Climate change and business transformation through climate risk management 

The current draft includes significant revisions made to the previous version, as Economic mechanisms were introduced as one of the key pillars. These mechanisms include the Emission Trading Scheme, Carbon tax and Carbon Credit, which are expected to be enforced along with disclosure requirements prescribed in the previous drafts. While the adoption of the Act will take time until 2026, the requirements reflect the key areas that public and private sectors need to implement to contribute to Thailand’s Net Zero target by 2065. This revision of the Act reflects that changing policy, related processes, and economic measures will have direct impacts on the private sector and play key roles in shaping how businesses should get ready to transition.

Businesses will be challenged to adjust and address the impacts both from the unpredictable changes in climate patterns, and the impacts from changes in relevant laws and policies. The holistic approach for businesses to address these climate-related impacts is through considering this issue from the risk management perspective and preparing an effective climate risk management framework integral to their business risk consideration. This requires companies to understand the specificity, typology, and characteristics of climate risks, and impacts on business directions in the short, medium and long term. Businesses should consider climate risk management following the process below: 

1.    Identify and assess climate risks: to understand impacts of climate physical risks that cause physical impacts on assets and business continuity, both acute physical risks, such as wildfire and flood; and chronic physical risks which take longer time to take place, such as drought and sea level rise. In addition, transition risk reflects risks heightened due to changes in regulations and policies, consumer and investor behaviours, and technology advancement. Businesses should assess climate risks both in their operations and their supply chain. The risks identified should be observed in a longer time horizon compared to the business risk time horizon, particularly the long-term which should stretch to 20-30 years. 

2.    Scenario analysis and stress testing: To assess the impacts of climate risks on business under different scenarios, including the events where global temperature increases at a different degree in different time horizons. This process will inform the business of business impacts, both the severity of such impact and potential financial losses. This process can extend to stress testing which the business assesses to what level of changes it can withstand under the changing environmental conditions, market, and policies. Both processes can inform the business of a clear, tangible, and quantifiable impact on their operations.

3.    Climate strategy setting: to understand the impact, formulate a strategy or road map to mitigate risk and identify new opportunities from these changes. Many case studies reflect that climate change risk integration can lead the changes in business strategy, particularly for sectors whose businesses rely on shifting to clean energies as an emission reduction solution. Businesses should start to explore and transition to more environmentally friendly economic activities to reduce GHG emissions. Businesses can refer to Thailand's taxonomy which classifies these activities by sector.

4.    Climate-related data collection and disclosures: focusing on greenhouse gas emission data which is the crucial baseline information for target setting, such as emission reduction targets, and formulating work plans that align with business directions. The key challenges are completeness and the accuracy of the data collected from companies’ own operations and value chains. Reporting greenhouse gas emissions to relevant authorities is the key requirement of this law; therefore, it is suggested that companies should prioritize their understanding of carbon accounting and the accuracy of emissions calculations. Accurate emission data will also assist companies in risk management and future climate and environmental operational planning.

These processes will help companies to effectively manage the changes related to climate change in a holistic manner. In addition, companies should have a clearly defined climate risk management governance structure. Climate change should be set as a key business agenda and have full support from the Board and the Executives. Companies should integrate climate risk into their strategic decision-making, in the short, medium, and long term. This is to ensure that companies can address the risk seek opportunities, and prepare adequate resources with clearly identified roles and responsibilities. This should go hand in hand with the continuous risk management process set to address the risks caused by changes both from environmental conditions and governmental policies.

Kasiti Ketsuriyonk

Audit and Assurance Partner and Sustainability and Climate Leader 

Deloitte Thailand