Laura Zizzo, Co-Founder and CEO of Manifest Climate.
Climate change is one of the biggest economic risks of our time. Companies that fail to address it will get left behind and may find themselves scrambling to adapt to a low-carbon, climate-adjusted future. This could affect their operations, bottom lines and overall viability, which has the potential to have ripple effects on both local and global economies.
The good news is that organizations can mitigate the troubling financial risks they’re facing that result from climate change. To do this, they need to holistically focus on climate risk management and ensure that climate considerations are being thought about and discussed across teams.
Part of this includes ensuring robust corporate governance around climate issues, setting both interim and long-term climate targets and developing the appropriate metrics to monitor progress. In addition, companies should ensure they develop an effective climate strategy and risk management process to address climate-related financial implications. There’s an age-old adage that goes, “If you can’t measure it, you can’t manage it.” The same rings true for climate-related financial risks.
More good news: Other companies are working on the same problems, and with the support of smart technology, companies can quickly benchmark, analyze gaps and better report on their risk, opportunities and management approaches.
Staying On Top Of Disclosure Requirements And Trends Is Complicated
Relevant reporting expectations are changing rapidly. Just this year, the U.S. Securities and Exchange Commission (SEC) is expected to release its finalized climate disclosure rule, while Canada’s financial regulator released a climate risk rule for banks and insurers in March, and the European Union’s new directive on corporate sustainability disclosures took effect in January. On top of all that, the International Sustainability Standards Board (ISSB), a private sector body responsible for developing global sustainability reporting standards, released its final climate and sustainability disclosure rules in June.
All these rapid changes take effort to stay on top of. Plus, when they’re paired with a global lack of climate expertise and professional resources, it means climate progress is often hindered as companies spend cycles trying to figure out what to prioritize and tackle next.
As a former lawyer who previously owned a climate consultancy, my colleagues and I used to spend months assessing how companies’ climate disclosures aligned with different reporting frameworks and standards. It would take us hours upon hours, poring over spreadsheets, analyzing how organizations’ climate disclosures compared to those of their industry peers and best practice recommendations.
This is still the case for many teams. Instead of implementing climate strategy and focusing on business-smart climate management, many professionals and consultants feel bogged down in the research and planning processes.
The evolution of artificial intelligence (AI) and machine learning (ML) is helping to solve these problems by allowing sustainability teams to focus on what’s important so they can make real progress.
For example, companies, including my own, have developed climate risk planning software solutions that are rooted in AI. This technology can eliminate the months spent assessing climate disclosures by giving teams the ability to have them analyzed in just two weeks, identify gaps in companies’ climate reports and provide data-driven recommendations based on best practices to help organizations develop a clear and actionable climate plan.
With just a few clicks, organizations can compare their climate disclosure and management alongside industry peers and other corporate climate leaders. They can also access climate disclosure trends and insights at their fingertips to help their leaders make better decisions and build organization-wide climate competence.
Navigating AI To Build Corporate Climate Resilience
The emergence of AI solutions to support climate-related risk management and disclosure is exciting—and potentially game-changing—however, we must tread with caution about what we can expect from AI. AI is best utilized to take out the “mundane,” but it should not replace the innovative thinking that is required to tackle climate risks and seize opportunities within organizations. It’s crucial that companies looking to implement AI solutions assess the expertise that went into the training of the models that are being employed by the solution. If the most broadly used and commonly accessible AI models are asked broad questions about climate and sustainability, they may not provide insightful or correct information. Expertise is required to train models with accuracy, and thinking is required to apply outputs to an organization’s unique circumstances.
For instance, an AI solution could be really good at finding specific references in disclosures related to a company’s climate plans. These data points can be used to compare and benchmark, provide gap assessments and even inspire action. AI can also help improve the understanding and competency of a range of stakeholders within an organization. However, companies must also ensure there is systematic integration into core decision-making processes and strategies. This is still best done by the humans within an organization, with support from the smart, efficient and powerful AI solutions on the market.
Additionally, it’s a red herring to expect a solution to help with all “ESG” issues a company has. These issues are complex and cross-cutting. In the evolving landscape, we see some solutions promising more than they can deliver, and there is a lot of “noise” in the market for solutions to support ESG teams. Organizations should look for specific solutions to help with specific aspects of their business risk and opportunities. Climate risk and opportunities are some of the most important and least understood “ESG” factors and require organizations to have tools that help them to better understand, manage and then communicate their climate stories to the market. There is no “one-size-fits-all” approach for each challenge an organization faces with climate risk. In my experience, it is best practice to use AI to augment, support and jump-start climate discussions, encourage comparability and better communication.
Climate change is a massive challenge, and we need every tool at our disposal to help address it. AI can accelerate our climate competency by scaling expertise, take out the more “mundane” work and help organizations move toward effective climate strategy and disclosure.
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