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Five things you need to know about resilience

November 1, 2022

In this ESG Spotlight session, Paula Pagniez, Shankar Raman, and Louise Pennington discuss the issues around climate resiliency and how it impacts a variety of stakeholders.
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Five things you need to know about resilience

In this second spotlight session, Paula Pagniez, Shankar Raman, and Louise Pennington discuss the issues around climate resiliency and how it impacts a variety of stakeholders.

Video transcript

ESG: NY Climate week — Five things you should know about resilience

[UPBEAT MUSIC]

SPEAKER 1: Welcome to WTW's ESG In Sight Spotlight Series.

[UPBEAT MUSIC]

LOUISE PENNINGTON: Hello, everyone, and welcome to our WTW Climate Week event. We are going to showcase today the topic of the five things that you need to know about climate resiliency. I am joined by two of my esteemed colleagues that are experts in this space. Let me introduce them quickly, and then we're going to jump right in.

First, Paula Pagniez. She is the head of the Americas for our WTW Climate and Resiliency Hub. And Shankar Raman, who is our Global Leader in our Health, Welfare and Career segment within WTW, as well. So welcome to you both, and welcome to our audience.

SHANKAR RAMAN: Nice to be here. Thank you.

PAULA PAGNIEZ: Thank you, Louise.

LOUISE PENNINGTON: All right, this is a very complex conversation we're about to launch into, but we're going to try to simplify it for the audience. Obviously, all things related to climate, climate change, the ideas around climate resiliency have a lot of tentacles, a lot of issues, stakeholders, impact, et cetera.

We're not going to profess to be able to solve for all of that in our time here today, but we are going to try to drill down through the lens of people, capital, and risk, and really distill through those three propositions some of these important elements as they pertain and connect back to climate resiliency.

So with that in mind, we want to really start with a question around the fact that, without question, there has been extraordinary impact over the past 24 months. And well before that, but the journey of the past 12 to 24 months in terms of actual extreme global events vis-a-vis climate are historic. And wanted to get your position and your point of view on the impact that it's having and the response that we are seeing around these historic and global impact events.

PAULA PAGNIEZ: Thank you, Louise. I could start. It's definitely been very significant 24 last months in terms of the impact we are seeing, I would say, around the world. We used to look at the news, in a way, I think one could choose if you wanted to read about the climate crisis or not. But now, it's pretty much everywhere.

And reflection is that there's been a lot of action, in terms of societal development, international development, conservation action. We have so many parts of our society that have always been very active. But now, climate is making us coalesce around this crisis. And what I see very interesting is that all those efforts are coming to light even more so because maybe people are seeing these events happen in their own backyards.

This change of in terms of the level of awareness, of the consciousness about the climate crisis unfolding in front of our eyes everywhere in the world, if we just think of this last Northern Hemisphere summer season, think about wildfires, flood, heatwaves, the first named heatwave in Spain, drought. We are launching Climate Week in New York. Half of our country is subject to extreme drought at the moment, with new regulation, response measures being actually today just being announced at state level.

So I think there's that awareness about our own vulnerability with these events happen in our own backyard. And ultimately, can we, as members of our society, understand our vulnerability, but then turn into what's our sensitivity to the issue? Is it strong enough in order to embed behavior? Behavioral change, sorry. And that behavioral change, I would think, can actually be quite overwhelming of an idea to process.

However, when we can remit to all the actions that have taken place in terms of policy, in terms of regulation, in terms of ecosystem climate resilience, with a very strong push, for example, over the last two years in terms of economies around our oceans and their capital and ocean resilience, most vulnerable populations around the world, there is a lot of room to actually face the crisis with hope, looking at developments that are taking place, looking at the public and private sector implementing changes. And hopefully, this is the start of this new trend of turning an understanding and awareness and vulnerability into behavioral change, for us all as consumers tap into the resources we have and understand that we all need to be a part of this change.

