Last reviewed 21 July 2014
The climate continues to change rapidly. If businesses are to survive in the long term, they need to not only understand how a changing climate affects their enterprises, but also how they can adapt to the new environment. Dave Howell reports.
As the climate continues to shift, businesses must evolve with these changes to remain sustainable. The cost of flooding in 2012 is estimated to have cost businesses £200 million. Commercial property damage topped £84 million with the disruption, and working days lost were estimated to have cost £33 million.
When businesses assess the impact of climate change, one of the major issues is a too narrow appreciation of the risks that they face. Smaller businesses, for instance, believe climate has little impact on them, with larger organisations focusing on seasonal changes, and not how overall climate shifts constantly impact their businesses. Just planning for flooding during the winter is a good example here.
“Flooding, droughts and heat waves are set to become more common,” says Nick Blyth, policy and practice lead for Climate Change, Institute of Environmental Management and Assessment (IEMA). “Impacts and risks will vary between businesses, for example from resource and water scarcity, direct flooding, and impacts on staff, through to disruption from severe weather events. There will also be the challenge of increasing costs associated with energy and carbon emissions and the priority of transitioning to low-carbon business models. Although impacts will vary between types of business, the primary risk has to be associated with failure to plan and take early action.”
In its last report, Ricardo-AEA stated: “In terms of different sectors, businesses tend to be less likely than health trusts, educational establishments and local authorities to recognise several events as threats, including warm summers, dry summers, heat waves, wet winters and localised flooding. Local authorities, on the other hand, are most likely to see a wet winter as a threat (83%, compared with 52% overall), while health authorities are most likely to see a warm summer (57% as opposed to 26% overall) and heat waves (84%, compared with 45%) as threats.”
The impact of climate change has been evolving over the last few years. Indeed, Goldman Sachs’s Global Investment Research believes we are at a tipping point where only those businesses and organisations that have placed adaption to climate change within their strategic development strategies will thrive.
There is little doubt that the climate will continue to have a profound impact on business activity. Mitigating the risks is a major focus for business leaders and governments alike. The National Adaptation Programme, which was developed in response to the UK climate change risk assessment, sets out the practical steps that need to be taken in order for businesses to become climate change ready.
The Centre for Climate and Energy Solutions states: “The key to successful adaptation is determining the magnitude of the risk and identifying what actions are available and should be taken to respond to the risk. It will be prudent to take climate change into account if it materially affects a company’s operations, its value chain, or its broader commercial environment. Consequently, understanding whether adaptation is necessary — and what adaptation can accomplish — requires taking a closer look at the dimensions of possible impacts on business.”
Businesses should also look beyond their local boundaries, because they will have to adapt to climate change as this affects their entire supply chain. Lisa Horrocks, Ricardo-AEA adaptation knowledge leader, explained: “The main risks facing businesses will depend on their location and that of their supply chains. For example, the biggest risk to UK companies from climate change may actually come from overseas. Extreme weather events and climate change are starting to affect major manufacturing countries, such as those in South Asia, and have the potential to shut down supply chains completely.”
When the impact of climate change is considered, no organisation or sector is immune. A greater appreciation of the risks that need to be faced is taking shape across the private and public sector. However, this appreciation needs to be tempered with practical action that ensures every organisation is adapted for the climate challenges ahead.
The resilience of businesses is important to protect in the face of climate change. The UK Climate Change Act 2008 introduced the Adaptation Reporting Power, which gave the Secretary of State for Environment, Food and Rural Affairs (Defra) the ability to direct authorities to prepare reports on the current and predicted impacts of climate change on their organisation, and proposals for adapting to climate change.
Much of the action that businesses now take to mitigate the risks focuses on maintaining the delivery of their organisation’s primary activities. Adaptation to maintain market share, investor confidence or access to future capital is not seen as a priority for many business leaders.
The Carbon Disclosure Project notes: “There is marked diversity between attitudes and approaches to risk and adaptation needs in different business sectors; of most significance is the distinction between companies with high-tech facilities that focus on direct risk, and those such as consumer staples that are reliant on international supply chains and focus on indirect supply chain risk.”
