The future of climate change risk management is set to change due to the confluence of natural catastrophes, evolving regulation and increased media scrutiny, according to a new environmental report released by Beazley.

“Spotlight on Environmental Risk 2023” outlines survey results from 2,000 global business leaders, highlighting the immediate pressure of energy transition in an uncertain geopolitical landscape coupled with greenhouse gas accountability is proving to be a distraction from the threat posed by climate change.

Countries working toward net-zero carbon emissions are met with increasing scrutiny and even legal challenges, the Beazley report stated.

Businesses that are transparent in their goal toward a more sustainable operation are being met with forensic analysis, seeking to turn up evidence of “greenwashing.” The term is used to describe companies that may exaggerate their sustainability efforts to brainwash the public. Several well-known brands have been accused of exaggerating their efforts to limit greenhouse emissions.

A major geopolitical concern remains the ongoing conflict in the Ukraine. Despite the immense impact it has had globally on supply chains and energy resources, many business leaders display optimism, suggesting the issue will resolve.

For instance, while 22 percent of businesses globally see energy transition risk as the No. 1 environmental risk they are concerned with today, only 9 percent predict it will remain their top environmental risk in 12 months’ time.

In the U.S., 18 percent view energy transition as their top environmental risk.

And while energy transition is more likely to proceed than not, the switch to clean energy may not happen for quite some time, the report found.

Associated costs with switching from fossil fuels to low carbon energy options do not appear to be a cause of concern for business leaders. Less than one in ten (9 percent) of the survey respondents expected the associated costs to be their main environmental challenge in 12 months’ time.

Currently, business leaders around the world view climate change risk as a lower concern than it will be in 12 months’ time, with 34 percent of U.S. business leaders predicting climate change will be the biggest risk within 12 months’ time.

A quarter of U.S. business leaders report being unprepared for the impact of climate change, down considerably from the 42 percent that reported confidence just a year prior. This may be the result of the increasing financial exposure related to climate change litigation.

A series of lawsuits brought by local governments and states across the U.S. against oil producers will undoubtedly impact businesses’ energy usage and output.

“At present, these lawsuits are restricted to those deemed to be directly responsible, but we see a ripple effect extending out to businesses along the carbon fuels supply chain,” stated David Schechter, Claims Focus Group Leader – Enviromental, Beazley.

In addition, the report cited new reporting requirements, such as the Corporate Sustainability Reporting Directive, suggesting the need for businesses to show greater efforts to mitigate and adapt to climate change will increase.

Though aware of the growing risk associated with climate change, there appears to be a disconnect, the report noted, on the perception of its immediate threat.

“For business leaders facing this immediate crisis, it is unsurprising that the focus is on mitigating the short-term impacts rather than focusing on the steps they need to take to adapt for the long-term,” said Bob Quane, chief underwriting officer, Beazley.

Not surprisingly, the findings revealed that small business felt less equipped to mitigate climate change risk. The top three business sectors reporting feeling the least prepared included healthcare and life sciences, transportation, and public and education.

Expecting to rely on government solutions will prove disappointing, according to the report, as 30 percent working in the public sector felt nearly as exposed as those in the private sector, citing lack of preparedness.

In the rapidly evolving landscape of climate change, Beazley experts say the insurance industry’s role as businesses transition their sustainability efforts will be through underwriting and investment policies.

The survey found the trust placed on the value of insurance increased to approximately 45 percent of businesses globally.

Some recommendations for insurers include ensuring that companies have a clear clean energy strategy, evaluating how businesses are handling environmental concerns, and asking how companies monitor and manage risk.

“This should be part of every Directors & Officers’ liability renewal meeting discussion,” the report noted. “Insurers can use their position as facilitators of transition and enablers of progress – but we also have a responsibility to encourage resilience and to challenge clients to develop their clean energy strategies, emphasizing both the commercial advantages and reputational risks of failing to keep pace.”