SHANKAR RAMAN: And what I would add to that, Louise, if it's OK, given the trends of the last 24 months, particularly the advent of the pandemic, right, the world went through an environment where humanity was massively impacted because of the virus [INAUDIBLE]. And then you load on to it challenges with climate change, as you think about the future of work, the mental state of people from a health perspective, from a climate perspective, we just believe that our well-being collectively, as a humanity, is at stake over a sustained period, fundamentally.

And so unless we act quickly, my concern is that-- and this has to be a private/public partnership, in some ways. But my concern is that our well-being is going to be even more significantly eroded. And then you layer on the nuanced elements of what's happened in the pandemic, such as people of color who have been adversely impacted, women have been adversely impacted. Climate change has an impact on people in lower income populations, for example. It has diverse impacts on different countries.

It's just funny-- funny is not the right word. I apologize for that. It is actually really striking. There's this town called Jacobabad in Pakistan that I was reading about this morning that, about five months ago, had the highest temperature on the planet anywhere, 50 degrees Celsius, in May. And two days ago, the city was awash in floods. Thousands of people are dying.

And these are the two extreme events that have happened the same city that were unimaginable a few years ago that Paula was talking about. That's why I think it's really important for us to think about how do we make our society more resilient, our human capital and our members of society more resilient, and also help our companies become more resilient.

LOUISE PENNINGTON: So when we think about those elements of resiliency, I mean, there's the end state of, as we all talk about transition and the process by which we need to think about moving forward, that also arguably can conflict with what's needed immediately, right, sort of our immediate today needs versus long-term. And as Paula said, this awareness notion, I think, has been augmented by the pandemic because it's really exposed so many elements and vulnerabilities, to use your word, Paula, across a span of issues, be it the energy, our food needs, your point, Shankar, those extremes, et cetera, and what we need to do.

I'm just wondering, from both of your perspectives, sort of how do you see that journey of solution-oriented thinking? Is it starting with an educational platform, regulatory, legal, sort of the agility and the need for that adaptation to address the vulnerability? I know that's a big question probably, but things that I think you've both already touched on in your opening comments can impact socioeconomic issues, global infrastructure, capital, et cetera. So to try to boil it down maybe to some solution-oriented ideas for the audience I think would be great.

PAULA PAGNIEZ: Indeed. Personally, I believe that it needs to be tackled from all angles.

PAGNIEZ: And we're seeing different actions and solutions having different impacts, according to which markets in terms of geographies or industries.

So for example, if we think in terms of regulation, I would suggest that a very important game changer was the TCFD based climate disclosures in the UK becoming compulsory-- if the financial sector has actually trickled down action in terms of climate disclosures, and therefore, the next step of real organizations, especially in the private sector, focusing on what's their climate resilience strategy for the future. Because they want to access capital provided by those financial sector entities that need to report to TCFD regulations in the UK.

So it's been a fascinating exercise to get requests from organizations around the world-- not UK based, but around the world-- engaging into climate disclosures into a regulation requirement because they're connected to that market, and they're reaping the benefit from globalization rise and the trickling down. So I know regulation is a tool in different markets.

Different countries are dealing differently with it. The standards. Is it compulsory, is it voluntary? How welcome is it by the different industries? And here in the United States, we are now preparing for a proposed SEC regulation as well.

And that takes us to thinking around policy. How much can policy do? It offers a platform. And I strongly believe we need strong guidance from policy, but there is also the response from the private markets. COP26 has shown a step forward from the private sector that probably we had not seen at that level before. Not only by response to regulation, but also by visionary leaders within the private sector that are responding to different incentives.

Regulation and policy, yes. Capital requirements, need pressure from their investors. A bigger and better quantified awareness of the impact of climate risks into the assets-- real and non-real assets. But also the push from our societies, from our communities.

