Half of EU firms rank climate change within top 10 risks

European business leaders tend to see climate change as much more of a risk than their non-EU counterparts, with 49% of companies ranking climate risk in their top 10 concerns, compared to 24% overall.

This is according to a survey of 436 executives from global organisations, conducted in collaboration between the universities of North Carolina and its Enterprise Risk Management or ERM Initiative, Bari Aldo Moro in Italy and Katowice in Poland. 

The survey aimed to understand how organizations assess risks related to climate in relation to their business models, in response to changing investor, customers, employee and government expectations. It revealed varying views on climate risk, with European companies much more advanced than others in assessing and mitigating it.

Organisations with headquarters or operations in the EU are twice as likely to view climate risk as a top 10 risk concern. In addition, 57% of them say that investor expectations related to climate risk have increased in the past two years, compared to just 28% for non-EU organisations.

As a result, EU firms are also more prepared than others to handle climate risks: 49% have designed and implemented systematic processes to manage these risks, and the same proportion have a management-level risk committee overseeing this work. This falls to 19% and 14% respectively for non-EU companies.

Sectoral differences in climate risk approaches

Beyond the geographic divide between European and non-European firms, the survey also revealed sectoral differences in how companies approach climate risk.

For instance, utilities, energy, consumer discretionary products, and communication services organisations are most likely to have designed and implemented systematic processes for managing climate risks, especially if they have headquarters or operations in the EU.

When it comes to management-level climate risk committees, energy, consumer discretionary products, IT and financial services are the industries most likely to resort to this mechanism, again even more so if they are EU-based.

Climate risk remains underrated

Overall, just 24% of companies surveyed view climate risks as a top 10 concern, while nearly half (45%) do not see climate risks as an enterprise-level concern.

This is despite the fact that climate risks could cost companies an estimated US$1.2 trillion a year by 2050, and that climate adaptation measures have been shown to bring very high returns on investment.

A growing number of firms (36%) have seen investor expectations around climate risk management increase somewhat to extensively over the past two years, while 43% say that customers, employee and supplier expectations have also increased at that level in that same time period.

Still, nearly half (43%) of companies surveyed have no processes in place and no reporting of climate risks to senior management or the board.

“Overall, the integration of climate risk management and strategic planning appears to be limited across our full sample of organizations. However, a quarter of organisations with operations in the EU signal a high or very high appreciation for strategic opportunities provided by climate risks as compared to less than 10% of non-EU firms. This suggests that more dedicated focus on climate risk management may help leaders recognize emerging opportunities that a strategically focused view on climate risks might provide,” the ERM Initiative writes.