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Managing the risks and opportunities of climate change in the TMT industry

By Lucy Stanbrough | May 25, 2023

This article series looks at the current and transitional climate risks and opportunities in the technology, media and telecommunications sector.
Climate|ESG and Sustainability|Willis Research Network
Climate Risk and Resilience|Geopolitical Risk

Climate change, and actions to counter it, represent one of the decade’s biggest strategic megatrends across nearly every industry sector, the technology sector included. Tech companies that focus on Environmental, Social, and Governance (ESG) will be better prepared to manage risks, investor and shareholder expectations, and future reporting requirements.

Throughout 2023, WTW will publish a series of articles discussing:

  1. how technology, media and telecommunication (TMT) businesses contribute and influence climate
  2. how businesses across the sector are taking action, and
  3. how to ensure TMT organisations are integrating climate risk-aware thinking into their people, risk and capital strategies.

These insights, which will be published as five articles, also highlight the opportunities climate technology offers for the TMT sector in the coming decades.

Why is this important?

With climate-related risks accelerating, it will be imperative for insurance and risk managers in TMT organizations to work effectively with risk and insurance advisors, and other stakeholders, to accurately map out and clarify climate-related exposures.

With this accelerated change, it is important for TMT companies to think ahead, monitor and regularly update their risk horizon when it comes to relevant scenarios and climate-related exposures. Closely 'following the science' will ensure that market solutions purchased from the commercial insurance market are suitable for a rapidly changing risk landscape.

Our 2021 report told us that TMT sector risks have been made more challenging by the global pandemic, accelerated digital transformation, geopolitical uncertainty, and other factors. These risks comprise five “megatrends”:

  • Business model and strategy pressures.
  • Global talent and a skills race.
  • Digitalization and technological advances.
  • Regulatory and legal risks.
  • Operational complexity and vulnerability.

Among the overlaps in these megatrends, the effects of current and future climate change ran through them all. Climate considerations were key drivers in organisational change and positioning; seen as both a risk and an opportunity.

The climate context

As early as 2009 many national and local economies are already showing their vulnerabilities to climate events. A report issued by ECA (Economics of Climate Actions Working Group) on global warming, predicted a rise in the Earth’s surface temperature rise by over 2.50C by the end of the century compared to pre-industrial levels. The report suggested that this could greatly heighten the world’s vulnerabilities to climate, triggering more frequent and severe weather disasters, shifts in rainfall patterns and climate zones, and a rise in sea levels.

Since the publication of ECA’s report over a decade ago, many of the scenarios and resulting impact have come to fruition – increasing the awareness that action is required. The complex relationship between human activities and the environment has become a major public concern, raising issues of regulatory, legal, political, and economic relevance. The adverse impact of business activities on our climate, natural resources, and biodiversity, resulting in the increased need for sustainable products and industrial development, has stimulated a debate on appropriate policies and techniques aimed at improving the current level of environmental protection, preservation, and sustainable development.

We do not inherit the earth from our ancestors. We borrow it from our children.”

Indigenous American Proverb

In parallel, natural events such as droughts, hurricanes, typhoons, floods, and earthquakes have become more regular and extreme, posing a serious threat to human life and property. The damage can result in the disruption of local communities and increasingly impacts the infrastructure, supply chains, economic stability, and growth of entire nations and regions.

For these reasons, climate-linked issues, such as extreme heat, natural disasters, and biodiversity loss – and the failure to respond to these challenges – have dominated recent reports issued by organizations such as the World Economic Forum.

The role of the TMT sector

The topic of climate puts the TMT industry in something of a juxtaposition. Technology in the broadest sense is sensibly and justifiably seen as offering solutions to many of the issues associated with the greenhouse gas (GHG) emissions that are causing climate change. Yet, until those solutions are more numerous and widespread, and during the transition to net zero, the TMT sector is viewed as a contributor and susceptible to climate risks without meaningful action.