And going back to Shankar's point and the stimulus for change and for behavioral change, we are seeing talent around the world that is seeking to work for organizations that have a purpose around climate. And how are we going to become climate resilient? Either by mitigation or adaptation. So [? therein ?] comes this other trigger of the model, the role model, that private companies can set by actually embracing the asks and needs of their employee communities, and also the communities where they exist, where they have their assets, their consumer communities, so that they respond to this big ask of action.

And consumer behavior-- either that it is consumer behavior because we are talent looking to work for a certain type of company, or because we are consumers of goods and services-- that helps these changing of the needle. And I would think that these emphasize awareness-- these asks by the talent population, these asks by communities-- these are helping those visionary companies really step forward.

LOUISE PENNINGTON: Shankar, would you want to comment on that? Yeah.

SHANKAR RAMAN: Yes, I do. No, no. Thank you for that. I really like everything Paula said. And just building on that, much of my work is spent on working with corporations. And so companies are increasingly becoming more aware of the risks that society faces with regards to climate change. The point Paula made about how talent is making choices about where to work and where not to work because of climate change is a real one.

I'm actually in the conversation with the CHRO of one of the world's largest gaming companies. And she is being asked questions on a weekly basis by her employees on where do they stand on climate change, and what are they going to do about it, et cetera. And she says over a period of time, if we don't have a point of view on this, our employees will leave us and want to work with someone else who has a more progressive view of their position on climate change.

And so companies will have to not just wait for policy to drive change. They're going to have to take some action on their own to say, here's where we can actually make a difference. So the announcements they make about net zero goals are a good step in the right direction, but then they also need to have a plan in place for achieving those net zero goals. So you need to have a decarbonization strategy.

The practical ways that the companies can also do is things such as thinking about how do we drive behavioral change-- that is what Paula was saying. So we've had clients, for example, who have been thinking about elements such as can we have green benefits for our employees.

Can we actually be incentivizing our employees to invest more in renewable energy at their homes? Can we support employees in being able to provide them with more energy efficient products? For example, appliances at home.

We had a client who were developing their future work strategy, thinking about how frequently they should come in. And what are the key factors they were considering as the carbon footprint of air travel. Over the course of the year, they had of have people travel in more than five times a year. When they work remotely, they said the carbon footprint of that is far greater than having them actually work near our office. So why would we allow them to come back more than five times a year. Those kinds of things.

So there are practical considerations that companies can put in play. And starting off with defining their sphere of influence, but also making sure that they engage their employees. So the other element that we've learnt is that there's a culture change involved-- mindset shift required. And so you need to win the hearts, minds, and hands of employees. So engaging a cross-functional team, so to speak, in order to drive change will be really critical to move into more solution-oriented approaches for addressing this issue.

LOUISE PENNINGTON: Yeah. I have to say, I'm based in New York in the States. And during the height of the pandemic, that New York was unfortunately the focal point and locus of a lot of the hardship, at least in the States. And I remember reading about because we were in the position we were, the positive impact of climate-- that nobody was on the roads, that nobody was flying.

And I know that has a very negative impact on the economy and other regards for different industries that support those transportation efforts, but it was almost an immediate impact. And I just remember thinking that was a horrible reason to learn a good lesson, obviously, because there is a lot of tragedy that also occurred as a result.

But it was great real-time evidence-- going back to Paula, to your original comments of it's happening now, right? What I think used to be perhaps something that felt like it was very far away in the future-- and while an important investment of time, energy, and regulation, and policy, and so forth-- it just, for many people and many organizations, felt like it was very much a future state.

I feel that the past 24 months-- my opinion and just listening and learning along the way-- it's very relevant and present now. And impacting all generations and all geographies-- perhaps not all equally, which is also an issue, right?

But that has propelled this conversation into what might have felt like, it makes you feel good, nice to have, into almost a moral imperative and one that is also-- from a purely financial standpoint for the organizations, public and private, to think a little differently. And I just wonder if you both-- you live in this space-- if you agree or disagree.

