Climate Change and ESG Are Valid Concerns, But That Doesn’t Mean Risk Managers Should Panic

By: | December 14, 2021

Dr. Louis Gritzo is vice president and manager of research with FM Global. He oversees a team of scientists specializing in fire, explosions, natural hazards, risk and reliability, and cyber in order to prevent property and business interruption losses. In 2015, he was as an invited panelist in two sessions at the UN World Conference on Disaster Risk Management in Sendai, Japan. He can be reached at [email protected].

In February 2022, the Intergovernmental Panel on Climate Change (IPCC) will issue its Working Group II report, focusing on the impacts, adaptation and vulnerabilities facing the world from a changing climate.

And while that report will spark discussion as to how society will deal with those changes, for risk managers, the challenge is how to be resilient to them —both financially and otherwise.

For many organizations around the world, some of the most visible impacts of a changing climate are the ones that they should be most concerned about.

Extreme weather, flooding, wildfires that can cause property damage and supply chain disruption are not new to risk management, but the uncertain extent to which these hazards will change is uncharted territory.

Notably, data and models show that wet areas of the planet are becoming wetter from extreme rainfall and increasing flood risk, while dry areas are becoming drier, increasing drought and wildfire risk.

Additionally, while the data on how a changing climate will affect hazards such as windstorms and hurricanes are less certain, some studies forecast that a warmer world will result in more severe hurricanes in the future.

Fortunately, today’s risk managers have the power to control the destiny and resilience of their organizations. We already know the potential perils from the changing climate and where they are the most significant.

The question is, where to invest time and effort to reducing risk in a way that will make the organization most resilient?

Start with Flood

The absolute first and foremost peril to address is flood.

Fortunately, there are many good options for reducing the risk from flood. These include physical barriers to keep water away from and out of buildings, and good emergency response plans.

When combined, these strategies go a long way to help companies control their own destiny from this changing hazard.

Then Comes Fire

Second, wildfires are posing increased risk to businesses.

Drier weather and the accumulation of forest materials produce more severe fires that put an increasing number of locations in proximity to forested regions at risk.

To protect against the damage wildfires can cause, using noncombustible construction material is the best choice.

In addition, keeping an open, green space between buildings and forest materials, sealing openings, and making sure to remove dry leaves, pine needles or other light materials that can be ignited by flying embers will make a huge difference in mitigating wildfire damage.

Where Reducing Risk Meets ESG Efforts 

The main hazards that are exacerbated by a changing climate aren’t new, and with the addition of new innovative measures, protecting against damage or business interruption is easier than ever. The challenge for risk managers is to recognize that the frequency and the severity of flood and wildfire is increasing and more in some areas than others.

Making the right reduction choices has never been more important.

At the same time, company leadership is increasingly seeking to achieve environmentally-friendly measures to improve sustainability as part of corporate ESG efforts.

For risk managers, specifically understanding your company’s sustainability objectives, what they include and whether are they being implemented in a risk-conscious fashion is critical. Such steps might include things like installing solar panels or enhancing insulation on buildings to be more energy efficient.

Risk managers are the ones to ask what new hazards are being introduced by these ESG measures and can help define the right means of achieving them without adding risk. The relationship is even broader — any measures that reduce damage improve a company’s sustainability posture by reducing the environmental impact of the damage, disposal and replacements.

Finally, Addressing Climate Change with Confidence

Overall, it is vitally important that risk managers don’t get caught in the uncertainty trap surrounding the changing climate — “Since we don’t know exactly how it’s going to manifest itself, we don’t do anything.” That is the worst possible outcome.

The Earth’s climate is changing and so are the property-related risks.

That’s why it’s critical to plan and take steps to counter increasing climate perils now to remain resilient in the future. The most important thing is ensuring you have the fundamentals of risk reduction in place, because no one knows exactly how things will manifest themselves down the road.

It’s worth remembering, rather than trying to prepare for the exact climate-related event that may strike your facility or distribution center, it’s better to prepare more broadly for the types of perils that property may face. Doing so shows time and time again that this is the best way to be resilient in both the current world and in the future. &

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