Modern Insurance Magazine Issue 60

FEATURES
Is it time for
risk managers
to rethink
their role in
the climate
crisis?
With climate risk now the primary concern for
risk managers around the world, Sustainability
Transition expert François Lanavère explains
how the role will become more important to
businesses than ever before.
The job of a risk manager is defined as a) managing an
organisation’s risks, and b) minimising the adverse impact of losses
on the achievement of the organisation’s objectives.
There is nothing placing more risk and presenting more loss to
businesses than the climate crisis. PwC recently confirmed that
55% of global GDP—equivalent to about $58 trillion—is moderately
or highly dependent on nature, and in five key industries including
construction, all of the economic value from company operations
exhibits ‘high dependence’ on the environment.
No wonder, then, that in 2022, climate risk became the number
one global concern for Risk Managers for the very first time. As
natural disasters develop, increase and intensify, the role of the
Risk Manager has, and will continue to become, more essential
than ever.
As part of our offering at The Climate School, AXA Climate recently
worked in partnership with leading specialist consultancies, risk
management experts and research teams alike to build an online
training curriculum specifically designed around upskilling risk
managers and building awareness. Here are some of the most
pressing areas that need to be on your radar, and how you can
begin to take action.
Climate risk - what are the threats?
For a start, there are the simple physical risks. This could range
from your supply chain being unexpectedly disrupted through to
some kind of extreme weather event, such as a freak heat wave
that would disrupt industrial processes or make work impossible.
Yes, you have insurance, but that industry in itself has recently
been shown to have massively underestimated the immediacy
of the effects of climate change. So, it’s only sensible to do your
homework and plot out your company’s possible risk exposure to
events such as unusually strong storms and droughts in key parts
of the world.
Next, question your climate crisis-related financing and talent
risks. Investors are looking for action here, and the Gen Z hires that
you’re soon to be relying on are refusing to work for companies
that aren’t proactive. Do you have policies that could prevent such
long-term existential threats?
Tied to this is the absolute certainty of increased regulation and
climate crisis compliance. Think Scope 3, but also newer systems
like TNFD and Science Based Targets for Nature (SBTN). If you
roll all this together, it’s clear that there will soon be a huge
need for planning – not just cross-company but also in extracompany
communication with partners and suppliers, big work on
communications and PR, serious thinking about product design,
and concrete plans for Green transition. Enterprise transition is a
risky process in itself.
François Lanavère
Head of Strategic Partnerships, AXA Climate
Know your role - identify and quantify!
With all of this in mind, it’s understandable to feel overwhelmed.
However, your role isn’t necessarily to have a firm grasp of exactly
what each risk is. Instead, focus on mastering the methodology
of identifying, quantifying and treating risks over a longer-term
period. Learn to look beyond the 5-year horizon of business that
most risk managers have (now wrongfully) been trained to explore.
Here are some ways in which you can prepare to do just that.
Logically enough, you first need to identify all of the physical
risks and transition issues that concern your company specifically,
crucially looking beyond the five-year horizon wherever you can.
Next, build risk scenarios—a narrative where you plot out various
what-ifs (potential issue, possible causes and consequences). From
these, you and your team need to query the most likely outcome,
and ask what would have the most impact if they happen.
For example, perhaps your production plant will have access to
30% less water in 2030 due to drought. How do you maintain your
production line with that in mind? Are there other ways to produce
your product using less water? How confident are you about that?
Once you’ve assembled all of this information, you can complete
your prep with a quantification exercise. As a model requirement,
the Task Force on Climate-Related Financial Disclosures (TCFD)
will require numbers alongside every part of your new climate risk
model, and your C-Suite will also want to see these figures too.
The catalyst for change is you. Now is the time to grasp the issues
and make huge strategic contributions. Major regulatory deadlines
are fast approaching, each of which offers a unique window of
opportunity. Take advantage and help your company adapt.
The Climate School is one tool that can help you break this problem
down and take assured action.
François Lanavère is Head of Strategic Partnerships at AXA
Climate. AXA Climate provides climate consultancy and
digital training, with initiatives such as The Climate School,
which has been used by more than 4 million people around
the world to upskill their green skills.
To find out more about The Climate School’s dedicated
course for risk management professionals, visit
www.axaclimateschool.com
32 | MODERN INSURANCE