PAULA PAGNIEZ: I agree. Your comment made me think of one article I read at the time of dolphins swimming, again, in the channels of Venice. And then talking to a colleague in a South Asia city, talking about how now they can actually see the sunset. They can see the skies.

Coming back to awareness and the drivers of behavioral change, what you just reflected on and those two examples made me think it gave us actually a tangible example how a behavioral change can truly have an immediate impact.

LOUISE PENNINGTON: Exactly. The challenge there is that the future is evolving, and we do not know exactly what it's going to look like. But we're having some showcases of that future being very present. So we can so much grab a hold of that feeling and those news of that time in order to hopefully bring in the stimulus for behavioral change.

You also tapped into equity. And as we're discussing about the big trends, the more we develop tools to understand impacts of climate risks into different metrics for different industries around the world-- the impact in our demographics, in our health, in where people are going to live, where can they access housing, where can they actually be productive and go to work because they can actually access work-- has really brought to light quite substantial inequalities in terms of the impact of climate risks. And then the compound impact of climate risk with other risks.

Say no access to housing or health benefits, based on the two examples that I just mentioned. I don't want to forget to mention that there's quite a focus that has been brought up by the climate crisis, the COVID crisis, and these combination of events really bringing to light the big inequalities that we have and how they impact the vulnerability of populations around the world.

And hopefully, with all the developments that we're doing in terms of quantification, we are helping to bring to light where those inequalities are strongest and we can start focusing the flow of capital and action to tackle those inequalities, as well. Maybe, Paula, can you touch a little bit on the specificity around the quantification? Maybe make that a little bit more concrete for the audience.

PAULA PAGNIEZ: Yes, absolutely. So this is actually a great moment for us and New York climate week, because we are launching a whole new set of tools around climate risk impact quantification. Our organization, same as so many around the world, have stepped forward in developing new capabilities and new tools. Some are public, some are not of public access-- sorry-- but that are allowing us to quantify the impact of risks.

And what we love about that concept is that once you quantify, once you put a number into an impact, you cannot stop seeing it. You need to start strategizing around it. So be it that quantification is used for policy, or it is used to better identify in capital markets where the new flows should be directed.

For corporations, being able to use that quantification to embed it into their strategic response to the impacts of climate risk. That is really being a turn of page, in terms of the capabilities that we have to allow for that decision making, based on actual numbers and metrics.

LOUISE PENNINGTON: Shankar, you mentioned earlier that you'd been in conversations with a CHRO at a large organization, and they're identifying and trying to address the talent acquisition, retention models, and so forth. You alluded to the future of work concept, right?

Maybe you can also share some ideas and frameworks that you're working on with clients that are already on this journey, or those that maybe are just starting. Because we have a lot of clients that are in various stages of consideration adaptation and execution. So maybe you could comment on that.

SHANKAR RAMAN: Yeah, absolutely. And so one of the things that we've been focused on is-- there's been a fair amount of, I guess, Britain literature on the notion of physical risk and transition risk with regards to climate change.

But one underexplored area has been the connection to what we call human capital risk, right? What are the connections between climate change and human capital risk. And so we spent some time looking at what exactly that means. And there are multiple dimensions to human capital risks related to climate change.

A central component of that is employee well-being, or our well-being in general. And if you were to distill that down into things such as financial well-being, physical well-being, mental well-being, and social well-being, and emotional well-being, as well, you can find that there are actually meaningful connections to climate change.

One research for example, found that African-Americans-- 60% of African-Americans in North America-- tend to live within a 30 mile radius of a coal-fired power plant. And they have higher incidences of pulmonary diseases because of that, actually. And other populations too.

We find that lower income groups actually live in warmer areas within Metropolitan zones, so where the temperature tends to be higher, resulting in lower productivity, et cetera. And so what we've been trying to do is drive the connection between those data points, specifically, and understanding how might actually-- climate risk either adversely impact that situation, and what could companies be doing to address that. But also what might that do from a health care cost to the enterprise.

