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Managing climate change risk needs every part of an organization to act

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After a year in which concern over the environment was trumped by the urgency of the coronavirus pandemic, many organizations once again have the bandwidth to focus on climate change.

As one of the biggest challenges of our time, climate change is a risk for every organization. The need for boards and executives to give close attention to the implications of climate change for business and operating models will only grow over time.

The response to climate change cannot be delegated to one part of an organization acting in isolation; instead, all parts of the organization must be considered, consistent with a coherent plan. For some organizations, effectively addressing climate change will be transformative in nature, and will require significant change.

What does this look like in practice? Below you can see how Nous supported further education bodies in Canada to think deeply about how they could contribute to climate action. As you will see, action was multifaceted and designed to remove the responsibility from a single person or team, and instead activate a whole-of-organizational response.

There are two categories of risk from climate change

When thinking about the impact of climate change on an organization it is helpful to group those risks into two categories.

Firstly, there is the direct impact of climate change on the operations of a business.

Canada is becoming increasingly vulnerable to the growing number and severity of extreme weather events, such as wildfires, floods, severe storms, heatwaves and tornadoes. As the World Economic Forum has documented, [1]

Canada is warming twice as fast as the rest of the world, with damaging impacts on physical infrastructure, coastal and northern communities, human health, ecosystems and fisheries.

This risk is already being experienced today, as organizations whose staff could not work or had to refocus their work due to wildfire impacts last summer can attest. Similar impacts are being felt around the world, including in Australia and the United Kingdom.

Secondly, there is the reputational risk of failing to act on climate change.

Consumers are seeking substantive commitments from the organizations they buy from, wary of previous greenwashing efforts. Increasingly staff are expecting organizations to lead on climate change, with action (or inaction) in this domain likely to affect employment choices, especially among young people. Activist investors are seeking action on climate change as a factor in their investment decisions, while lenders are factoring in climate impacts in their lending decisions.

In a sign of a broader trend, in December 2020, BlackRock, the world’s biggest asset manager with US$7.8 trillion in assets, said it would more than double the number of companies it engages with over climate-related issues to over 1,000 – and use its voting power as a shareholder to act on its conclusions.. [2]

Action on climate change must be broadly based

The risk of climate change is multifaceted, so the approach to managing it must be multifaceted too.

It is not effective to allocate responsibility to a single person (say, the Chief Risk Officer or the Chief Operating Officer) and expect them to drive action. Instead, it is essential that all parts of the business and operating model of the organization are brought along on the response to climate change and consider how their part of the organization must adapt.

Furthermore, for any action, it is vital to consider the ripple effects on other parts of the organization. There are many actions that might make sense when viewed only through the lens of a single business unit, though can have unintended consequences on other parts that need to be factored in.

The organizational response to COVID-19 over the past 12 months has shown multifaceted responses in action. Many organizations quickly realised that managing through COVID-19 involved their whole organization. Customer Service, People, Finance, IT, Operations and many other teams had to rapidly respond, with some requiring a complete pivot from their normal daily operations. A failure of any one part of the organization to pivot when needed could cripple the whole organization’s efforts.

Potential actions on climate change prompt key questions

To understand how an action driven by one part of an organization on climate change will impact others, we have selected three common actions. For each one, we have briefly identified other parts of the organization that must be considered during planning and implementation.

Net zero emissions

Increasing numbers of organizations in Canada and around the world are aiming to reduce their emissions to net zero by a certain date. To deliver this requires major planning.

Organizations need to look broadly for opportunities for meaningful and sustainable change, including creating or adjusting processes, responding to staff and customer expectations, and considering existing governance and risk parameters.

Carbon credits

A carbon offset scheme involves an organization investing in environmental projects to balance emissions generated from its business activity.

From a financial perspective, carbon offsets can be cost-effective. But it may not satisfy customers and staff and may not make best use of internal data and technology.

 

Divestment from carbon-intensive activities

Divestment means diverting capital and funding from companies that engage in heavy fossil fuel-based activities. This aims to reduce the scale of companies’ operations to reduce environmental harm and, in many cases, manage the risk of stranded assets.

But divestment is only effective if employed by many investors. If not, the value of the assets could be maintained by non-participating investors, creating heightened risk for divestors.

 

This approach has been put into action

Nous has put this approach into action with the “Climate action roadmap for further education colleges”, a report we prepared in 2020 for the Climate Commission for UK Higher and Further Education.

In this roadmap, we showed how five areas of activity in UK further education organizations could each contribute to climate action: Leadership and Governance; Teaching, Learning and Research; Estates and Operations; Partnerships and Engagement; and Data Collection.

We spelled out in detail what steps were needed across each area of activity at each stage of action and advancement, from Emerging to Established to Leading.

This process demonstrated how further education organizations can progress their climate action in a way that showed the power of each part acting, as well as the whole organization.

There is a clear path forward

As we have shown, when developing a response to climate change, organizations need to think comprehensively across their business and operating model. This can help an organization minimise risk and maximise opportunities.

COVID-19 has demonstrated organizations can be hugely effective in responding to imminent threats when those threats get executive and board attention. The consequences of climate change threaten to be similarly disruptive. Leaders should be considering their whole-of-organization actions today.

As further education bodies have shown, a detailed road map that brings together every part of an organization in a coherent strategy can have a powerful impact.

Find out more on NousCast Shorts

Get in touch to discuss how Nous can help you take a holistic approach to climate change.

Co-authored by Maree Wilson during her time as a Manager at Nous Group.

Prepared with input from Stephen Petris.

Connect with Simon Guttmann on LinkedIn.

 

[1] Regional Risks for Doing Business 2019,World Economic Forum

[2] “Top investor BlackRock to expand climate talks with companies in 2021”, Reuters, 10 December 2020

When thinking about the impact of climate change on an organisation it is helpful to group those risks into two categories.

Firstly, there is the direct impact of climate change on the operations of a business.

Australia is becoming increasingly vulnerable to the growing number and severity of extreme weather events, such as bushfires, floods, cyclones and drought. As the Australian Academy of Science has documented,

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