What action is being taken is highly subjective, based on the sector the business operates within. What has become clear is that general changes to reduce carbon emissions, for instance, that can be applied globally, are not appropriate on a national or local level. Here, individual businesses will differ when climate change impact is considered. High- value sectors such as utilities are adapting to climate change, as they perceive direct impacts on their infrastructure. The financial sector, for instance, is more concerned with protecting revenue streams, which could impact on their climate change adaptations. When it comes to climate change adaptation, one size does not fit all.
Adapting to an inconvenient truth
When Al Gore’s An Inconvenient Truth was released in 2006, climate change moved from an isolated set of events to a global imperative no business or government could ignore.
Ricardo-AEA’s Lisa Horrocks concluded: “While the changing climate will undoubtedly bring risks that need to be managed appropriately, there are likely to be multiple direct and indirect business opportunities that forward-thinking organisations will tap into. These may be straightforward cost savings resulting from reduced winter maintenance, opportunities to introduce innovative products or services to capitalise upon changing markets and customer behaviour, or ancillary benefits, including business sustainability, accruing from the measures you introduce in response to climate risks.” Adaptation in the face of a changing climate is now a fact of life for all organisations. However, risks, adaptation and opportunity are closely linked. A commercial advantage can be developed where one business will gain strategic and financial benefit by simply managing its adaptation to climate change better than its competitors. Defra states: “Adapting to climate change is not a single, one-off exercise. It is ongoing and needs to be embedded into the core of each authority’s business, not undertaken as a standalone activity.”
What is clear to all business owners is that they cannot ignore the impact that climate change is having on their enterprises now, and what these impacts could be in the future. Where a knee-jerk reaction to a climate event has been the norm, climate change must now become an essential component of contingency planning.
Croner spoke to David Webb, Director of Sustainability East and ClimateUK, about how businesses can adapt to climate change.
Q: In the context of climate change what, in your view, are the main risks facing businesses?
A: Businesses have to be conscious of both the direct and indirect implications of climate change to their own particular brand, assets and value chain. As society alters to accommodate the myriad of challenges that materialise as we contemplate sustainable development over the coming decades, it is important to appreciate that customer demands and expectations will evolve with those trends. Climate change is one of the crucial parameters that businesses must fully understand so as to be able to instigate proportionate and timely responses where necessary.
Q: How will businesses integrate mitigating climate change risks into their strategic planning?
A: We know that smart business is clear in its purpose — that all involved understand what the objective is, why that objective makes sense, and how their role fits into that objective. Climate change parameters become part of this integration, and clear leadership and focus facilitate proportionate responses to these risks. You must find space to evidence the issues, understand the implications, and practically drive change. Making that business case is as much an art in good business sense as a science — it must contribute economically while helping to drive that long-term purpose.
Q: Do different business sectors face different climate change challenges and, therefore, react differently to contingency planning?
A: Business-sector risks can generally be grouped; an example of this is the Government’s National Adaptation Programme, which draws evidenced risks from a changing climate into seven different themes. How a business reacts to this evaluation process depends on its tolerance levels and its cultural approach to change. There are a range of tools available to help break down the high-level threats. One example is the Environment Agency’s BACLIAT (Business Areas Climate Impacts Assessment Tool), which recognises that a changing climate can potentially affect all business areas and uses the following headings: logistics; finance; markets; process; people; premises; and management implications.
Q: Are businesses today empowered or prevented from taking practical steps to protect their organisations from the adverse effects of climate change?
A: Climate change, amidst the whole array of other time-consuming challenges that businesses face, is potentially a significant threat. Asda’s recent calculations that 95% of its global fresh produce supply chain is already at risk is indicative of the level of threat. However, each individual organisation must begin to evaluate by developing its underlying knowledge of the subject, building its capacity to address the issue, and then proportionately respond. This should be a mark of running a smart business rather than feel like a peripheral demand on you. Taking practical steps in this context will only be stymied by an organisational slumber or an unwillingness to face change.
Q: Will businesses that place the effects of climate change into their strategic planning lead their sectors in the future?
A: Any business, in any sector, that takes sensible steps to ensure that it is fit for purpose in the 21st century, by being competitive, flexible and focused, will be rewarded over the coming years. Such businesses will be sure about how they communicate the issues. They will be sure about how it affects their overall purpose and their customer service. These businesses will not necessarily be pioneers — there is a long history in many business sectors of adaptation and innovation around risk, and climate change should be no different. Undoubtedly, whichever businesses proliferate and lead their sectors in the future, they will be very clear about what climate change means to them.