“The world is now living through climate change, not watching it draw near” is the stark warning delivered by the IPCC (Intergovernmental Panel on Climate Change), in its sixth assessment report (AR6).
In risk speak, high-impact, low-likelihood events will become more likely with higher temperatures.
With COP 26 fast approaching and extreme weather events becoming an uncomfortable ‘new normal’ across the world, not a week goes by without media coverage of the physical risks of climate change whether it be the: scorching heat in Canada, wildfires in the Americas, or devastating floods in Germany, India and China.
So, are we acting fast enough?
The verdict from the Climate Change Committee’s June progress report is “with every month of inaction, it is harder for the UK to get on track” with its climate ambitions.
To gauge the level of climate change risk maturity in government we surveyed Chairs of Audit and Risk Assurance Committees (ARACs). While four out of five ARAC Chairs considered climate risks to be relevant to their organisation, over half noted that their organisation did not have a climate or sustainability risk policy or a dedicated employee accountable for either. Additionally, seven in ten Chairs said that climate change risks had either never been discussed at an ARAC meeting or had been discussed less than annually.
Against this backdrop, we intend to help government organisations start the conversation around climate change risk.
What is climate change risk?
As risk professionals we tend to think in terms of “what could go wrong?” and how “how can we manage these risks?”.
Government organisations have a huge challenge in trying to balance short, medium and long-term risks. The UK, and indeed the rest of the world, are still recovering from the COVID-19 pandemic, which showed how crucial it is for organisations to have the resilience to respond to high-impact, low-likelihood events. It is important that a true assessment of long-term risks is considered.
Our good practice guide intends to help with this. In setting out the wide variety of potential risks that climate change can bring about, it will help all organisations across government – not just those responsible for leading on climate policy –identify and effectively manage a variety of climate change risks. These risks stretch beyond the physical risks, such as the impact of rising temperatures. They also include the risks posed by the transition to net zero and risks specifically posed to government organisations.
How to support and challenge management
Our guide further allows audit and risk assurance committees to constructively challenge management’s approach to climate change risk.
This can be done across the whole risk management cycle: from initial identification and assessment, to treatment and monitoring, through to risk reporting and continual improvement.
For many organisations effectively managing climate change risk will be a long journey. Our challenge questions are a great tool to help you do this.
Key takeaways of the Good Practice Guide can be found here. We hope you find it helpful.
Authors
Mfon Akpan
Mfon leads our Financial and Risk Management Insights work. She is a multi-disciplinary risk, assurance and governance professional with over two decades of cross-border leadership experience across the financial services industry.
Mfon has held roles at the World Bank Group as a Risk Management Specialist, Standard Bank Group as Chief Risk Officer and Regional Head of Risk for Nigeria and West Africa, and Barclays Group Plc as Audit Director. She started her career at Arthur Andersen and KPMG. She is currently an independent non-executive director at FBN Bank.
Mfon is a Sloan Fellow from the London Business School, a Fellow Chartered Accountant (FCA), a Certified Risk Manager (CRM) and a British Chevening Scholar. She has attended leadership and senior management courses at Wharton and Harvard Business Schools.
Chris Coyne
Chris leads our work on financial management, Audit and Risk Assurance Committee effectiveness and climate change risk. He has been at the NAO since 2008 and previously specialised in financial audit. Chris has managed a variety of significant audits of government, including HMRC and BEIS.
Chris is ACA-qualified and completed his IRMCert with the Institute of Risk Management in 2021.
Courtnay Ip Tat Kuen
Courtnay joined the NAO in 2013 as a graduate trainee. She has experience leading and managing audits in the public, commercial and charity sectors, as well as acting as an Ambassador for the International Technical Cooperation team.
