Flash floods in Germany, wildfires in California and heatwaves in Canada; climate change is top of mind right now, becoming more obvious every day, and sadly many of the losses due to natural catastrophes won’t actually be covered.
In 2019, this ‘protection gap’ was estimated by the Swiss Re Institute to be in the region of $280 billion, a staggering amount that’s more than the GDP of countries like Portugal and New Zealand. The protection gap cuts across our whole world - from individuals to businesses large and small. To my mind, the time has come for companies to seriously consider hiring a Chief Climate Officer. It’s no longer just an ‘insurance risk manager’ issue; it should go all the way to the board.
Take the recent policy announcement by the Financial Conduct Authority, which requires further “climate-related” disclosures from companies with a premium listing on the UK’s stock exchange. This new policy comes into effect during accounting periods beginning on or after 1st January 2021, which means the first annual financial reports under this new rule will be published in early 2022.
This requirement for disclosure is in line with global standards set by the Task Force on Climate-Related Financial Disclosures (TCFD), which specifically concern governance, strategy, risk management, and metrics and targets. While the outcome of these policy requirements won’t be clear until early 2022, one thing that’s certain right now is that the need for climate change professionals is irrefutable.
This need impacts businesses both in financial services and otherwise. For example, if you’re a pension provider that invests in housing stock, what will become of your investments if the houses keep getting flooded? Additionally, climate change is already affecting supply chains globally. Climate hazards often create disruptions, interrupting production, raising costs, and injuring corporate revenues. Acute weather events can completely derail production and cause devastating losses to ill-prepared organisations. Witness the Texas deep freeze in early 2021; it caused supply chain issues that ultimately meant something as mundane as my new patio door was delayed by five weeks as the refining and plastics industries struggled to obtain raw materials.
What does a Chief Climate Officer do?
A Chief Climate Officer can address the climate change aspects of your organisation’s operations and mission. While the role is fairly new and niche, it’s only going to become a more important aspect of business.
A Chief Climate Officer drives and champions a company’s climate change agenda, understands natural hazards as well as company operations, and can shape organisational processes around your climate change values.
Regardless of whether you are an insurance company, a pension fund or a physical/supply chain business, a climate officer can make an impact in many ways:
1. Climate Officers can mitigate the impact on a company’s finances. Much of the legal disclosure and compliance work around climate change can be covered by a firm’s risk and compliance department, but ‘risk’ has many facets and the specific scientific subtleties of climate change means dedicated focus is needed. Some insurers have already employed a science officer to refine their own view of risk (i.e. understanding scientific developments around natural hazards) but outside of the insurance industry, scientific experience around climate and weather is in very short supply.
2. They’ll also help improve public perception and make you more attractive to consumers. This, in turn, can impact your bottom line, because after all, it pays to care. We live in a different world compared to 20 or 30 years ago, and many consumer trends point to consumers being much more focused on understanding how the businesses they use work to help combat climate change.
3. When it comes to talent procurement and retention, having a Climate Officer on board makes your company more attractive to talent who are seeking opportunities with companies and organisations that are invested in addressing the climate change crisis - particularly Generation Xers. The insurance industry has somewhat caught on to this, but other industries can and need to, too.
4. A final element to consider when it comes to the role of a Chief Climate Officer is company value. What if climate change has a bigger impact on how much your company is worth than you think right now? And what about your shareholders and how much they’ll earn? If you’re an insurer and your 1-in-100 year event is suddenly a 1-in-10, that’s a big problem. And businesses involved in physical products, especially at the small and medium end, may well find it very expensive or even impossible to obtain insurance, or even operate. It could be a riverside pub or a factory making semiconductors - the weather doesn’t care.
