Words by Raphaëlle Vallet , Head of Solutions & Innovation for Aon Climate. Vallet discusses how climate change can be turned into an opportunity for growth instead of a complex risk for the mobility sector.
For all businesses, the issue of climate change is front and centre as investors, customers and employees expect them to take a lead in efforts to transition to a carbon neutral economy. The impetus for action in future mobility businesses comes from the fact that transport has the highest reliance on fossil fuels of any sector, and accounted for 37% of global CO2 emissions from end-use sectors in 2021. The promotion and development of sustainable urban transport will play a key role in achieving global climate targets and successfully decarbonising mobility as we move towards net zero.
In support of that journey, the insurance and risk advisory industry is working hard to not only address the physical risks emerging from climate, but also the opportunities that come from transition and in unlocking new growth areas.
The Physical Risks of Climate Change
Climate change is tied to acute and chronic risks such as business interruption, property destruction, material scarcity, supply chain issues and people’s health and safety. Organisations are already having to deal with these impacts, with economic loss from natural disasters estimated to have been GB£313 billion in 2022 (Aon’s 2023 Weather, Climate and Catastrophe Insight).
In the mobility space specifically, there are physical risks arising from climate change that will see the predicted increase and severity of flooding or other extreme weather events affect people’s ability to travel; whether that’s to access education, healthcare, or even their workplaces. These physical barriers to personal and societal movements will also impact on broader economic activity. But it’s not just about people movement; physical risk is, for example, a big issue for auto manufacturers. With manufacturing plants relying on advanced technology, specialist skills and local natural resources – such as access to water – manufacturers are highly dependent on specific locations which makes them vulnerable to the effects of a changing climate, be it flooding, drought, storms and other extreme weather which can affect both physical assets – production, logistics – and people.
Model the Climate Impact
One way our industry looks at the physical risk challenge is by leveraging complex climate models to measure and quantify the impact of climate change to help corporates understand how new trends might affect future flows of finance, physical assets, and people. Aon recently helped a complex global manufacturer to identify, quantify and model climate-related risks across 93 locations, covering its own assets, its suppliers, and for potential new regions – supporting their reporting activities, growth planning and adaptation planning.
Understanding the ways in which physical risk from the changing climate will affect people and assets, both now and into the future is key for all mobility organisations. Risk advisory firms like Aon can contribute by utilising data, complex modelling and financial quantification to help businesses determine the risks to their assets. This will ensure they may make better decisions on where and how to plan and invest to mitigate future losses and enable them to maintain operations if disrupted by future extreme weather events.
Transition and Growth
While the physical risks arising from climate change can pose downsides, climate can also create new growth opportunities. Future mobility business models accept and embrace the need to decarbonise, whether it’s public or private transport, aviation, or shipping. This is driving technology innovation and advancement, fuelling new business models and disrupting mobility conventions, which in turn creates opportunity. This is where trusted risk advisors can partner with these businesses to play an active role in supporting growth by removing potential obstacles. One way Aon supports growth is by helping businesses to de-risk investments into research and development, all the way to helping them build new facilities around the world.
Increasingly it’s about collaborating and partnering with mobility sector players to understand their plans and strategic objectives, and using innovative solutions to help overcome the risks and unlock growth from new opportunities.
The Regulatory Landscape
Another risk from climate change is the pace of regulatory change and growing complexity caused by the implementation of regulations throughout the globe. Reporting frameworks and standards are created or adapted to increase consistency around climate reporting but also to try to create more transparency on what risks climate change presents to organisations. Businesses are increasingly expected to report (in greater detail than before) their exposure to climate risk and what they are doing to reduce its impact on their future operations and finances. Get it wrong and they could risk losing access to markets, have less access to capital as investors switch focus to fully sustainable business models, and lose customers whose view of brand and decision making is becoming linked to responsible and sustainable climate adaptation and mitigation.
Our role as industry experts can help businesses navigate changing reporting expectations based on credible and grounded methodologies. But again, it’s not just avoiding the downside, there is also a potential upside in finding favourable regulatory regimes. For example, The Inflation Reduction Act in the US changed the conditions for investment in manufacturing almost overnight, as the US became more attractive for businesses considering investing as part of their plan to work towards net zero. Whilst we see governments setting targets to ban the sale of internal combustion engine (ICE) cars from 2030, this is being balanced with increased government-backed support and investment.
In the UK, for example, the Government is also funding over GB£1.8 billion in infrastructure and grants to help increase access to zero emission vehicles. The EU will also ensure all new cars and vans registered from 2035 will be zero-emission and has made similar funding pledges to support all aspects of the supply chain (e.g. semi-conductor facilities, battery production). It’s proof that the regulatory landscape is changing incredibly fast and already having a big impact on business planning and decisions on where and how to invest.
Mobility is a People Business
Underlying everything is the recognition that mobility is a people business which means the climate journey – from increasing resilience against physical risks, reducing the costs and volatility of transitioning to net zero, and unlocking new growth opportunities – can only be successful if a business gets its people strategy right. Climate change is likely to cause a shift in where businesses locate to take advantage of the new opportunities, new skills and also demand the re-training of existing workforces to enable them to meet, and thrive within, the requirements of a net zero economy.
Understanding how these changes may affect an organisation can support them in better planning, assessment of requirements and tailoring management of their people with the future skills needed. To take advantage of new net zero opportunities, organisations will need to focus on how best to attract and hold on to talent in an increasingly competitive employee marketplace.
A Big Opportunity
The transition risks brought about by climate are significant, but for future pioneering mobility organisations there are significant upsides to exploit in working towards sustainable mobility and playing a major part in helping the world meet its global climate ambitions. These upsides can be better seized by working with risk advisory organisations such as Aon to fully understand the risk landscape and quantify the impact of those risks to help shape informed investment and effective business decision making.
Whilst care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it. In any case any recipient shall be entirely responsible for the use to which it puts this article.
This article has been compiled using information available to us up to 06/06/23.
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