Risk functions: Elevate your strategic role in the climate, sustainability and ESG conversation – wtwco.com

Report on the Integration of Risk Management and Sustainability Functions for Advancing Sustainable Development Goals

1.0 Executive Summary

An increasing number of organizations are expanding the remit of sustainability teams to include responsibilities traditionally managed by risk functions. This convergence is primarily driven by mandatory climate disclosure regulations and the escalating volatility of climate-related risks. This report analyzes the critical need for collaboration between risk and sustainability professionals to ensure accurate risk assessment, robust strategic planning, and meaningful contributions to the United Nations Sustainable Development Goals (SDGs), particularly SDG 13 (Climate Action).

2.0 The Convergence of Sustainability and Risk Management

The operational overlap between sustainability and risk management is expanding, presenting both opportunities and challenges for corporate governance. This trend is directly linked to achieving key SDG targets.

• Expanding Remits: Sustainability functions are now frequently tasked with assessing physical climate risks, such as windstorms and floods, and developing adaptation strategies. These areas directly intersect with traditional risk domains like property damage and business interruption (PDBI).
• SDG Alignment: This functional convergence is critical for advancing several SDGs:
  • SDG 13 (Climate Action): Addressing physical climate risks and building adaptive capacity are central to this goal.
  • SDG 9 (Industry, Innovation, and Infrastructure): Developing resilience strategies for physical assets contributes to building resilient infrastructure.
  • SDG 11 (Sustainable Cities and Communities): Corporate efforts to mitigate climate impacts on their facilities contribute to the overall resilience of the communities they operate in.

3.0 The Role of Risk Functions in Climate Disclosure and Reporting

Accurate and rigorous financial disclosure of climate risks is mandated by emerging standards like the International Financial Reporting Standards (IFRS). The expertise of risk professionals is essential for compliance and maintaining corporate integrity, which supports SDG 12 (Responsible Consumption and Production).

1. Ensuring Accuracy: Without the analytical rigor of risk professionals, climate-related financial risks may be misinterpreted or misrepresented. This could lead to under- or overstatement in annual and sustainability reports, exposing the organization to financial and reputational damage.
2. Applying Recognized Methodologies: Risk functions can apply established, insurance market-recognized methodologies to quantify climate risks, ensuring that disclosures are robust, defensible, and support informed decision-making.
3. Supporting SDG 12: By ensuring the integrity of sustainability reporting, risk functions help companies fulfill the objectives of SDG 12, which encourages the adoption of sustainable practices and the integration of sustainability information into corporate reporting cycles.

4.0 Strategic Levers for Enhancing Climate Resilience and SDG Contribution

Risk functions can move beyond an operational role to become strategic co-leaders in shaping corporate climate strategy. This involves leveraging regulatory frameworks and advanced analytics to drive proactive resilience.

4.1 Leveraging Frameworks for Collaboration

Understanding and engaging with climate risk frameworks provides a common language for collaboration between risk and sustainability teams, fostering the spirit of SDG 17 (Partnerships for the Goals).

• The Task Force on Climate-related Financial Disclosures (TCFD) underpins many global disclosure regimes and serves as a foundational tool for embedding risk perspectives into strategic planning.

4.2 Utilizing Analytics and Scenario Modeling

Advanced analytics are powerful tools for quantifying and communicating climate risks to key stakeholders, including boards and investors. This data-driven approach is vital for effective action on multiple SDGs.

• Quantifying Impact: Scenario testing can reveal asset-level vulnerabilities to climate hazards, guiding resource allocation for mitigation and adaptation efforts.
• Strengthening Resilience: By anticipating and mitigating climate risks, organizations protect their operations, contributing to SDG 8 (Decent Work and Economic Growth) through business continuity and strengthening infrastructure in line with SDG 9.

5.0 Conclusion: Risk Functions as Leaders in Sustainable Strategy

As organizations transition from reactive recovery to proactive resilience, risk functions are uniquely positioned to lead. By acting as a central connector between departments and providing data-driven expertise, the risk function can embed climate risk awareness into all organizational decision-making.

This leadership role is fundamental to shaping strategies that not only protect the business but also deliver long-term value and guide the organization’s transition toward a sustainable future aligned with the Sustainable Development Goals.

