Download Richenda Connell Presentation - Is Climate Change a Risk

Is climate change a
risk issue?
Dr Richenda Connell
Acclimatise
IHT ‘Moving people changing expectations’
2 October 2008
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We face two climate change
challenges – mitigation & adaptation
• Future climate change is already built into the
climate system:
– 40+ years of rising temperatures, changing
precipitation, centuries of sea level rise…
• We have to adapt to
•
inevitable climate
change
We must also take
strong action to reduce
emissions if we are to
avoid the worst effects
in the longer-term
Inevitable
climate
change
Source: IPCC AR4 SPM
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“Adaptation is the only response available for the climate change
impacts that will occur over the next several decades before mitigation
measures can have an effect.”
Sir Nicholas Stern
“The firms that will prosper in a climate-changed world will tend to be
those that are: early to recognise its importance and its inexorability;
foresee at least some of the implications for their industry; and take
appropriate steps well in advance. The pace of a firm’s adaptation to
climate change and related policy is thus likely to prove to be another
of the forces that will influence whether, over the next several years,
any given firm survives and prospers; or withers and, quite possibly,
dies.”
Dr John Llewellyn, Senior Economic Policy Advisor, Lehman Brothers
"Ten years ago we were talking about these impacts affecting our children
and our grandchildren. Now it is happening to us. Even if we achieve a
cap at two degrees, there is a stock of major impacts out there already
and that means adaptation. You cannot mitigate your way out of this
problem. The choice is between a damaged world or a future with a
severely damaged world."
Professor Martin Parry, Co-chairman of the IPCC
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Decisions based on historic
climate data are no longer robust
Changes in physical and biological
systems, 1970-2004
[Source: IPCC AR4 SPM]
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What are stakeholders saying
about inevitable climate change?
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Investors are asking difficult questions
of the companies in which they invest
• USS, Railpen, Hendersons, Insight Investment released a report
earlier this year, “Managing the Unavoidable: Understanding the
investment implications of adapting to climate change”
• Peter Moon, Chief Investment Officer, USS
– “We need more and better information about how companies and
other assets will be affected so that we can make better informed
decisions as to how we allocate our long-term capital.”
• Rory Sullivan, Head of Investor Responsibility, Insight Investment
– “Adaptation has been the poor relation in the climate change
debate. This project will provide us and other investors with a
framework within which to analyse all of the risks - and opportunities
- that a changing climate brings.”
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Banks are considering climate change in
credit risk analysis
• “Changing weather patterns may impact in a variety of ways,
including the physical risk to fixed assets arising from storm
damage or flood, impacts on the supply chain arising from
increasing scarcity of natural resources such as water, and
shifting patterns in demand for goods and services due to
increased extremes of temperature.”
• “They may impact asset values, and hence potentially
weaken a company's balance sheet; they may increase
costs, as raw materials or other inputs become scarce, or as
operations or working practices need to change; or they may
reduce the demand for a company's products or services.”
• “…these impacts may be valid considerations in credit
risk analysis for lending banks.”
Barclays Environmental Risk
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Insurance companies are voicing their
concerns – some now refuse to insure in
vulnerable locations
• “Insurance is in the front line of climate change…. it is
insurance companies that will have the responsibility of dealing
with many of its consequences. And it is insurers who must be
equipped to analyse the new risks that flow from climate
change, and to help customers manage these risks.”
(Association of British Insurers)
Weather related catastrophes and insured losses
Source: ‘Financial risks of climate change’ ABI, 2005.
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Report prepared©by
Acclimatise
Professional institutions are
mainstreaming climate adaptation
• Chartered Institution of
•
•
•
Building Services
Engineers (CIBSE)
provides weather data
based on historical
observations for building
performance simulation
(heating, cooling and
energy)
CIBSE recognise use of
historical data is
inappropriate for design of
new buildings, because of
climate change
2005 - CIBSE issued
guidance advocating use of
‘morphed’ weather to allow
for climate change
GLA is considering making
this mandatory
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Climate change is now ‘reasonably
foreseeable’
• A leading law firm has stated that:
– “The effects of climate change can
now be regarded as being reasonably
foreseeable at every stage – from
initial instruction, through the design
and planning process to construction
and beyond. It must be incumbent
upon professional advisors to ensure
that appropriate steps have been
taken.”
• This has consequences for all those with
legal duties for decision making and those
providing advice
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Climate change is a risk
management issue
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Climate risks can be embedded
into mainstream decision-making
•
•
•
•
Bring ‘climate
adaptation’ and
‘risk
management’
worlds together
Mainstream
climate risks
within company’s
existing risk
management
processes
Start with the
strategic
objectives and
how these will be
affected
Drill down to
functional levels
What is this project
aiming to achieve?
How can the project ensure that it continues to
deliver successfully on its objectives in the face of
climate variability and climate change? What are
the opportunities from climate change for the
project?
Develop criteria for assessing
risks and adaptation options,
including critical thresholds &
sensitivities, legislation, cost, risk
attitude etc
Undertake tiered risk
assessment, drawing on latest
climate change trends and
future projections
Evaluate against Stage 2
criteria
Bring information
together
Undertake final
checks
[Source: Willows & Connell, 2003]
Evaluate risk
management
options against
Stage 2 criteria
Identify risk
management
(adaptation) options:
 No regret & low
regret options
 Win-win options
 Adaptive
management
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Identify climatic linkages to
business success criteria
• Identify critical success criteria and the causal chain linking
•
•
•
– Observed climatic
trends & variability
– Latest climate change
science
Success criteria
•
them to climatic factors
Consider risk attitude: optimistic, precautionary (‘risk
averse’), least regret
Understand climatic
vulnerabilities
Identify critical climatic
thresholds and
sensitivities
Identify key risks:
• UKCIP08
[Source: Willows & Connell, 2003]
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Changing climate risks should be
incorporated into financial models
• Importance of
•
•
•
•
cash flow
forecasting
Impact on profit of
small % increase
in operating costs
Impact on profit of
decrease in
income
No provision for
unplanned
additional
investment
Effect on investor
confidence
Cost/income pressures on free cash
due to unmanaged climate risks
Proactive adaptation can save money: The World Bank and the US
Geological Survey estimate that economic losses worldwide from natural
disasters in the 1990s could have been reduced by $280bn if $40bn had
been invested in preventative measures© Copyright Acclimatise and Climate Risk Management Limited 2008
Useful strategies for decision-making in
the face of uncertainty
• ‘No regret’: Deliver benefits that exceed their costs, whatever
the extent of climate change
E.g. Preparing for questions from investors, analysts, lenders,
lawyers etc
E.g. If already experiencing weather-related problems, carry out
cost-effective actions to deal with them
• ‘Low regret’: Low cost, potentially large benefits under
climate change
E.g. Building climate change in at the design stage for new
cooling systems
• ‘Win-win’: Measures that contribute to climate adaptation and
also deliver other benefits
• ‘Flexible/adaptable’: Keep open / increase options that allow
climate adaptation in future, when need for adaptation and
performance of different measures is less uncertain
E.g. Flood management: It may be sensible to allow for future
increases in defence height, while not building to a higher
standard immediately
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