So we actually are on a project right now-- another part of our team is working on looking at health care data and climate related data to draw the connections to see how might those data be connected in order to provide insights to organizations on what actions they could take in order to mitigate climate risk and increase human capital resilience.

One of the points that we also need to start looking at is-- and we're already doing this-- is looking at the definition of climate change a little bit more broadly than just temperature change. If you think of biodiversity risk, you think of livelihood risk for people in at risk areas, you find that-- I was not involved in that directly, and Paula you might know more about this, actually-- the work that we did with the state of Florida, looking at the kinds of risks that the state of Florida faces from climate risk.

It is not just a question of areas going under flooding. The fact is people live in these areas, there is a risk to people's livelihood, there is a risk to people's well-being, there's a risk to people's sustenance over a period of time. And so those are the kinds of things that we are really interested in helping our clients address and areas that we are increasingly beginning to look at more and more.

One of the things that we're also doing-- this is relevant to many of our human resources clients-- is being able to look at what we call the state of climate awareness within a population. Like I said earlier, you need to win the hearts, minds, and hands of people.

So winning the hearts and minds, we need to understand do they understand the issue or not, right? Are they aware that climate risk is an existential risk to all of us? They also need to understand-- do they feel good about a company's position on climate change or not? So we have actually been developing ways for assessing-- helping our clients assess-- the awareness of their employees and the engagement of employees on these topics.

LOUISE PENNINGTON: I'm curious-- and I don't know if this is a question for Paula or Shankar. Probably both of you. When I think about particularly publicly traded companies in the US I'm speaking about right now, there's a fiduciary duty owed to shareholders, and indeed historically, it's always been about shareholder value.

And there's been this conversation happening around-- and I wouldn't say it's conflict, but challenging stakeholder needs between driving up share price, or driving up the strength, if you will, of the balance sheet of a publicly traded company with the inherent costs and significant material costs, in many situations, for both the transition risk, as well as the modification of their employee base that you just recited, Shankar.

Curious between both of you how those conversations have happened in your experiences and your interactions with our clients. And maybe some tools that you have offered to those clients to navigate this very new area for all of our clients, I would say.

SHANKAR RAMAN: Go ahead, Paula.

PAULA PAGNIEZ: Well, I think that the main point to bring up is that our role is to offer those tools and solutions that allow companies to navigate these type of conflicts.

And as we were talking about quantification developments that we have done in order to allow for metrics that can guide companies in making decisions towards their growth and their future growth, there's a lot of work that we have done based on our CTVaR methodology in order to launch our transition index, again, which companies can list to demonstrate how they are preparing for transition to decarbonized economies.

So it's not only about the current value of those shares, but it's also the present value of their future growth. And that is an area where we're working very actively-- and actually with a launch now also this week-- in order to facilitate these tools so companies can properly showcase, demonstrating the quantification of the value of their shares, the actions that they're doing to be not only sustainable, but continue growing and hopefully be leaders in the future.

SHANKAR RAMAN: Yeah, and then also, one of the other things that we've been doing also in the human capital business has been looking at how do you engage more effectively with board members on this topic? And how do we think about executive incentives, and board incentives, and managing the incentives to drive the right kind of behaviors?

We actually partnered with a group, with climate governance group, to create a guidebook for board members and management teams on how they can be dealing with ESG related risks and climate related risks. We have an initiative now underway to look at documenting the types of metrics that would make more sense for organizations to look at from an incentive perspective.

Our EC Executive Compensation Board Advisory consultants tend to spend a fair amount of-- increasingly more amount of time, along with colleagues in our climate Resilience Center of excellence, to be able to engage and create awareness among board members and management teams on the risks that they face from climate change, how are they reaping the rewards programs, that benefits programs, their HR programs, et cetera, in order to drive the right behaviors.

