Enterprise Risk Management, 2nd Edition

CHAPTER 30Climate Change Risk

 

JOHN R.S. FRASER, FCPA, FCA

Former Chief Risk Officer, Hydro One Networks Inc.

 

ROB QUAIL, BASc

Principal, Robert Quail Consulting

 

BETTY J. SIMKINS, PhD

Department Head of Finance, Regents Professor of Finance, and Williams Companies Chair of Business, Spears School of Business at Oklahoma State University

 

INTRODUCTION

Climate change has become a topic of increasing concern to risk managers, firms, governments, environmentalists, and businesspeople. Many natural disasters are attributed to changes in the weather patterns. Because climate change is usually viewed as developing over the long term, there is a tendency by some organizations to defer addressing it. However, according to the Sustainability Accounting Standards Board (SASB), industries totaling some 93 percent of U.S. market capitalization are significantly affected by climate risk (SASB 2016). This chapter seeks to explain what are considered to be some of its major causes, the implications, some of the possible solutions, and how risk managers should be involved.

We realize that climate change is a controversial topic that, unfortunately, often gets tangled up in politics, when it is a global concern that cannot be ignored. It is possible that some readers may not agree with our views; however, this book would be incomplete without a chapter addressing climate-related risk management challenges. To accomplish this, we proceed as follows. In the next two sections, we describe ...