Risk managers urged to increase climate resilience with global warming targets unlikely to be met

Risk managers are being urged to fully grasp their companies’ exposure to climate risk and develop resilience strategies in a new report from Zurich Insurance Group, which warns that global warming targets are likely to be missed. Zurich says the risks of more intense hurricanes, storms and flooding will increase if the target to prevent global temperatures from rising above two degrees celsius, as set out in the Paris Agreement, is not met. Moreover, it warns that global companies and risk managers should work on the basis that these targets will not be met. “The current level of efforts to keep global temperatures from rising over two degrees celsius above pre-industrial levels will likely fail, so businesses should prepare for the physical consequences of a warming planet. Companies must know the magnitude of their climate risk, so that they can prioritise actions based on their particular circumstances,” states Alison Martin, group chief risk officer at Zurich, in the report published to coincide with Climate Week NYC. “While good progress has been made, our scorecard tells us this is still falling short of what is needed to sustainably transition the global economy and societies to a 2C scenario,” Zurich notes, adding: “The longer it takes to adequately tackle global warming, the greater the efforts and disruption will be needed in the decades ahead to counter the rise in extreme weather events.” Zurich stresses the need for firms to strengthen resilience to severe weather-related catastrophe events. “It’s crucial for businesses to develop a climate resilience adaptation strategy and act on it now,” Ms Martin says. In advice to risk managers, Zurich sets out a three-step strategy to strengthen defences. This involves identifying business and strategic risks, taking a more granular view of climate risks by location, and developing a mitigation strategy that incorporates resilience and insurance. Firms should also implement enterprise-wide greenhouse gas emission mitigation strategies, particularly those in carbon-intensive industries, says Zurich. Boards play a pivotal role in this process, the insurer adds. Zurich says prevention measures are the first form of defence against climate risk. “We encourage building more resilient critical infrastructure, which can help our customers and governments adapt to climate change. We firmly believe in prevention as the best form of protection. Adaptation costs for climate change effects may be significantly lower than damage costs,” Ms Martin says. Zurich’s flood resilience programme reveals that every dollar spent on flood prevention saves five dollars on recovery efforts. The insurer said lessons learned from its flood resilience programme, the Post Event Review Capability, can equally be applied to other climate and weather risks. Risk management frameworks can also be applied to managing climate risk, working on the basic five-step approach to assess and identify, explore and investigate, implement, appoint and collaborate, continues Zurich. The report looks at the impact of failing to meet the internationally set global warming target, but also looks at a second scenario where global temperatures are maintained at below two degrees Celsius, with companies exposed to transition risks in a lower-carbon environment. The report says the physical effects of climate risk are likely to take decades to manifest, but transition risks – mainly technology and policy driven – will impact economies and society in a much shorter timeframe.

Risk managers urged to increase climate resilience with global warming targets unlikely to be met

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