N.B.: This article was first shared by Tim on LinkedIn
The global push for climate transparency is creating a disturbing Illusion of Certainty – an insidious belief that if we can produce a well-researched report, we are doing enough to manage and adapt to the chaos of a changing planet. The result is that climate risk continues to be institutionally underestimated, despite new standards and heavier regulatory pressure.
This article explores this problem and identifies 3 key questions organisations should be asking themselves in order to understand how to build real climate resilience.
For boards, investors and C-suites, climate risk acronyms have become a security blanket. From TCFD, UK SRS and ESRS to a hundred regional variations of ISSB, thousands of hours and millions of dollars are being spent to align to new global standards. When efforts and resources are well aligned, the result can be a polished, audited and beautifully designed report that projects a sense of control.
But this spread of glossy new reports is quickly revealing an inconvenient truth: regulatory box-ticking does not equal resilience.
While the world is getting better at reporting climate risks and opportunities, the outputs suggest that most organisations seem to be no better at understanding them. (And as my article last week detailed, the first round of ISSB S2-aligned reports in Australia suggest that many are struggling to even tick the boxes…)
The danger is that a global push for transparency is creating a disturbing Illusion of Certainty – a belief that if we can produce a well-researched report, we are doing enough to manage and adapt to the chaos of a changing planet. The result is that climate risk continues to be institutionally underestimated, despite new standards and heavier regulatory pressure.
The compliance trap
Climate reporting frameworks are increasingly designed to align climate and financial reporting, with the hope that this create a natural convergence of climate considerations with the financial health of the business. Despite this, frameworks and reports consistently fail to drive strategic direction. Too often the results focus on the obvious, the direct and the measurable, ignoring the fundamental vulnerabilities that risk being exposed amidst the economy-shifting uncertainties of a changing climate.
We see well-meaning organisations take an approach that focuses almost entirely on physical damage to their own assets or stops the hunt for risks at their Tier 1 suppliers. The result is a report that vastly underestimates the real threats to a business’ future success.
The real threats – the ones that collapse margins and break business models – are often hidden within the complexity of the global value chain or lurking in the infrastructure on which your business relies. Oversight of these threats creates massive strategic blind spots: for example, research published in the International Journal of Disaster Risk Science suggests a 300% increase in economic losses when power outages are included in a risk assessment. Most compliance reports remain dangerously silent on these transboundary shocks, ignoring volatile, systemic threats to a business.
It’s time to get uncomfortable and search beyond the obvious
Ticking the boxes of climate compliances alone does not build resilience or protect revenue. What’s needed is a fundamentally different set of questions – ones that most current modelling approaches never get around to asking. Here are the 3 questions your organisation needs to be asking itself right now:
1. Is your climate risk assessment asking about assets, or about the processes that keep your business running?
Far too many physical climate risk assessments begin with the question: “which of our assets are exposed?” That’s the wrong starting point. The right questions are: “which processes underpin our revenue? How could climate disruption break them?”
A flood in a key port doesn’t have to touch your factory to stop your production line. True resilience begins by understanding the operational and commercial processes that drive revenue – production, procurement, logistics, distribution – and pinpointing climate risks within the complex network of suppliers, partners and infrastructure nodes on which these processes depend. Most organisations haven’t done this. Anyone applying meaningful scrutiny to a climate report should be asking why.
2. Are you tracking how risks cascade, or just where they originate?
Understanding where climate risks enter your value chain is only the beginning. What matters is how they travel – from a disrupted supplier or distributor to a bottlenecked process and a revenue shortfall.
Any organisation that has mapped its value chain but not understood how climate risks cascade along it has not fully understand its exposure. After all, the risks that collapse business models are rarely the ones sitting on the surface. The key to resilience is to understand how risks cascade across the value chain, creating disruption and impacting revenue. At that point, organisations can begin to understand the specific actions that might mitigate that risk.
3. Does your analysis lead to good decisions, or just compliant disclosures?
Even genuinely good climate data is wasted if it doesn’t lead to action. The test of any climate risks analysis must be whether it tells you where and how to act. Ultimately, an organisation needs to know which risks warrant investment in resilience and which need further investigation. Too often, material risks are ignored because they sit beyond the boundary of what a reporting framework requires. The result is that organisations take the most obvious path and spend money on protecting their own assets, wasting money ignoring potentially catastrophic risks beyond the factory walls.
These aren’t abstract questions and they’re largely absent from how most organisations approach compliance with UK SRS, TCFD and other compliance frameworks. They’re the ones that separate organisations genuinely building resilience from those producing reports that give the appearance of it.
Beyond the Illusion of Certainty lies true resilience
The goal of any climate strategy should not be to produce a perfect report; it should be to build an unshakeable business. From business leaders and investors to auditors and regulators, we all have a duty to ignore the Illusion of Certainty and dig deeper to understand climate risks might impact businesses and organisations.
To those who sense that the current approaches to understanding climate risk are too thin: you’re right. The risks are much broader and much deeper than most models – and most compliance reports – are telling you.
What’s your view? Is the Illusion of Certainty real or can regulatory reporting in its current form lead to real resilience? Let me know your thoughts in the comments.
At Sirocco, we work with companies to understand climate risks across their value chain, building the kind of analysis that drives real decisions, as well as compliant disclosures. If you’d like to learn more, just drop us a message.
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