Climate change and biodiversity loss are rapidly becoming pivotal challenges for organisations. The "Risk in Focus 2025" report by the European Confederation of Institutes of Internal Auditors (ECIIA) identifies them as critical long-term risks for organisations, yet they remain insufficiently prioritised.
This disparity highlights a key organisational dilemma: addressing the immediate risks of today while preparing for the more profound consequences of tomorrow.
Rising Concern: Climate Change as a Strategic Risk
The report by the ECIIA sets an example to follow with regards to monitoring a sector's activity. It reveals that climate change, biodiversity, and environmental sustainability are expected to rise from the sixth most pressing risk for organisations in 2025 to the fourth by 2028. This is good news, as the risks for organisations are getting increasingly recognised.
However, despite this anticipated escalation, only 20% of organisations currently dedicate significant internal audit efforts to these areas. By 2028, this figure is projected to increase to just 40%. The gap underscores the urgency for organisations to proactively address climate-related risks before regulatory and environmental pressures intensify further.
The urgency of climate action is rooted in the irreversible consequences of environmental tipping points. If these tipping points are crossed, the global climate will spiral out of control. Reactive measures by themselves are inadequate solutions to climate change, as the latter result from the greenhouse gases accumulated in the atmosphere over decades.
A great example of this is the Atlantic Meridional Overturning Circulation (AMOC), a vital system of ocean currents regulating the Earth’s climate which is at risk of collapse.
Research indicates that the AMOC has around a 60% chance (+/- 17%) of shutting down mid-century, with devastating consequences for the northern hemisphere, including shifts in monsoon patterns and prolonged droughts. Once triggered, a tipping point like the AMOC would be extremely hard to reverse - imagine trying to reverse several.
Organisations relying on reactive measures in such scenarios will find themselves unprepared. The only viable solution is to prioritise preventative actions, such as reaching net zero emissions and reducing biodiversity impacts, to mitigate these risks before they materialise.
Climate Risks Are Demonstrably Underestimated
The Institute and Faculty of Actuaries (IFoA) highlights how the economic and material risks of climate change are often underestimated. Their "Planetary Solvency" report suggests that even the Paris Agreement’s targets may fail to account for the true scale of potential damages.
If current trajectories persist, global GDP could halve and billions could lose their lives between 2070 and 2090 due to climate-related impacts. This economic forecast reinforces the need for organisations to embed robust sustainability strategies, recognising that failure to act will incur exponential costs.
Why do organisations struggle to prioritise climate risks, despite mounting evidence? Cognitive biases, as identified by the Intergovernmental Panel on Climate Change (IPCC), play a significant role.
Humans are naturally wired to focus on immediate, visible threats over slower, systemic risks. This phenomenon, known as temporal discounting, often leads to the undervaluation of long-term challenges like climate change. It is reinforced by vested interests in emitting greenhouse gases in the short-term.
Compounding this bias, organisations face increasing pressures from short-term risks, such as cybersecurity and AI-driven disruptions, which command immediate attention and resources.
This focus, while understandable, perpetuates a reactive approach, leaving organisations unprepared for the systemic challenges posed by environmental risks.
The rising prominence of climate change as an organisational risk should not obscure its unique nature: its consequences are both delayed and profound.
Unlike many short-term risks, climate-related tipping points do not allow for reactive mitigation. Once triggered, their effects on global trade, agriculture, and infrastructure will be catastrophic, with no corrective action available to reverse the damage.
This underlines the need for organisations to shift from reactive to proactive strategies, embedding climate considerations into their core decision-making processes.
Strategies for Balancing Immediate and Long-Term Risks
To address these challenges, organisations must recalibrate their approach to risk management. Establishing dedicated teams and resources to leverage expertise in responsible business, environmental governance, risk management and impact reduction is essential.
Upskilling internal audit functions is equally critical. Auditors must be equipped to provide assurance on climate-related risks and to evaluate the organisation’s alignment with regulatory and environmental standards. This is particularly important given the increasing complexity of global sustainability regulations.
The Risk in Focus 2025 report by the ECIIA notes that increasing regulatory pressures such as Europe's Corporate Sustainability Reporting Directive, are driving organisations to prioritise climate-related risks.
Membership organisations, guided by frameworks like the Climate Action for Associations (CAFA) Best Practice Framework, can play a vital role. CAFA’s guidelines provide a structured approach to embedding sustainability into organisational practices, enabling members to align with net zero targets and demonstrate leadership in environmental stewardship.
By leveraging such frameworks, organisations can ensure they are both compliant and resilient.
The intersection of short-term pressures and long-term liabilities creates a complex landscape for organisations. However, the stakes are clear: failure to act on climate risks now will result in irreversible consequences in the future.
Organisations must adopt proactive strategies that prioritise prevention. By addressing climate change as a strategic imperative, organisations can not only mitigate risks but also seize opportunities for innovation and leadership.
In a world increasingly shaped by environmental challenges, those that act decisively will define the path forward, ensuring resilience and sustainability for years to come.
---
Join Climate Action for Associations today to take meaningful steps toward shaping the future of climate action within their industry. Click the link to learn more.
Comments