ABSTRACT
Climate risk is arguably the ultimate risk governance challenge. Not only are the impacts of climate change likely to be experienced over a very long-time horizon, but the exact path of climate change is ambiguous, along with future responses by both government, consumers and investors. For many organisations it is a strategic risk, with the capacity to derail existing strategies and to create new strategic opportunities. But too often the risk is undermanaged, through a combination of myopia, inertia, availability and optimism biases.
While there is a lot of discussion about the damage climate risk is doing, there is much less discussion of practical steps organisations might take. The chapter examines potential strategic responses by organisations to climate change: accept/exploit, operational adaptation, diversification and transition, divestment, managed decline, insurance and financial flexibility. It also explores the special governance issues related to climate risk i.e. board focus, disclosure, communication, incentives and analysis.
