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

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

After a year in which concern over the environment was trumped by the urgency of the coronavirus pandemic, many organisations 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 organisation. 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 organisation acting in isolation; instead all parts of the organisation must be considered, consistent with a coherent plan. For some organisations, 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 the UK 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-organisational response.

There are two categories of risk from climate change

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,[1] climate change may lengthen the bushfire season, reduce crop yield and livestock production, impact human health due to heatwaves and put pressure on essential infrastructure, such as roads and public transport.

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

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

Consumers are seeking substantive commitments from the organisations they buy from, wary of previous greenwashing efforts. Increasingly staff are expecting organisations to take a leadership role on climate change, with action (or inaction) in this domain likely to impact on 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 organisation are brought along on the response to climate change and consider how their part of the organisation must adapt.

Furthermore, for any action, it is vital to consider the ripple effects on other parts of the organisation. 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 organisational response to COVID-19 over the past 12 months has shown multifaceted responses in action. Many organisations quickly realised that managing through COVID-19 involved their whole organisation. 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 organisation to pivot when needed could cripple the whole organisation’s efforts.

Potential actions on climate change prompt key questions

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

Net zero emissions

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

Organisations 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.

Considerations for net zero emissions

Carbon credits

A carbon offset scheme involves an organisation 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.

Considerations for carbon credits

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.

Considerations for divestment

This approach has been put into action

Nous Group 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 organisations 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 organisations can progress their climate action in a way that showed the power of each part taking action, as well as the organisation as a whole.

There is a clear path forward

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

COVID-19 has demonstrated organisations 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-organisation actions today.

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

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 and Monty Allen.

Connect with Simon Guttmann and Maree Wilson on LinkedIn.

Here more on NousCast Shorts

Published on 25 February 2021.

[1] “What are the impacts of climate change?”, Australian Academy of Science

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