Given the global footprint of TMT operations and sales, climate risk will continue to be a top priority risk, growing in significance over the coming years. Quoting Adam Garrard, WTW’s Global Head, Risk & Broking: ‘At the end of the day, ESG is a risk question. Whether it’s climate, diversity, equity and inclusion (DEI), or good governance, it all comes back to risk. If you were applying a risk rating to those companies embracing ESG, you would likely assume that those with robust ESG plans carried less long-term risk, were less likely to be sued for failures of governance, and were more likely to succeed over the longer term’.

Updating our research

Our 2022 research aimed to investigate in more detail the nature of the principal climate risks facing the TMT sector, their drivers, and how they may be mitigated, including the sector’s role in nurturing innovations that reduce emissions – whether through processing power to crunch problems, analysing available data to streamline processes, or pure technology solutions developed to solve climate problems.

We tested our findings and preliminary assumptions in a series of interviews with executives in each TMT business segment. (The opinions of these executives are reflected in the content with anonymised quotes where appropriate). We also sought out case studies that help to illustrate how the TMT sector is rising (or not) to the challenge of climate risk.

The information gathered from the research and interviews is supplemented with analysis and commentary based on WTW’s knowledge and experience of the challenges posed to companies by climate change and transition and our involvement in developing ways to understand, quantify, mitigate, and embrace them over the coming years and decades.

A topic worthy of exploration

With this in mind, we plan to publish a series of articles based on this research throughout 2023. The articles will discuss how TMT businesses contribute to and influence climate, giving perspective on how peers are reacting and helping TMT organizations integrate climate risk-aware thinking into their people, risk, and capital strategies.

These insights will also highlight the opportunities afforded to the sector by climate technologies. Technology and telecom companies are in a good position to be providing solutions to minimize climate change globally and reduce climate risk across the sectors and geographies they serve.

As we enter 2023, it is clear that a strategic response to climate change is about more than risk measurement and pricing, it requires far-reaching changes across capital allocation (including on insurance purchasing decisions), organizational culture, and in the way we work. The corporate risk and insurance function will play an increasingly important role in managing climate risk and in buying effective insurance protection for the company. Important will also be the function’s role in ensuring that the Board has the content (data) it will need to ensure effective engagement, awareness, and knowledge of climate risks. Later on in the series, we will discuss ways insurance and risk professionals can own the climate agenda.

Articles in the series

  1. 01

    Climate risk and technology: The state of the industry

    In this article, we take a closer look at the juxtaposition of the TMT sector as both a contributor to climate change and as a key factor in driving and facilitating the solutions that will make net zero possible. How is the industry adapting, where do the opportunities lie and who within the industry is leading?

  2. 02

    The people aspects of climate risks and opportunities

    TMT organizations are made up of people and, as such, the values, beliefs and actions of people within those organizations are intrinsic to making progress to net zero greenhouse gas emissions. In this article, we look at how TMT companies can engage and involve their people to make progress towards their climate goals and obligations.

  3. 03

    Facing up to climate-related risks and pressures

    In this article, we look at how, as much as TMT companies are masters of their destiny in respect of their contribution to climate change and their centrality to the pursuit of net zero through technological innovation, their future climate-related business risks and opportunities also ride on a wide range of factors.

  4. 04

    Why climate priorities are essential for the global TMT sector

    In this article, we discuss priorities for the global TMT sector in light of a burgeoning, and potentially confusing, array of regulatory and reporting pressures. We look at how the changing attitudes towards climate risk and disclosure of financial institutions and some investors are converging to drive the corporate climate agenda.

  5. 05

    The impact of climate on TMT insurance and risk management solutions - coming soon

    In this article, we review the impact of climate on risk management within TMT companies, focusing in particular on how insurers' need to manage their climate exposures is starting to bring sustainability issues increasingly to the fore in access to, and pricing of, risk capital. What alternative sources of risk capital may be available to TMT companies and what effect are emerging InsurTech businesses having?

The final article will conclude with a summary of the WTW observations and points of view that are interwoven throughout the entire series. And from those, we propose recommended next steps that we believe will enable TMT sector organizations to progress their journeys towards becoming the more climate-aware and sustainable businesses that they will have to be to deal with physical climate, transition, and liability risks in the years to come – but also to better prepare for the opportunities that transition will present.

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