable Development (WBCSD), Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and the Carbon Disclosure Project (CDP), to help shape and bring insights to global standards for reporting and disclosure around carbon.