Climate Resiliency and ERM

Change is Inevitable

To improve is to change; to be perfect is to change often.

– Winston S. Churchill –

I was thinking about climate resiliency and ERM, and it occurred to me that it is much like personal health management. Not too long ago, I did a general blood scan, and my GP summoned me to a follow-up visit. Imagine my concern when he told me that I had fluctuating potassium levels that showed alarming variations below normal. I snapped into action, embarking on a diet of potassium-rich foods, especially after exercise. I believed that I had licked my problem.

After three months, I proudly reviewed my blood chemistry with my doctor. He told me that my potassium level was acceptable. However, before I could breathe a sigh of relief, he added that now my sodium level is out of alignment. Also, I should review my calcium! Eventually, I came to the conclusion that similar to seasonal changes, as a person ages, their body changes. For example, if I require medication, that may affect my body chemistry, I must change my daily habits. I must manage my life differently than I did as a teenager.

Climate Resiliency and ERM – The Past is Not the Future

The relationship between an organization and risk management is quite similar. We can liken the implementation of our early efforts in climate resiliency to the teenage years of climate change management. Over time, environmental shifts may diminish the effectiveness of these risk control measures and lead to unforeseen consequences. Our actions established on past environmental conditions may become less effective, especially as our current situation shifts in an uncertain and changing climate. As the effects of climate change take effect, weather events become more extreme, stranger, and less predictable. These impacts affect not only physical assets but also our customers and staff may be more susceptible to illnesses and injuries.

Catastrophic events such as wildfire can displace entire populations. In fact, these social disruptions are not without precedent. During the 1930s, entire communities shifted due to drought because of the Dust Bowl. Unwise farming techniques cause widespread loss of vegetation in times of drought, loss of wealth, and displacement of people. Let’s learn from our forefather’s mistakes!

Balance in Climate Resiliency and ERM

Even when we use risk management standards, gaps may become evident over time. In the same way that software often needs updates to deal with new threats, the ISO and COSO standards developers recently implemented upgrades. The renewed COSO standard was published in 2017, and ISO in 2018.

Just as necessary medication can create imbalances in a human body over time, even effective climate resiliency programs will not address climate risks for all time to come. As the climate changes and our knowledge improves, we may find that we have placed too heavy a weighting on resiliency efforts in specific areas. This overemphasis can lead to an imbalance in our efforts, and in resource allocation across all business units. For example, if an organization focusses entirely on the distant future, and single-mindedly pursues greenhouse gas reduction programs, it may be ill-prepared for current climate change risks and events. In fact, both greenhouse gas reduction and climate change adaptation are critical. Organizations must prepare simultaneously for a changing, and unpredictable climate in the present, and reduce greenhouse emissions for future generations.

Climate Resiliency and ERM Tools

ERM standards provide valuable guidance to continually improve and adjust the climate risk management process. As such, ERM standards allow organizations to establish underpinning for a robust resiliency strategy and business success. An organization that scans for new business and climate threats is stronger and better prepared to withstand adverse climate impacts.

Just as the various organs of the human body function together for human health, business units must work together to ensure a healthy organization. Total concentration on one aspect of the business, for example, financial metrics, may result in unhappy personnel, lower productivity, secretive management, and poor corporate reputation. All areas of the organization must contribute to a transparent and strong corporate culture, enabling appropriate resource allocation to deal better with losses from risk exposures. Cooperation and open communication are the basis of ERM. In this way, ERM can serve as the foundation for a climate resilient organization.

ERM Supports Climate Resiliency

Climate resiliency does not require discarding current corporate governance and procedures, especially if they still serve a purpose in global risk reduction and control. In fact, both ISO 31000 and COSO ERM encourage companies to adapt rather than replace existing frameworks. The standards help to assess the areas of existing programs where risk management measures deviate from ERM principles. Additionally, the standards encourage integrating changes that best align within the organization’s culture.

A review of current risk frameworks can detect the effectiveness of risk responses for short and medium term climate hazards. Thus, such analyses can serve as a stepping stone for future growth. In this way, an organization can establish five to ten-year resiliency plans and still keep an eye on the far distant future. Organizations can build on shorter-term momentum. They can apply small and continually improving steps to maintain a focus on both current climate threats and overall resiliency for our great-great-grandchildren. The climate is changing. Organizations must recognize that fact and adapt to address both ongoing and evolving climate risks.

Growing and Changing with Climate Resiliency and ERM

Change is inevitable. A wise person will adopt the knowledge accumulated over the years to age with health and poise. Similarly, wisely managing climate risk, will reflect in a more resilient future. Just as audits measure the state of an organization’s financial health, so too should periodic risk management reviews assess an organization’s resiliency.

Decision-makers must grasp the consequences of climate risk to manage change effectively. This understanding is a fundamental principle of risk management and ERM. A continuous cycle of scanning for vulnerabilities, and adopting management procedures to counter negative impacts is central to nurturing a resilient organization. As well, as the organization matures in its climate resiliency program, it must learn from both positive and negative results. The organization must document these learnings and incorporate them into the corporate memory banks. This approach will allow the organization to mitigate future risk exposures and take advantage of opportunities.

Call to Action

You are not alone. There are folks here to help you out. Seek the advice of climate resiliency and ERM experts. Check out the standards and see how you can adapt them into your organizational structure.

We provide ongoing commentary on these issues. Feel free to contact us, we are always happy to discuss your climate, risk and resiliency.