To achieve the company´s vision and mission and to align with its targets it is inevitable for an organization to take potential risks and opportunities into consideration. Since companies´ risks are embedded and in context with global risks, topics which are regarded as globally pressing issues are at the same time company risks. Recently, the new Global Risks Report 2021 was published and provides an overview and assessment of the most pressing risks (WEF, 2021). To address current risks and recognize opportunities arising from them, the Carbon Disclosure Project (CDP) serves as a tool which supports companies to identify, assess and respond to climate-related risks and opportunities (CDP, 2021).
World Risk Report
Not least the impact of the COVID-19 pandemic has shown that the world community cannot wait any longer and must now to respond against the acute impacts of key issues of our time such as the economy, environment, technology, and public health. To tackle these, stakeholders must respond quickly and with purpose in an increasingly fragmented global landscape.
Recently, the new Global Risks Report 2021 was released and provides an overview of the most pressing risks of today. According to the report, especially environmental risks such as extreme weather, climate action failure, human-made environmental disasters, biodiversity loss, and infectious diseases are estimated to be the most pressing global risks in terms of their likelihood. The impacts of climate change are even more intense than expected: the last five years are the warmest since weather records began, and natural disasters occur on an increasingly frequent scale. Global warming is on track to increase by at least 3°C until the end of the century which is twice as high as experts have warned. A global warming of more than 2°C would cross the limit to avoid severe economic, social, and environmental impacts.
By impact, the highest global risk are infectious diseases. This rating mainly stems from the COVID-19 pandemic situation which is still in place and effects almost every topic of our daily lives. Among the other top risks are climate action failure, weapons of mass destruction, biodiversity loss and a crisis of natural resources. The following figure (figure 1) shows the relation between likelihood and impact of potential risks. Both, infectious diseases and climate action failure, are considered to be the most impactful and likely risks.
Figure 1: Global Risks Landscape (Source: World Economic Forum Global Risks Perception Survey 2021)
Since companies are embedded in the global system, they influence and are influenced by risks. Looking at potential risks and opportunities is inevitable for an organization to achieve its long-term strategy goals.
The CDP (formerly the Carbon Disclosure Project) can serve companies as a tool to develop, adapt and enrich corporate risk management. By means of its questionnaire it asks organizations whether they have identified inherent climate-related risks that might put substantial financial and/ or strategic impact on their business. 53% of all companies report to the CDP that they would identify inherent climate-related risks. In the power, retail, mineral extraction, and fossil fuels industries, even nearly 80% of organizations identify substantive climate-related risks. There are two types of climate-related risks which are mutually dependent on each other: transition risks and physical risks.
Transition risks include technology, reputation, market, policy, and legal risks. Examples concerning policy and legal topics are increased pricing of greenhouse gas emissions and enhanced emissions reporting obligations. In the field of physical risks, there is a difference between acute and chronic risk. Heat waves and flood grows are considered to be acute whereas drought and rising sea levels are chronic risks.
But if effectively managed, risks can also be opportunities. 80% of companies in the financial services sector as well as in the fossil fuels and power industry report that they face climate-related opportunities. These climate-related opportunities can be found in the field of resource efficiency, energy source, products and services, markets, and an overall gain of resilience against changing environmental conditions. Such opportunities do not only have to positively effect just one point but can work in several places. For instance, opportunities in the development of new products and services not only affect the customer but also direct operational parts in the supply chain (CDP, 2020).
DFGE and CDP
It is everyone´s responsibility to address climate-related risks for future generations. The CDP questionnaire supports companies to identify, assess and respond to climate-related risks and opportunities (CDP, 2019).
Since DFGE – Institute for Energy, Ecology and Economy – became a Silver Climate Change Consultancy Partner it has accompanied well-known companies in answering the CDP questionnaire. We provide support for the CDP Climate Change and CDP Supply Chain Program, but also for CDP Water and CDP Forest questionnaires. Since this CDP accreditation imparts a unique seal of quality, DFGE is the first partner of choice in the DACH-region.
DFGE can support your organization in improving its sustainability performance, focusing on risks and opportunities, and to successfully take part at the CDP and other sustainability ratings and initiatives. Contact us via mail or per phone: +49 819299733 20 to receive more information!
- World Economic Forum (2021). The Global Risks Report. https://www.weforum.org/reports/the-global-risks-report-2021. Last access: 09.03.2021
- CDP (2020). Understanding climate risks and opportunities for improved CDP disclosure. https://dfge.de/en/download-recorded-cdp-dfge-webinar/. Last access: 09.03.2021
- CDP (2019). Major risk or rosy opportunity – are companies ready for climate change? https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/004/588/original/CDP_Climate_Change_report_2019.pdf?1562321876. Last access: 09.03.2021