View from the top: Helen Clarkson, CEO of the Climate Group

The arguments around climate change are shifting. A few years ago organisations were asking: “What can one business or individual do about climate change?” It all seemed too big for any one group to deal with. However the Task Force on Climate-related Financial Disclosures (TCFD) launched by Mark Carney, former governor of the Bank of England, and Bloomberg, changed all this. It brought home the point that the issues around climate change are not simply what you can do about it – but they are also about what it could do to you and to your business in the future.

This provides a starting point for internal audit. The crucial issues around climate change are to do with risk and this is where the conversation needs to focus. Once you start viewing climate change issues through a risk lens, you can ask the board to consider investment in climate change mitigation in the light of what this investment will save in future. Such investment ceases to be a cost and becomes a saving in terms of both direct future costs and potential risks.

Internal auditors need to ask managers what will this business be selling in ten years’ time? What and where will its markets be? These are critical climate change questions. If you’re not thinking in terms of climate change as a risk, then you will end up with stranded assets and broken supply chains.

COVID-19 has shown us that business as usual is more fragile than most of us like to think. We need to learn what the pandemic has taught us about our operations and our business models and how fast and effectively we can change when we have to. Then we must apply this learning to the risks around climate change.

Of course, the coronavirus is only one of the factors forcing rapid change in some sectors. Ikea, for example, signed up early to our EV 100 campaign that asks organisations to commit to electric fleets. They did this because they realised that new regulations would prevent them from delivering in central Amsterdam after 2020 unless they used electric vehicles. Once they had converted to electric delivery vans in a few trial cities it was no longer a huge jump to extend this globally.

This is just one example of how regular horizon scanning can indicate how emerging risks tip the balance towards change. It also indicates the important interrelation between public policy, customer sentiment and business. A business implements a pioneering action that becomes popular with customers and investors and this popularity influences governments to impose new regulations (as in the case of smoking), or a national commitment to an international environmental standard indicates to businesses that they need to change to avoid fines, higher costs or prohibitions.

Our experiences with COVID-19 showed us that some changes to sectors and markets can strike with devastating speed – overnight, we saw supply chains pushed to breaking point and business models become unviable. However, it should also encourage us to understand that we can adapt whole sectors far faster than most people thought possible. And it showed the way in which risks travel down the chain. Internal audit should be scanning the horizon for emerging climate-related risks, but they should also follow risks along their supply, operations and customer networks, wherever they go. This could throw up surprises.

You could begin by asking boards all the questions we’ve recently asked about the impact of Covid. For example, “If we decarbonise the business in this way, what will it mean for our supply chains? What will it mean for our staff? What will it mean for our operations? What will it mean for our customers? Do we know where all of these are? Do we know what effects an action (or an inaction) will have across the spectrum?”

Some of the answers may not be palatable. Organisations assume they will be the Netflix, not the Blockbuster, of the next wave of change, but you can only do something about it if you see it coming and are prepared. The key message has to be that change is coming and it is coming fast, but we can also change to meet it

Helen Clarkson is CEO of the Climate Group.

This article was first published in November 2020.