Risk managers navigate transition risks on the road to net-zero

That’s the consensus of a panel of experts who discussed the challenges of managing climate-related transition risks during a webinar hosted by Zurich Commercial Insurance. Such work is not easy, they pointed out, but it is achievable with the right approach. And, risk managers have a big part to play in getting the work done.

“Risk and insurance managers are particularly well-positioned because of their knowledge of their companies and positions they have within their organizations,” said the webinar host Ron Davis, Global Head of Customer Management, Zurich Commercial Insurance.

A report “Accelerating the Climate Transition” published by Zurich Insurance in September 2023, shows that there is substantial interest in physical, operational and transitional climate risks. A survey of nearly 700 sustainability executives and others in senior leadership at large companies in heavy manufacturing, consumer goods, energy, transportation, agriculture and other industries revealed that many are addressing the risks and opportunities of transitioning to a lower-carbon environment.

The report notes that, depending on the sector, transition planning has been uneven, according to John Scott, Zurich’s Head of Sustainability Risk. “Finance and energy seem to be pushing ahead pretty hard with the delivery of their transition plans in the short term,” he said, while businesses in other sectors, such as transportation, which is heavily reliant on fossil fuels, are not as far along.

The cost of capital, an absence of technological solutions and regulatory challenges were the barriers to transitioning most frequently cited in the survey, Scott said. Regarding mapping and tracking emissions, lack of clear and credible data was a concern.

The survey also showed that there is a focus on climate-related resilience and adaptation measures even as transition work is ongoing. Companies across all sectors have concerns about supply chain risk, for example, “as they navigate the transition to net-zero,” Scott said.

Green guidance

The European Union’s Green Deal aims to make climate neutrality a reality by 2050 and introduces a number of policies that businesses have to consider as they transition to a net-zero environment. In other countries and regions, efforts are progressing to incentivize the shift to lower carbon economies, including the USA through the introduction of the Inflation Reduction Act (IRA).

“The breadcrumbs of how we are going to get there are summarized through the EU’s perspective,” Shane O’Reilly, Managing Director at KPMG Sustainable Futures, said of the Green Deal. It focuses not only on the environmental side of transitioning, but on social factors as well, he added.

But moving to a low-carbon economy will likely come at a price, O’Reilly said, and not just in terms of the cost of transitioning. Without adequate countermeasures, the effort could cost jobs and have an impact on the prosperity in some cases. “We can’t lose sight of the social factors,” he said. “A just transition means that no person gets left behind.”

Getting to net-zero requires governments to “bring the public along on this journey,” O’Reilly said. That can be done through green jobs initiatives, retraining and upskilling programs and other moves that help ensure that the social aspect of transitioning is not ignored, he added.

“Risk managers need to know that we are shifting from a voluntary to a mandatory ESG reporting requirement,” O’Reilly said. Although the pace and way this is happening is not the same in all countries or regions, the sense of direction amongst policymakers and in business is that some sort of carbon emissions disclosure is inevitable and will be required in many jurisdictions, And, just as important, there is an effort to mainstream sustainability into normal risk management practices, he added.

Read the entire webinar summary to learn about what organizations and risk managers need to consider on the road to transitioning to low-carbon economy. Download the document below.

The webinar featured the following speakers:

• John Scott, Head of Sustainability Risk, Zurich Insurance
• Justine Kelly, Global Head of Sustainability, Commercial Insurance and Group Underwriting, Zurich Insurance
• Shane O’Reilly, Managing Director, KPMG Sustainable Futures
• Risto Schmid, Senior Risk Engineer, Zurich Resilience Solutions, Zurich Insurance
• Ron Davis, Global Head of Customer Management, Commercial Insurance, Zurich Insurance