Climate risk reporting: a vital part of business sustainability

Increasingly investors, regulators, and other major stakeholders are demanding organisations to report their exposure to climate-related financial risks. While many organisations are beginning to report on their exposures to climate-related policy, such as carbon pricing, few are yet to fully consider the transitional and physical impacts of climate change on their business.

Following the last 6 months of unprecedented and tumultuous weather across Australia, our Climate Change and Sustainability Services team have seen a rise in demand from organisations seeking to understand and manage their long-term climate-related risks.

In relation to the physical risks, climate projections for Australia show that under our current warming trajectory (which will result in at least 3°C to 4°C of average global warming by 2100), we will experience a continued increase in the severity and frequency of weather extremes. Heat waves will become more frequent, last longer, and result in hotter days. Annual rainfall totals may not significantly change, however the frequency of rain events will decrease. In other words, when it rains, it will pour.

Unfortunately for organisations, while the physical impacts of extreme weather events may be geographically isolated, the economic flow-on impact can be widespread. As with all sustainability matters it is important to understand the impact on both your operations as well as your up and down stream supply chain impacts. Our work with organisations to identify high risk areas and ask the right questions to ensure these exposure is well understood and appropriate risk mitigation strategies are implemented.

Climate change will have varying impacts on each sector of the economy. For example, agricultural producers have already seen a shift in growing regions and seasons. By 2060 in a worst case warming scenario, key horticulture regions in NSW and Victoria are projected to face mean maximum temperatures 2 – 2.5°C hotter than 1995. How can growers and retailers begin to prepare for this continued significant change to their supply chain

Projected change in mean maximum temperatures from a 1986 – 2005 baseline under a worst case warming scenario (RCP8.5)

Modelling: KPMG Climate Change and Sustainability Services

Manufacturers and factory operators in Western Sydney are already experiencing an increased number of lost work hours due to heat. By 2050, today’s hottest summer days are projected to occur twice as often, severely impacting productivity. By projecting the shift in daily maximum temperatures, organisations can begin to anticipate the impact of lost hours on production and labour policies. How can you protect your labour force from these changes? How can you adapt to these changes?

Daily maximum temperature

Modelling: KPMG Climate Change and Sustainability Services

While projecting storm occurrence is more challenging, the building blocks which result in extreme storms developing are clearly becoming more pronounced. Warmer oceans increase evaporation leading to increased intensity of rainfall events and more intense wind speeds within extreme weather systems. By 2040 it is projected that the quantity of rainfall in a 1-in-70 year event in Melbourne will be the same as today’s 1-in-100 year events. How will these events impact your supply chains and the delivery of your product?

As investor and shareholder pressure builds on organisations to report on their non-financial material risks, and the physical impacts of climate change continue to impact operations and profits, gaining a clear understanding of physical climate risks is increasingly important. By asking the right questions and utilising our impact modelling capabilities we assist organisations to understand these risks and manage the long-term impacts of climate change.

 

KPMG’s climate modelling capabilities provide asset owners and asset managers with an understanding of what our future world will look like under different climate scenarios.  

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