Companies make assumptions that understate risks

<p>2012 Trexler_Changing Nature of Business Climate Risk

While these business risks may seem straightforward, most businesses

make a series of implicit or explicit risk assumptions that tend to&nbsp;

minimize perceived risk and bias corporate strategies towards ‘wait and

see’ responses. Assumptions contributing to this outcome include:

• The assumption that the atmosphere’s sensitivity to anthropogenic

climate forcing will be at the lower risk end of the overall probability

distribution, suggesting that climate change impacts will be slower

to be felt, more gradually felt, and less cumulatively important

than the ‘long tail’ of the climate risk probability distribution

would suggest.

• The assumption that the risks of climate change itself will manifest

themselves slowly and linearly, rather than through ‘black swan’

game-changing events. In other words, so-called climate change

‘tipping points’ will not manifest themselves during a time period

relevant to business risk analysis.

• The assumption that the future of climate policy will look much

like the past, meaning a lot of talk and little action, and that

policy will be slower to develop, more gradually implemented, and

less draconian than the ‘long tail’ of the climate risk probability

distribution would suggest.

• The associated assumption that market structure, branding, and

liability risk outcomes associated with climate change and climate

change policy will also be in the lower-risk end of the probability

distribution of potential outcomes.

• The assumption that climate risks are really no different from

other business risks, notwithstanding the potential scale and

irreversibility of the climate change problem.

• The assumption that it’s OK to focus on ‘most likely’ risk outcomes,

rather than on outcomes located in the more dangerous ‘long tail’

of the risk probability distribution.

• The assumption that it’s OK to focus on the specific risks a

company feels most able to address, rather than on exposure and

vulnerability to the full range of climate risks.</p>