AVIATION, TOURISM IN ‘DANGER ZONE’ - KPMG

Six major industry sectors are in particular danger from climate change risks, claims professional services organization KPMG. Aviation, healthcare, tourism, transport, oil and gas and the financial services sector all feature in the “danger zone” in a report on climate change risks from KPMG – meaning that they score highly on the risks which face them yet score poorly in terms of their preparedness to face these risks. Financial institutions are particularly exposed to climate risks through their investment portfolios and through the risk to reputation as consumer awareness grows.

In addition, KPMG claims that the 18 sectors included in the report – even the three deemed to be in the “safe area” – are not sufficiently prepared to deal with the new risks associated with climate change. The climate change risks that companies should be paying more attention to are physical, regulatory and reputational risks as well as the emerging risk of litigation; yet the scope and potential impact of these risks appears to be under-estimated across all sectors.

Commenting on the findings of the report, Alan Buckle, chief executive of Advisory KPMG Europe, said: “We have looked at business sectors right across the global economy and we found that there are huge differences between sectors in terms of the relation between climate change risks and risk preparedness. Industries may be relatively safe, they may be in the danger zone, or they may be in between - but wherever they are, risks tend to be underestimated.”

The report, entitled “Climate Changes Your Business” is some of the most comprehensive analysis of its kind to date. Its findings are based on a review of 50 authoritative published studies addressing the business risks and economic impacts of climate change at sector level. The published reports have been analyzed and a ‘risk score’ for each sector has been assessed. At the same time, the business sectors have been rated according to their preparedness for climate change impacts. Preparedness was measured using data compiled in the latest completed round of the independent Carbon Disclosure Project.

The report grouped sectors into three areas, dependent on the risks they face and their preparedness (see below). Due to the way the figures were compiled, these rankings effectively represent what financial institutions and businesses themselves think about climate change risks.

While the oil and gas sector is far better prepared than any of the other sectors in the ‘danger zone’, the climate change issues it faces make it the riskiest of all the 18 sectors. By contrast, transport is a far less risky sector but its level of preparedness is the worst of all the 18.

However, further analysis of the results by KPMG suggests that even the sectors in the “safe haven” may not be as safe as they would like to think. Alan Buckle continued: “Take a sector like food and beverages for example. This is supposedly a low risk sector yet recent events have shown that this industry is highly vulnerable to climate related risks such as increases in agricultural input costs. The idea therefore that this sector is relatively safe from climate change effects is likely to reflect a significant under-estimation of risk.”

“When considering how businesses report on these risks, it is striking that businesses consistently appear to gloss over certain climate risks even where they have well-established management techniques for dealing with other forms of risk.”

“Some risks are now materialising regardless of the actual rate of climate change, gaining a dynamic and pace of their own. Companies should seek to improve their understanding of how such risks affect their business and they must also mitigate such risks. It pays to be prepared. Companies which understand their climate risks will be best placed to manage those risks – and they will also be able to grasp the competitive advantage that comes with fuller and earlier understanding.”