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Facing up to climate-related risks and pressures

Managing the risks and opportunities of climate change in the TMT industry - part 3 of a 5-part series

By Lucy Stanbrough | July 26, 2023

This article continues to explore emerging climate-related business risks for the TMT industry and the potential opportunities for those businesses that are prepared.
ESG and Sustainability|Climate|Willis Research Network
Geopolitical Risk|Climate Risk and Resilience

In KPMG’s 2022 CEO Outlook - Great ESG expectations report, it is suggested that ESG readiness has quickly transitioned to being integral to long-term financial success.

The survey highlighted the following:

  • 69% of CEOs see higher stakeholder demand for increased ESG reporting and transparency on ESG issues (up from 58% in August 2021).
  • 72% of CEOs believe stakeholder scrutiny on ESG will continue to accelerate (up from 62% in August 2021).
  • 17% of CEOs indicate stakeholder scepticism around greenwashing is increasing (up from 8% in August 2021).

Taskforce on Climate-related Financial Disclosures (TCFD)

We have previously described TMT companies as masters of their own destiny in respect of contribution to climate change and centrality to the pursuit of net zero through technological innovation. That said, their future climate-related business risks and opportunities depend upon a wide range of factors which we have characterised as:

  1. Regulatory pressure
  2. Reporting requirements
  3. Investor pressure
  4. Employee pressure
  5. Market fragmentation and segmentation
  6. PR opportunity and risk
  7. Evolving consumer demand for green products and services

Looming large among these is the regulatory and reporting environment. For example, in June 2021, G7 finance ministers agreed a pathway to making climate disclosures mandatory. When they met again in May 2022 in Berlin, the G7 reconfirmed their commitment despite the worsening global risk environment including the conflict in Ukraine.

Indicative of the ongoing shift is the proposal by the U.S. Securities and Exchange Commission (SEC) to introduce a sweeping new rule from 2024 for increased climate-related disclosures, including Scope 3 disclosures relating to the greenhouse gas emissions of companies throughout their supply chain. Further momentum for public/private sector collaboration and action is being provided by initiatives such as the World Economic Forum’s Climate Action Platform. Please also refer to our first article in this series for a discussion around Scopes 1, 2 and 3 omissions.

While the demands for stronger compliance and climate reporting can be daunting for businesses, it can also be the catalyst for the more rigorous approach to monitoring, metrics, modelling and scenario development that elevate ESG strategy beyond pledges and good intentions towards enhanced corporate resilience.

The authors’ view is that financial markets need clear, comprehensive, high-quality information on the impacts of climate change. Such a framework, discussed further below, must include the risks and opportunities presented by rising temperatures, climate-related policy, and emerging technologies.

Operational implications

In Fall of 2022 and into 2023, the WTW and Wharton team conducted research on how the TMT sector will be impacted as it seeks to address physical and transition risks. Note: you can read more about our relationship with Wharton on page 14 of the PDF download.

The research highlighted three emerging areas of concern and opportunity:

  • The shifting cost of capital
  • Managing a climate-aware workforce
  • The impact of innovation on incumbents

While it can be tempting to go into ‘survival mode’ during times of uncertainty, having a longer-term mindset is key. Investments in sustainability should be strategic, long-term, and critically linked to the vision and mission of companies.”

Vivek Kumar | CMO of WWF Singapore

As we entered 2023, it was also important to consider the strong economic headwinds currently facing consumers and corporates alike. We, along with other sector commentators, believe that the current financial challenges may (continue to) have a negative impact on the TMT sector’s sustainability efforts in the face of rising costs and competing priorities.

A recent KPMG CEO Outlook report indicates that approximately 50% of CEOs are either delaying or mothballing ESG initiatives in order to cut costs.

Plans to slow down ESG efforts (which of course includes climate) should be a concern. Climate change will not pause just because we are facing a recession, and in the longer term will negatively impact the sector.

To read more, please download the full article, below.

Title File Type File Size
Facing up to climate-related risks and pressures PDF 2.3 MB

Head of Emerging Risks and Business Engagement
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