Those are some of the things that we're doing. And one of the things that I always-- I think the long haul for publicly traded companies, they're always interested in making sure that the shareholders don't feel that they're being impacted by investments they're making in climate change, right? So there's a huge amount of communication effort required, both internally and externally, to help different stakeholders understand how is the company's position on climate change beneficial for all stakeholders fundamentally.

And so we actually have a very strong communications and change management team that actually is working increasingly with clients on addressing and communicating those issues.

LOUISE PENNINGTON: And it's probably perhaps somewhat analogous to the work that's been done now for a couple of decades around diversity inclusion metrics, and impact rate, and the value to organizations, both directly financial as well as cultural, and talent retention, and all of those different metrics. So perhaps what we're talking about now is that evolution of that same concept, but in a different foundational principle.

SHANKAR RAMAN: I think that's right, if I may. And so one of the big issues is going to be-- companies will have to fundamentally question some of their sources of value, right? And figure out how do we rethink how we create value in ways that we may not have done before.

That's going to be the biggest challenge that companies are going to face. And we have examples of some companies that have changed their complete asset profile in order to be able to deal the challenges of climate change. What it it also means is things such as new skill sets that they may not have had before in the organization, to be able to navigate that.

And so taking a-- I guess a multifaceted approach in order to deal with this risk that looks at how you create value, how you engage the employees, how do you plan for the risk and mitigate it, are all muscles that a company is going to have to learn to develop in ways they haven't done before.

LOUISE PENNINGTON: So I could talk about this all day with both of you, but I know we have limited time. So perhaps we can just close out the session with a call to action suggested to our clients from both of your perspectives. I started with Paula, so I'll start with Shankar as we close, and then we'll let Paula conclude.

SHANKAR RAMAN: So I think companies can take action in a few areas. One is to make sure that they understand the risk to their business from climate change, the risk they create to the environment from their activities. I think both are important issues that they're going to have to make sure they proactively address.

The second thing they're going to have to do is to make sure they mobilize the power of their people in order to address climate change, and fundamentally work, like I said, figuring out how do we capture the hearts, minds, and hands of employees and being able to deal with climate change. So those would be my two areas of course of action.

LOUISE PENNINGTON: All right. Thank you. Paula?

PAULA PAGNIEZ: My final thoughts are that so much progress has been made. And we were talking about quantification of risk and impacts. We have been talking about awareness, behavioral change, purpose for companies to respond about these community awareness growth. And there's no option but to move forward.

So it's about boards and c-suites of companies listening to what their communities are bringing to attention, to all those different pressure points that we are experiencing inside of regulation, capital, risk, impacts, and moving forward with the implementation of those quantifications, of the impacts of risk so that they can better inform their strategies-- via that they are using climate disclosure standards in order to guide their actions, via that they're engaging, for example, at board level with board trainings and educations to bring awareness, and to allowing all these tools to help them look at the climate resilience response from a macro perspective, from a holistic point of view.

Because capital, access, and management. The management of risks and the way in which we address our people, our communities, are all intertwined and interlink. And action around these three pillars can completely be cohesive and represented underneath one single climate strategy.

SHANKAR RAMAN: Can I add one more point, Louise, if it's OK?

LOUISE PENNINGTON: Of course.

SHANKAR RAMAN: Yeah. And this is actually I'm paraphrasing Bob Kaplan. He's the former chairman of the Dallas Federal Reserve on this one. It says managing this transition to a carbon neutral society is a leadership challenge.

It is not just a simple process challenge or a capital challenge. It is the most existential leadership challenge we have right now. And therefore leaders will need to step up and work in ways that they have not done before.

LOUISE PENNINGTON: Thank you both, Shankar, Paula. Great conversation great discussion. I know could talk about this, or I could talk about it, certainly for hours and the two of you definitely could offer some additional great insights. But thank you both and thank you to the audience.

SHANKAR RAMAN: Thank you, Louise.

PAULA PAGNIEZ: Many Thanks.

SHANKAR RAMAN: Thank you, Paula. Bye.

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