Climate change often not considered a prominent covenant issue.

Written by Ben Wilmot and Michael Bushnell

Climate change, and the world’s response to it, is expected to have a fundamental impact on sponsors across the globe. However, despite the eminent risks, the impact on the employer covenant is often not something that trustees are considering in detail, potentially due to:

• the complexity of the issue which can make it daunting;
• a lack of accessible information which can make it difficult to grasp;
• prioritisation of the immediate challenges trustees are faced with when managing a scheme and the heavy schedule of decisions that need to be made in the short-term and medium-term.

Begin modelling today for the risks of tomorrow

To combat these challenges, we have worked with leading academics to develop a model that breaks down this complexity by drawing on existing academic literature to help understand the following:

• What risks could materialise? Are these climate risks (e.g. weather events) or transition risks (e.g. social change)?
• Where are these risks likely to develop?
• In what climate change scenario are these risks most prominent?
• How will these risks impact on all aspects of the sponsor’s value chain?
• How extensive will the impact be from supply through to the consumer end-market?

Our proprietary model assesses the risks to every country across the globe and maps these risks to the location of the sponsor’s supply chain, operations and end markets to identify areas of primary concern. By distilling the process in this manner, we are able to highlight specific and targeted risks for sponsors, rather than broader, generic concerns.

This detailed analysis is the first of its kind and enables trustees to focus on areas of primary concern to them, and ultimately work alongside sponsors to better understand the risks and mitigate them where possible.

Contact Michael Bushnell for more details on the process.