In recent years we have seen the rapid rise of climate risk as a major focus for companies across the economy, with sustainability and wider environmental risks such as those around biodiversity increasingly treated as growing and even existential concerns for investors – from outgoing Bank of England Governor Mark Carney's warning that companies must agree rules for climate risk reporting within two years to BlackRock CEO Larry Fink's insistence that 'climate risk is investment risk'.
Sustainability First through our Fair for the Future project has sought to map this changing risk landscape for UK energy and water sectors – sectors where climate and environmental concerns are clearly fundamental. In addition to developing a 'Sustainable Licence to Operate' for utilities, we have also published a series of working notes and discussion papers both on how companies and investors currently see risk and how this needs to change in the context of what we are calling the 'disrupted world' – where risk factors are volatile, dynamic, and unpredictable, none more so than climate change, adaptation, and resilience, and where public expectations are rapidly changing.
In addition to working notes on how risks in energy and water are shaped and mediated by civil society, the media, and the consumer lived experience, our most recent working note explicitly focuses on the role of climate and the environment.
In this paper, we look at how climate and environmental risks play out in different ways across UK utilities, noting that the risk picture is not homogenous and depends on the specific sector, where a company sits in the value chain, geography, and a company's own risks and resources. This is a complex and highly broad landscape, but we are clear that utility companies need to play a key role in informing, influencing, and enabling others to take action as we move towards a decarbonised economy. This will take the form of responding to key climate and environmental risks in a systematic way, through real and embedded changes to culture and strategy, rather than a reactive one.
In particular, we distinguish between the respective 'vertical' and 'horizontal' risks utility companies face: the former issues such as business carbon footprint (BCF), water pollution from wastewater treatment, and adapting to climate change; the latter those like business culture and governance, a lack of join-up across businesses, and disconnects or gaps between regulators.
In addition to identifying some of the key components of the risk landscape for UK utilities, the paper also sets out how environmental and climate risks may be mitigated in the sectors. In particular, we highlight the importance of:
Taking in turn each of the vertical and horizontal risks identified as being central to water and energy companies' approaches to climate and the environment, we explore how organisations can go about meeting the challenges these risks carry for their day-to-day operations, also highlighting good practice in the sectors where it already exists.
The role of climate and the environment in terms of political and regulatory uncertainty and risk in the energy and water sectors is available to read in full on the Sustainability First website, where you can also read our other Fair for the Future project publications on risk mapping and developing a Sustainable Licence to Operate.
If you have any questions about the project or wish to get involved, please get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it..