Integration of carbon risks and opportunities in enterprise risk management systems: Evidence from Australian firms

Abstract This study addresses managerial perceptions of risks and opportunities related to carbon pricing and emission management, and the factors that affect the extent to which carbon-related risks and opportunities are integrated into the organisation's formal enterprise risk management (ERM) system. We assess the role played by internal governance features, resource availability, managerial perceptions on competitive pressures, and industry type on the inclusion of carbon risks within the ERM system. Based on survey responses from 96 senior managers in Australian carbon intensive firms (i.e. firms listed in the 2009 Publication of Data under Section 24 of the National Greenhouse and Energy Reporting (NGER) Act 2007), we find that the extent of carbon risk integration is positively associated with the existence of a formal carbon strategy, senior management involvement, internal audit oversight, resource (personnel and funds) availability and energy sector membership. The paper also provides several insights into the perceptions of risks and opportunities confronting an organisation as a result of carbon pricing mechanism.