Minimising your financial exposure to climate related risks

Posted: 7th December 2021 Annabel Gray, Sustainability Lead

Outside of the housing sector, there is proactive movement in how organisations identify their climate-related risks, and how they govern them. The UK Government announced that by 2023 all publicly listed UK companies with a premium listing will be required to ‘comply or explain’ with the Taskforce on Climate-Related Financial Disclosure’s (TFCD).

The standards for our sector are set out by the Regulator of Social Housing. While they have not yet formalised this reporting, there is an opportunity to move beyond mere compliance and prepare for the future. framework to assess the financial impact of climate related risks

Some organisations might already be reporting in line with the Government’s policy on Streamlined Energy and Carbon Reporting (SECR). This is a good step in the right direction. However, demand is growing for improved climate-related financial disclosures from lenders, investors, insurers and other stakeholders to aid them in undertaking robust analysis on the financial impacts of climate change.  This should not instil panic. Efforts to reduce environmental impact, and proactively mitigate risks, also produce opportunities for resource efficiency and future cost savings.

 

There are four core elements of climate-related financial disclosure which Housing Providers need to consider:

  • Governance around climate-related risks and opportunities
  • Actual and potential impacts of the climate-related risks and opportunities on your business strategy and financial plans
  • How you identify, assess and manage the risks
  • The metrics and targets to assess and manage relevant risks and opportunities.

Boards and executive teams should be asking themselves the following questions to ensure readiness within these elements:

  • Can we describe our oversight for climate-related risks and opportunities?
  • Have we defined the management’s role in assessing and managing climate-related risks, issues and opportunities?
  • Can we describe the risks and opportunities that we have identified over the short, medium and long term?
  • Do we know what the impact of climate-related risks and opportunities are on our business, strategy and financial plan?
  • Can we describe how resilient our strategy is, taking into account different climate scenarios?
  • Can we describe a clear process for identifying and assessing climate-related risk?
  • Do we have a robust process for identifying, assessing and managing risks? And is this integrated into our organisation’s overall risk management strategy?
  • Have we identified what metrics we will use to assess the climate-related risks and opportunities in line with our strategy and risk management process?
  • Do we disclose our scope 1-3 emissions and the related risk of each metric?
  • Can we describe the targets we use to manage risks and opportunities and our performance against the targets?

Introducing the above framework to assess the financial impact of climate-related risks and issues will open the door to a variety of benefits. For example, easier and better access to capital by increasing confidence with investors and lenders. Also, expected reduction in insurance premiums.

Registered housing providers operating under a “for-profit status”, will be able to proactively address the growing demand from investors for climate-related information. The increased demand amongst investors for greening their portfolios and reducing their risk exposure provides another opportunity for these RPs.

Improving the measurement of an organisation’s climate-related risks and impacts will instigate better all-around risk management and more informed strategic planning across your organisation.

 

To discuss this further, get in touch with Altair’s sustainability lead Annabel Gray.

 

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