Majority of UK businesses unprepared for climate change

Chartered Institute of Internal Auditors calls on industry to urgently address the gap between expectation and action over climate preparedness

Today, the Chartered IIA in partnership with the Climate Group has published a new report, ‘Organisations’ preparedness for climate change: an internal audit perspective’, which seeks to understand business attitudes towards climate risks and what measures are being taken to mitigate the impact on business.  

The research, based on a survey of Chief Audit Executives across all sectors of the economy, reveals widespread corporate awareness that climate change is a serious threat, having risen further up the agenda in recent years. According to the survey:

• 66%of respondents said climate change is on their company’s risk register.
• 58%think climate change will be a ‘high’ risk in three years’ time.
• FTSE 100 respondents classify it as a higher risk compared to the overall cohort.

But despite a growing understanding of the risks, the report reveals a worrying lack of urgency when it comes to taking action. More than half (52%) of businesses’ internal audit functions report doing very limited or no work related to climate change. 53% of Chief Audit Executives surveyed have not discussed climate change with their audit committee chair, suggesting it has not been embedded properly within organisation’s risk management frameworks.

Business appears to be laying part of the responsibility at the government and regulators’ door, with widespread agreement that businesses have not been given enough guidance on the issue. Less than a quarter (23%) of Chief Audit Executives surveyed said their organisation have received enough engagement from Government to assist them in preparing for climate change. Over two thirds (68%) say they would like to see the government go further.

Similarly, despite increasing regulatory requirements to disclose climate related information, just over a quarter (27%) of respondents say they have received enough engagement from regulators to support them in readying their business for climate change. Businesses are looking for regulators to take decisive policy action, with 83% calling for a universally agreed framework to report climate-related information.

The Chartered IIA is calling on businesses to equip themselves now, to mitigate against looming climate change risks and has set out a series of recommendations on how to do so, including:

• Ensuring boards, audit committees, and executive management are well-informed about the risks posed by climate change and that they are taking the issue seriously.
• Embedding climate change and sustainability in risk assessments and wider business strategy. This will enable a business to build a picture of the risks an organisation is facing in relation to this issue, and the controls in place that seek to mitigate them.
• Ensuring that processes and controls, as well as KPIs, have been put in place to monitor progress. Part of this includes ensuring a company measures and reports its progress in reaching its sustainability goals and reducing its environmental impact.

John Wood, Chief Executive of the Chartered IIA commented:

“Climate change is already visibly causing damage to infrastructure and assets, threatening businesses’ reputations, and introducing a whole new level of regulatory and compliance risks that will increasingly test our resilience. Though many parallels have been drawn with the coronavirus crisis, the impacts of the pandemic are nothing compared to what climate change will bring if we don’t act now.

We would urge industry to get to grips with what is coming down the track by building up knowledge and understanding of climate risks and opportunities now – rather than wait around for Government to act. Internal audit functions must play a key role in supporting the organisations they serve to become climate change ready.”

Stephen Licence, Group Chief Internal Auditor at Legal & General Group plc, commented:

“This research is a timely reminder that there can be no place for complacency when it comes to the risks posed by climate change. Avoiding climate catastrophe is our greatest global priority. We’ve long thought of climate change as both an existential risk and the biggest investment opportunity of our time – one that we recognise isn’t going away. It’s a high priority for our customers, stakeholders, employees and regulators which is why it is a fundamental part of our 2020 and 2021 audit plans. As a relevant and impactful internal audit team, it is incumbent on us to ensure our work supports the objectives of our business to make progress on delivering on climate targets that benefit our stakeholders, the wider market and society.” 

Mike Peirce, Corporate Partnerships Director at the Climate Group, commented:

“The last twelve months have marked a significant transition in the scale and scope of corporate leadership on climate action. We’ve seen more companies join the leadership pack making ambitious commitments on renewables, smart energy use, and clean transport. However, the scale and urgency of the challenge remains. We have to halve emissions this decade to be within a fighting chance of reach net zero by 2050. As we work to rebuild greener, stronger economies, we’ll need many more companies to be seizing these opportunities.”

Click here to read the climate change report.

Notes to Editors

1. The Chartered IIA conducted a survey of 122 Chief Audit Executives (CAEs) across all sectors in the UK and Ireland [55% were from publicly listed (including FTSE 100 / FTSE 350) or large private companies]. The survey aimed to understand what measures organisations have put in place to prepare for the impacts that climate change has/will have on their business, as well as measures to reduce their carbon footprint.
2. In addition to the survey, the Chartered IIA conducted four interviews with CAEs covering a range of sectors including in the retail, house building and financial services sectors, who have undertaken innovative internal audit work on climate change. These are presented as case studies.
3. The Chartered Institute of Internal Auditors is the only professional body dedicated exclusively to training, supporting and representing internal auditors in the UK and Ireland. We have 10,000 members in all sectors of the economy. First established in 1948, we obtained our Royal Charter in 2010. Over 2,000 members are Chartered Internal Auditors and have earned the designation CMIIA. About 1,000 of our members hold the position of head of internal audit and the majority of FTSE 100 companies are represented among our membership. Members are part of a global network.