Analysis of Sustainable Development Goals (SDGs) in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 13: Climate Action

  This is the most prominent SDG in the article. The entire text revolves around managing climate-related risks, such as “physical climate risk,” “windstorm and flood risk,” and natural catastrophes. It emphasizes the need for organizations to develop “resilience planning,” “adaptation strategies,” and integrate climate considerations into their core business and ESG strategies to address the impacts of climate change.

• SDG 9: Industry, Innovation and Infrastructure

  The article discusses strengthening organizational resilience against climate shocks. This connects to SDG 9’s goal of building resilient infrastructure. By using “analytics and scenario modeling” to identify “asset-level vulnerabilities” and mitigate “property damage and business interruption (PDBI) insurance” risks, organizations are effectively working to make their industrial infrastructure more sustainable and resilient to climate-related disasters.

• SDG 11: Sustainable Cities and Communities

  While focused on organizations, the article’s theme of building resilience to “natural catastrophe risks” like floods and windstorms directly supports the goal of making human settlements safer and more resilient. Corporate resilience is a key component of community-wide disaster risk reduction. The development of “crisis management and emergency response planning” within companies contributes to the overall adaptive capacity of the communities in which they operate.

• SDG 12: Responsible Consumption and Production

  The article highlights the growing importance of corporate transparency and reporting on climate issues. It explicitly mentions “climate disclosure requirements,” “sustainability reports,” and reporting standards like the “International Financial Reporting Standards (IFRS)” and the “Task Force on Climate-related Financial Disclosures (TCFD).” This directly aligns with the goal of encouraging companies to adopt sustainable practices and integrate sustainability information into their reporting cycles.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters.

   The article directly addresses this target by focusing on how organizations can move from “reactive recovery from climate and natural catastrophe risks to proactive resilience strategy.” It discusses “building adaptation strategies, crisis management and emergency response planning” to manage physical risks like “windstorm and flood risk.”

2. Target 13.2: Integrate climate change measures into national policies, strategies and planning.

   At a corporate level, this target is reflected in the article’s call for risk teams to become “strategic co-leaders in shaping your organization’s climate and environmental, social and governance (ESG) strategies.” The goal is to embed “risk awareness into your organization’s decision making” and ensure climate considerations are central to strategic planning.

3. Target 12.6: Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle.

   This target is central to the article’s discussion on “climate disclosure requirements.” The text emphasizes the need for risk professionals to collaborate with sustainability teams on disclosures to ensure that risks disclosed in “annual and sustainability reports are” not “under or overstated,” referencing frameworks like IFRS and TCFD as the basis for this reporting.

4. Target 11.5: Significantly reduce the direct economic losses relative to global gross domestic product caused by disasters.

   The article’s focus on managing “property damage and business interruption risks” and the need for “financial risk quantification of climate risks” directly relates to mitigating the economic losses from climate-related disasters. By properly evaluating and managing these risks, organizations can protect their assets and reduce financial harm.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator: Adoption of corporate climate adaptation and resilience strategies.

  The article implies this indicator by describing the shift “from reactive recovery… to proactive resilience strategy.” The existence and implementation of such strategies within an organization would be a direct measure of progress towards strengthening adaptive capacity (Target 13.1).

• Indicator: Number of companies using recognized climate disclosure standards.

  This indicator is explicitly mentioned. The article names specific standards like the “International Financial Reporting Standards (IFRS)” and frameworks like the “Task Force on Climate-related Financial Disclosures (TCFD).” The rate of adoption of these standards by companies is a clear metric for progress on corporate sustainability reporting (Target 12.6).

• Indicator: Financial quantification of climate risks in corporate reporting.

  The article states that disclosure standards “require financial risk quantification of climate risks.” Whether a company quantifies and reports these financial risks in its “annual and sustainability reports” serves as an indicator of its efforts to manage the economic impacts of climate change (Target 11.5) and provide transparent disclosures (Target 12.6).

• Indicator: Use of scenario modeling for climate risk assessment.

  The article promotes the use of “advanced analytics and scenario modeling” as powerful tools to “quantify climate risks” and “reveal asset-level vulnerabilities.” The application of these techniques by an organization is an indicator of its institutional capacity to integrate climate change measures into its strategic planning (Target 13.2).

4. Table of SDGs, Targets, and Indicators

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