Guiding Climate Action Through Informed Decision-Making

As pressure mounts from both shareholders and stakeholders to address environmental concerns, the need for evidence-based decision-making becomes imperative. Beyond being a good practice, it is also a requirement for climate disclosure reporting.

Here are 6 key considerations to help guide your climate action decisions:

1. Understanding Thresholds and Tipping Points: A Time-Strategic Approach

Effective response to climate change requires a strategic approach that spans both short and long-term actions. The key lies in identifying thresholds and tipping points, pivotal moments that indicate the need for immediate action.

By monitoring specific metrics, such as the occurrence of floods in successive years at a particular location, organisations can anticipate potential asset failures and allocate investments accordingly. This proactive approach not only mitigates risks but also spreads financial commitments over time, avoiding upfront financial strain.

2. Tailoring Metrics for Diverse Climate Risks: Physical vs. Transition

Not all climate risks are created equal, and recognising the differences between physical and transition risks is crucial. Metrics and targets should be specifically designed to address each type of risk. For instance, physical risk metrics might focus on observable changes, such as extreme weather events or shifts in climate patterns.

In contrast, transition risk metrics should delve into the intricacies of scope 1-3 reporting, going beyond mere emissions reporting. This tailored approach ensures that organisations are equipped to monitor and respond to the unique challenges posed by different climate risks

3. Moving Beyond Scope 1-3 Reporting: Unveiling the Nuances of Transition Risk Metrics

Recognising the clear link between emissions and carbon prices is essential, but a nuanced understanding involves exploring broader aspects of transition risks. Metrics should delve into the resilience of supply chains, the adaptability of business models, and the potential impact of policy changes. This holistic approach ensures a more robust evaluation of transition risks.

4. Building a Knowledge Base through Careful Metric Selection

Forecasting the financial risks associated with climate change is a challenging task, particularly due to the lack of business-specific impact models. However, the careful selection of reporting metrics can build the necessary evidence base.

Organisations, especially those in the early stages of addressing climate risk, can leverage a strategic set of metrics to develop a nuanced understanding of potential financial impacts. This iterative process enables continuous learning and refinement of risk assessment models over time.

5. Integrating Current Events into a Learning System: A Dynamic Approach

By linking metrics to risk assessment, organisations can create a feedback loop that incorporates real-time data and insights. This dynamic approach ensures that climate action remains relevant, effective, and aligned with the ever-changing challenges posed by climate change.

6. Exploring Alignment with Existing Targets: Maximising Impact through Integration

To enhance the effectiveness of climate disclosure, organisations should explore how existing targets for other reporting align with climate disclosure metrics. By integrating climate-related metrics into broader sustainability goals, companies can maximise the impact of their actions.

This alignment fosters a more cohesive and comprehensive approach to corporate responsibility, reinforcing the interconnected nature of various environmental, social, and governance (ESG) factors.

By embracing a tailored, dynamic, and integrated approach to metrics, businesses can navigate the challenges of climate risks while contributing meaningfully to a sustainable future.