Today’s business climate change conversations cover a wide range of business risks and opportunities. Risk and opportunity are two sides of the same business coin. A risk for one company could be a significant opportunity for another. That’s why we will often focus on the idea of “materiality” as opposed to focusing on an outcome as a “risk” or “opportunity.” And when we do use the word “risk” in Your Climate Change MBA, feel free to replace it with “opportunity” if it better suits your situation.
When it comes to potential risks and opportunities, emissions reduction mandates and carbon pricing have been discussed for decades. More recent conversations have included physical risks, stranded assets, business value at risk, credit risk, brand risk, market transition risk, and litigation and liability risk, as well as the more recent systemic risk conversations.
The physical and policy changes and potential changes when it comes to climate change are creating a far more complicated business decision-making environment for many companies. These variables will not affect all businesses at the same time; indeed, not all variables will affect all businesses in all sectors. Some of the variables are linked to climate change itself, while others can be attributed to policies and measures intended to slow climate change. Some are direct and easy to get one's head around, others reflect second- and third-order impacts of climate change or climate policy. Each is characterized by its own literature.
One of the goals of this chapter is to explore climate risk in a business decision-making context. While a lot of climate change analysis focuses on “expected outcomes,” for example, a majority of business risk actually resides in the “long tail” of the distribution of potential outcomes.
This chapter approaches the topic of business climate risks with risk-adversity in mind, and profiles a wide range of business-relevant climate conversations, including:
- Business Value at Risk
- Climate Change as Credit Risk
- Climate Policy as Business Risk
- Carbon Emissions (and Intensity) as Climate Risk
- Carbon Pricing as Business Risk
- Climate Change as Brand Risk
- Executive Action as Business Risk
- Green Swans as Business Risk
- Indirect Impacts as Business Risk
- Inevitable Policy Response as Business Risk
- Litigation and Liability Risk
- Long Tailed Business Climate Risks
- Physical Risk Assessment
- Stranded Assets Risk
- Systemic Climate Risks (including Real Estate and Food System Shocks)
In Your Climate Change MBA we summarize the conversations, assess variables’ materiality based on differing perspectives and circumstances, and hyperlink you to additional resources in the Climate Web.. Make sure to take account of Systemic Climate Risk. The conversation is relatively recent, but in many ways it is the business risk elephant in the room.