Dive Brief:
- While companies are increasingly aware of physical climate risk, integration of climate resilience across corporate efforts is lacking, according to a new paper from the Center for Climate and Energy Solutions and Systemiq, a company focused on driving systems change.
- The report, released Thursday, found gaps in translating resilience into financial terms, fragmented guidance and a lack of top-down leadership on the issue as factors holding back the integration of climate resilience. C2ES and Systemic also released a tool for organizations to self-assess where they are in their climate risk resiliency journey.
- Systemiq Senior Director Tucker Van Aken, one of the report’s authors, told ESG Dive that conversations with companies about their climate resilience journeys revealed that climate resilience lacked frameworks — like those that exist for climate mitigation — to guide companies through the decision-making process.
Dive Insight:
The lack of enterprise integration of climate resilience activities leaves companies open to strategic, operational and legal and compliance risks, as well as financial risks that extend beyond the direct damage. After public companies disclose weather-related disclosures in securities filings, “over half of companies miss revenue growth expectations within a year, and stocks underperform by an average of 2.7 percent within 30 days,” according to an analysis by First Street.
The paper was based on interviews with more than 40 organizations, compiled available research and assessed 30 existing frameworks, tools and market analysis to assess physical climate risk and resilience. The report looked to determine where companies are in their efforts to build climate resilience and what it will take for them to move from “awareness of physical climate risk to scaled action on climate resilience, in their own operations, value chains and in communities where they operate.”
C2ES Vice President of Business Engagement Verena Radulovic, also a report author, said in an interview that the goal was to assess what resources companies have access to and understand where the gaps exist.
“What we found was that there was a lot of tools and resources out there on the how to get to assessment,” she said. “But then when you look at the maturity that a company needs as they get further along — it's not just your operations, it's also the communities in which you operate, it's your supply chains, it's thinking at a holistic level — the resources are thinner there.”
Current climate resilience guidance for companies is strongest on topics like hazard identification, risk exposure assessment and disclosure, according to the report. However, “it is weakest where most companies get stuck,” including on topics like the valuation of climate resilience investments, connecting adaptation plans to capital allocation planning and building financeable pipelines of interventions.”
The paper found that companies’ recognition of physical climate risk — with 65% of public companies now mentioning it in their annual filings, according to the First Street analysis— “has not translated into enterprise readiness.” The report also found a “lack of financial rigor” in how companies are calculating climate resilience, and the “central problem is valuation.”
“Companies often cannot express the benefits of climate resilience investments (e.g., avoided losses, operational continuity, competitive durability) in terms that decision makers trust,” the report said. “Nor are the benefits — such as developing a durable competitive advantage — made clear.”
Among the difficulties in modeling the value of climate resilience actions, companies are typically modeling against a baseline of avoided loss, meaning “many companies are focused on the loss event itself in repairing damage, they don't necessarily think about what is the cost to the broader supply chain disruption,” Van Aken said.
“More sophisticated companies have opened that aperture and are capturing more of that value, but it's still primarily an avoided loss calculation,” he added.
Companies typically lack organizational integration of climate resilience, and “there is rarely a top-down mandate that can drive enterprise-wide action,” according to the paper. Additionally, companies are generally taking a responsive approach to climate resilience and start investing in more resilient systems after a major event. The result is “companies respond to each disruption individually but do not build the enterprise capability or management practices needed to absorb compounding and concurrent shocks to the systems on which they depend.”
In addition to releasing the self-assessment for organizations, C2ES and Systemiq also compiled current guidance, standards and best practices on climate resilience into a navigable catalog.
“As physical climate risks intensify, the companies that are able to deliver reliably through disruption; protect their supply chains and the communities they depend on; and maintain trust with customers, regulators, and investors will stand out among their peers,” C2ES President Nat Keohane said in a press release. “The encouraging news from our research is that many of the building blocks to address key barriers already exist.”
