The changing face of climate change risk measurement and management

For policy makers, investor groups and business’ operating in Australia, the last few weeks have changed the way climate change risks should, and will be managed in Australia in the coming years.

The 31 March release of the latest report by the International Panel on Climate Change (IPCC), AR5, delivers indisputable proof supporting the science of climate change. The results, described in more detail in Energetics' article discussing the final report, highlight the medium and long-term risks to energy, food and water security without strong mitigating action.

Ongoing regulatory uncertainty

The release of AR5 occurred days before the likely finalisation of the Australian Senate following the Western Australian by-election. The election of a third Palmer United Senator shifts the balance of power to minor parties and creates more uncertainty for the future of Australian climate change policy. The Palmer United Party (PUP) have a publicly stated position against carbon pricing, leading to an almost certain repeal of the Clean Energy Future legislative package.

The PUP positioning on the proposed Direct Action Plan, and the Emissions Reduction Fund (ERF), is less clear. The relative silence of the PUP’s ERF position creates a potential climate change policy vacuum at a federal level for this election cycle.

The rise of social activism

Climate change action, however, does not operate in a vacuum and in the absence of a clear government climate change policy, pressure will start to be applied from the bottom-up – specifically from growing public pressure and an increase in social activism against businesses who are perceived as laggards in addressing climate change.

From an Australian context the pressure from social activism groups such as has been mounting against the fossil fuel sector. On 3 May, the group will be hosting the inaugural “National Day of Divestment Action” encouraging customers of big four banks to switch accounts in a bid to encourage financial divestment from fossil fuel assets.

How can the risk be managed?

This increased regulatory uncertainty, and resultant rise in social activity has resulted in a paradigm shift as to how internal climate change risks should be measured and managed. Uncertainty creates a climate change “risk premium” that will impact on all major investment decisions. Company boards have a fiduciary duty to address this paradigm shift, and develop a strong approach to managing the impacts of climate change.

In the near to medium term climate change will present major financial and reputational risks for Australian business, as the link between climate change performance and investor confidence grows.

Companies operating in Australia, especially those who are high profile, and well recognised as being emissions intensive, need to be proactive in building a strong public stance on climate change, or risk losing investor confidence.

With extensive experience in energy and carbon management issues, Energetics’ experts can assist your business to assess its shifting risk profile, and develop a strategic response. 

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