Aviation, healthcare, tourism, transport, oil and gas and the financial services sector all feature in the “danger zone” in a report on climate change risks from KPMG – meaning that they score highly on the risks which face them, yet score poorly in terms of their preparedness to face these risks.
In addition, KPMG claims that the 18 sectors included in the report – even the three deemed to be in the “safe area” – are not sufficiently prepared to deal with the new risks associated with climate change.
The climate change risks that companies should be paying more attention to are physical, regulatory and reputational risks as well as the emerging risk of litigation; yet the scope and potential impact of these risks appears to be under-estimated across all sectors.
Chi Woo Mun, associate director and head of climate change for KPMG, says: “This report examined business sectors right across the global economy and it found that there are huge differences between sectors in terms of the relation between climate change risks and risk preparedness. Industries may be relatively safe, they may be in the danger zone, or they may be in between – but wherever they are, risks tend to be underestimated.”
The report, entitled “Climate Changes Your Business” is some of the most comprehensive analysis of its kind to date. Its findings are based on a review of 50 authoritative published studies addressing the business risks and economic impacts of climate change at sector level. The published reports have been analysed and a ‘risk score’ for each sector has been assessed. At the same time, the business sectors have been rated according to their preparedness for climate change impacts. Preparedness was measured using data compiled in the latest completed round of the independent Carbon Disclosure Project.
The report grouped sectors into three areas, dependent on the risks they face and their preparedness
According to Woo: “Climate change is recognised to be a greater threat to Africa due to our lower capacity to mitigate and adapt to this challenge in relation to ‘richer’ nations. We are also more dependent on agricultural industries, which are very exposed to the risks mentioned in this report.
"South Africa, in particular, will come against strong international pressure due to our high emissions intensity and as a result companies need to go through a journey of awareness and learning and the development of strategic responses that take account of evolving regulations and consumer expectations, carbon footprints and reduction opportunities, and of course physical risks flowing from climate change.”
Further analysis of the results by KPMG suggests that even the sectors in the “safe haven” may not be as safe as they would like to think.
Woo continues: “Take a sector like food and beverages for example. This is supposedly a low risk sector yet recent events have shown that this industry is highly vulnerable to climate related risks such as increases in agricultural input costs. The idea therefore that this sector is relatively safe from climate change effects is likely to reflect a significant under-estimation of risk.
“When considering how businesses report on these risks, it is striking that businesses consistently appear to gloss over certain climate risks even where they have well-established management techniques for dealing with other forms of risk.
“Some risks are now materialising regardless of the actual rate of climate change, gaining a dynamic and pace of their own. Companies should seek to improve their understanding of how such risks affect their business and they must also mitigate such risks. It pays to be prepared. Companies which understand their climate risks will be best placed to manage those risks – and they will also be able to grasp the competitive advantage that comes with fuller and earlier understanding," he says.
“Climate change and the associated risks is a business challenge today that has far reaching socio-economic impacts and companies needs to examine their sustainability in relation to these pertinent issues. Certainly a better understanding of the specific business implications of climate change is likely to lead to better decision-making overall."