The world witnessed one of the worst economic crises in history due to COVID-19. Businesses were forced to shut down and grocery stores were emptied out by panicked buyers world-wide.
While the pandemic hasn’t devastated all businesses, many are still dealing with the repercussions more than two years later.
The pandemic has made company directors pay more attention to any risks associated with running a business. As a result, companies are starting to look at the potential for climate change to cause similar or worse disruption in the near future.
The Canada Climate Law Initiative (CCLI) — a research initiative between the University of British Columbia and York university — offers the knowledge of its 66 experts to help boards of directors understand the types of risks and opportunities climate change could have on their business.
Despite all the economic destruction COVID-19 brought to the world, many companies now recognize climate change can’t be put on the backburner any longer, said Juvarya Veltkamp, director for the CCLI.
“COVID illuminated for directors that there are risks that we are not prepared for,” Veltkamp said. “Climate is like 100 COVID pandemics happening.”
Veltkamp said the effects of climate change are no longer invisible to Canadians — it has arrived and the risks are more dangerous than anticipated.
“It’s having an impact much sooner than we thought, much more broadly than we thought. And the impact is felt by households and businesses alike,” Veltkamp said. “Businesses have started to respond to this, whether it’s because there’s too much heat and they have to close the factory or staff can’t come in or other disruptions, or [a] physical impact on their infrastructure.”
Veltkamp said changes in litigation or a preference for renewable energy also need to be considered from a business standpoint, adding these transitional risks might favour one way of doing business over another.
“Will there be demand for our product in 10, 20, 30 years, or do we need to shift what our purpose is as an organization? And so I think that’s really interesting and our program, I think, creates those nudges, those light bulb moments for people to have this discussion at the board level.”
Unfortunately, she said, not many directors are educated on the effects of climate change.
“Data shows that only about seven per cent of boards have this climate competence, so that if a climate plan is presented, they know enough about the topic to provide oversight.”
The Initiative has delivered 70 presentations across the country to help with that lack of education.
Not being climate competent or educated could bring legal problems for companies. Climate-related disclosures are being reviewed by regulatory bodies and directors will have to comply.
Directors will need to disclose how they are managing climate-related risks and opportunities in the short, medium and long term. At the same time, they will need to disclose the impacts and opportunities climate change will have on their business. Failure to do this could put any publicly traded business in violation of International Financial Reporting Standards.
Janis Sarra, a law professor at the University of British Columbia and principal co-investigator at the Canada Climate Law Initiative, said while disclosures are good news for the environment, they are long overdue.
“I think that Canada lags considerably around most of the G-20 countries in moving to mandate disclosure on climate-related financial risks and opportunities,” she said. Sarra agreed with Veltkamp that these risks and opportunities need to be addressed from a business perspective. “Climate change not only affects the traditional fossil fuel sector, but all sectors of the economy,” she said.
In a report Sarra authored for the CCLI, she explained why climate change is a fundamental risk for Canadian insurers, predicting that, in Canada, the insurance industry might not be affected in the short term, but their investments will.
“They have really large investments across Canada in everything from real estate, oil and gas, etc. And those investments are definitely impacted by all of these changes,” Sarra said.
“Life and health is quite different from property and casualty insurance. And they are definitely affected in the sense that the claims payouts are huge. [You] just have to look at the mudslides the last few days. Those claims payouts are going to be huge.”