This summer, the World Resources Institute and the UNEP Finance Initiative consulted with more than 100 energy, climate, and finance experts to create a discussion framework for investors to weigh exposure to the risks of climate change.
Essentially, it is a toolkit for investors to evaluate a company based on climate risk factors not directly related to physical risk. Most investors can already pick out obvious physical risks, i.e. investing in coastal property as sea levels rise. But non-physical, climate-change effected risks are also important.
The WRI discussion framework addresses those risks, called carbon-asset risks. They include public policy, regulation, technology, unpredictable market conditions, and shifting public opinion.
This discussion framework is an excellent tool for investors to weigh risks as they choose to make investments, but we argue that companies themselves should be looking at this tool to discover their own carbon asset risks and then engaging in some deeper-level analyses and audits.
For example, the assessment recommends that investors look beyond carbon footprinting and delve deeper into company supply chain audits that may uncover risks. For example:
- Geographic location (are too many of your suppliers in the path of a super-typhoon?),
- Local regulations (are the countries your source your raw materials from looking to legislate and increase your costs?),
- Diversification in operations or production (are your products and services too dependent on fossil fuels?).
This discussion framework, while absolutely useful for investors, can also be used as a cheat sheet for your own business. Next step: Start auditing and taking action now to mitigate your climate risk.
Reducing exposure to risk is crucial, not only to become more attractive to investors, but also to become a more sustainable organization overall!
If you’re ready to start looking more deeply at your carbon asset risk, contact us to learn more about sustainability assessment and supply chain analysis.