Risk Managers Worry the Most about Political/Regulatory Environments

by | Apr 30, 2010

Nearly 75 percent of corporate risk managers, who responded to a survey on climate change risk, said political and regulatory environments are their top concerns, according to a survey from Ceres and the Professional Risk Managers International Association (PRMIA).

A key finding reveals that 31 percent of respondents said climate change regulation was one of the top seven risks facing their company. The top five, in addition to political/regulatory environment, include regulatory liability (41.1 percent), fuel power availability and price (37.6 percent), natural disaster (37.1 percent), and IT systems and security (35.1 percent).

When asked how climate change regulation would impact their companies, only 14.5 percent of respondents said government action to address climate change would not impact their company. Over half of these respondents (8.2 percent of the total) reported representing a heavy-emitting industry.

Nearly 31 percent of respondents said they were paying more attention to climate risks, 26.4 percent said they were changing some products to respond to risk or opportunity, 25.2 percent were changing some pricing of their goods or services to compensate for increased costs, and 16.4 percent were assessing insurance coverage. Slightly less than a quarter were “not sure” how their company would respond.

A study released late last year reveals that three-fourths of global oil and gas firms say they believe that climate change could cause business downtime, system failures and safety risks, but only 19 percent say they are taking action.

The Ceres report, “Climate Change Risk Perception and Management: A Survey of Risk Managers” (PDF), indicates that risk managers are aware of climate risk but strategies on how to best mitigate them are mixed. The survey was sponsored by the Zurich Financial Services Group.

Nearly 100 percent of those surveyed who found regulatory risk very likely thought it was possible in the next two years or 2-10 years. They said sustainability or environmental departments (33.3 percent), senior management (27.8 percent), or cross-organizational teams (11.1 percent) have responsibility for managing that risk. Only 13.9 percent indicate no one is assigned the task for managing climate risk, and 11.1 percent weren’t sure who has the responsibility.

A study released September last year from the Economics of Climate Adaptation Working Group shows that climate change risks could cost nations nearly 20 percent of their GDP by 2030.

The report provides several recommendations for risk managers to better understand what these risks mean for their businesses. These include tapping into emerging expertise on evolving climate risks to understand their possible exposure, communicating to all decision makers about their organization’s potential exposure to climate risk, and evaluating their management structures and performance metrics for managing emerging climate risks.

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