View non-flash version
www.sname.org/sname/mt October 2013 Companies can employ iterative learning processes for climate risk management, without necessarily having to deploy major resources or shift strategic directions in the near term. We cant know the future when it comes to either future cli- mate change and climate change impacts, or climate change policy. We know enough, however, to realize that WOPRs puz- zlement in the face of running nuclear war scenarios could very well apply to the climate change game? if we were to approach the problem in the same way. e anticipated risks of climate change are so all encompassing, and so ecologically and soci- etally disruptive, as to suggest that well wish we had chosen not to play the game when we had the chance, or at the very least had shut down the game as soon as we realized what was happening. Avoiding climate change entirely is no longer possible, and it is most likely not up to the maritime sector to decide how long well continue to play the climate change game. e sector needs to prepare for climate risks and for a business environ- ment that could shift rapidly. e question companies and other organizations face is whether they can turn climate risk into competitive opportunity, or at least substantially reduce the risks they face, by understanding and anticipating climate risks better than their competitors. e good news is that internalizing climate risks into corpo- rate strategy does not mean having to climate proof? a company against events and outcomes that might not manifest for decades. But it does suggest that near-term decisions consider future cli- mate risks in order to hedge against uncertainties and minimize future stranded investments. Managing climate risk does not suggest buying into one politi- cal ideology or another, or settling on one climate model above all others. It suggests di erentiating what we really know from the potential implications of known unknowns, while always keeping a lookout for the unknown unknowns that can change the whole risk equation very rapidly. As such, it means looking at the future not in terms of how we hope it will turn out, or even how we expect it to turn out, but rather how it might turn out. Companies can employ iterative learning processes for cli- mate risk management, without necessarily having to deploy major resources or shift strategic directions in the near term. One such approach is comprised of the following ve steps. First, assess corporate vulnerability to climate change haz- ards, identifying the potential manifestations of weather, climate change, and potential policy responses to climate change that are most relevant to a companys business model. Second, understand what, if anything, is already happen- ing to change the corporate operating environment, perhaps by comparing recent weather extremes with long-term records or evolving policy mandates. ird, assess corporate exposure to climate change hazards forecasted to occur over a business-relevant timeframe, casting a wide net over corporate operations, investment decisions, and supply chains. Fourth, structure business risk hypotheses around climate haz- ards for which vulnerability is judged to be potentially material, using current understanding of the hazards to set out alternative hypoth- eses regarding future needs to adapt business operations. And fth, update hypotheses as well as exposure and vulner- ability estimates over time. e beauty of this approach to reducing uncertainty over time is that one doesnt need to focus on predicting the future. Rather, initial e ort can be focused where the most con dence probably exists, namely assessing corporate exposure and vulnerability to alternative climate hazard outcomes (both physical and policy). e associated hypotheses can start from almost any point, from suggesting almost no risk to suggest- ing very material risk. If those hypotheses are signi cantly in error it will become clear relatively quickly as new informa- tion is regularly used to test the hypotheses, and they can be appropriately modi ed. MTMark C. Trexler is an independent management and risk consultant and former director of climate risk for Det Norske Veritas. He is author of the book, Climate Change: 2.0 Enterprise Risk Management , published in 2013.