There's icebergs ahead for Abbott-era executives

As the carbon tax is controversially repealed, Australian business must turn its mind to operational and reputational risk.

Climate change remains a management issue. Carbon emissions must be managed and reduced to meet our national emissions target and fulfil our international obligations. With the release of the Summary Fifth Assessment Report by the UN’s Intergovernmental Panel on Climate Change, the scientific evidence for climate change is overwhelming and the pressure for meaningful action grows.

Today’s article specifically considers climate change risk profiles in terms of operational and reputational risks which increase uncertainty and often lie in what Donald Rumsfeld famously called the “unknown unknowns”. But are climate change risks really 'unknowns'? Or do businesses have a blind spot? Are we looking in the right direction?

Spectrum of risks associated with climate change

Risks can be classified into four categories: legal/compliance, markets, operations and reputation. Managing climate change risks in a stable policy environment for the first two of these categories is a relatively straightforward exercise for business. Existing internal controls manage compliance risks and hedging strategies are used by major greenhouse emitters to manage market risks.

Where policy is controversial, the key climate change risks move to operations and reputation risks stemming from uncertainty and the potential for community pressure to impact on a business’ licence to operate.
 
What could community activism on climate change mean to your business?

Before embarking on a specific discussion of risks arising from activism, it’s worth considering how risk is assessed.

The size of your risk is a function of the magnitude of the potential loss multiplied by the probability of that loss occurring. Risks are not specifically driven by stakeholder groups, but stakeholder groups can certainly influence the magnitude of your business’ exposure to those risks.

Environmental groups have opposed the repeal of the carbon tax and question the new government’s alternative plan. Further opposition will be raised if there is a gap in timing between the repeal of the Clean Energy legislative package (all 17 pieces) and the design and implementation of the new government’s Direct Action policy. Establishing Direct Action, an Emissions Reduction Fund, and any potential baseline and credit scheme on a national level is a complicated task with many industry and company-level issues that need to be resolved before legislation is submitted to parliament. For reference, the Clean Energy Future’s Jobs and Competitiveness Program was well over four years in the making before the issues with thresholds, industry baselines and supplementary assistance had been resolved.

Activism is also being fuelled by the contribution Australia’s government does or does not make to global climate change negotiations. We need to stop seeing ourselves as a small island on the other side of the planet with limited impact. In the most recent international climate change talks, COP19, the position of our government was observed by global climate change negotiators in Warsaw, and reported in global media outlets, as not being interested in negotiating tougher emissions reduction targets, or even being present.

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