In the early stages of 2020, storms Ciara, Dennis and Jorge have wreaked havoc on many areas of the UK, with it having been the wettest February on record. Businesses are being affected in all kinds of ways, from physical damage to work premises and employees’ homes, transport delays and supply chain disruptions.
Many businesses are impacted and need advice and so it is timely that risk managers can now boost their understanding via a new forum. The Institute of Risk Management (IRM) has recently founded the Climate Change Special Interest Group, which will hold monthly meetings with its core committee members and quarterly events based on climate change risk management research, best practice and solutions.
The IRM’s chair, Iain Wright, said:
“The recent Global Risks Report 2020 from the World Economic Forum has highlighted that risks linked to climate change counted for three of the top five global risks. There is an expectation from key stakeholders including regulators that existing risk management frameworks will need to address risks from climate change and thus the scope of the group will be to support how organizations enhance the maturity of their risk frameworks from identifying through to reporting climate change risks.”
Listed companies should note that the Financial Reporting Council (FRC) has recently announced it is conducting a major review on whether businesses and their auditors are fully outlining the financial risks of climate change within their accounts.
The FRC will assess a number of financial reports from across different sectors to see if they are complying with reporting requirements in connection to the climate emergency. It will also see if auditors are giving this enough consideration and reflecting the risk accurately. Further details on the review are expected early in 2021. The aim is to ensure there is clarity for investors and show where any exposures lie, with the review expected to put pressure on accounting firms as well as leading to more stringent disclosure rules.
According to Sir Jon Thompson, the FRC’s chief executive:
“Not only do boards of UK companies have a responsibility to report their impact on the environment and the risks of climate change to their business, but investors expect them to operate sustainably. Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business.”
Meanwhile, at a recent climate summit, Bank of England governor Mark Carney has called on more large financial institutions to join the Task Force on Climate-Related Financial Disclosures.
This was set up in 2015 by the Financial Stability Board “to develop voluntary, consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders.” He said: “We will work with authorities to commit to pathways to make that reporting mandatory.”
Challenges for SMEs
While they may not have shareholders to contend with, those tasked with managing risks for smaller firms may well be finding that extreme weather conditions are creating both day to day and longer-term problems. If affected by flood, it can become increasingly difficult to find affordable insurance and every effort should be made to show an insurer that the business has increased its resilience. It may be possible to apply for the Business Flood Recovery Grant to help fund this and for those impacted, there is also business rates relief available for a period of at least three months. Some local authorities in the worst hit areas have also set up emergency funding packages.
But ‘sticking plaster’ measures will only go so far, and it is now increasingly evident that many more parts of the UK are set to experience flood damage with government measures in terms of better flood defenses being insufficient. The effects of rising sea levels and heavier and more persistent rain are only set to worsen, which is why taking steps now in terms of managing the increasing risk should be considered a business priority.