The world may succeed in avoiding the worst impacts of climate change, thanks to the recent international agreement coming out of COP21, but we’re still locked into a 1.5 degree Celsius warming, according to Sarah Hendel-Blackford, senior consultant at Ecofys UK, during a recent GreenBiz webinar.
“Average temperature change doesn’t mean just warm weather,” Hendel-Blackford said, “We’re talking about significant sea level rise, more constrained fresh water sources, deterioration or loss of key land or marine ecosystems and reduced food resources.”
And there’s also extreme weather — while no single natural disaster can be directly linked to climate change, scientists agree that hurricanes, heat waves, heavy downpours and floods will increase in frequency and intensity as the planet warms.
All of this already is having a significant impact on business. Around 100 million people and many businesses are situated within 3 feet of mean sea level and most of the population is concentrated in coastal cities.
“The economic costs are rising as global economic hubs are increasingly interdependent and often placed in cities,” Hendel-Blackford said. “Cities are hubs for critical systems, and disruptions to those systems have effects beyond the location itself.”
Extreme weather hurts global supply chains
Impacts of extreme weather events can have a varying impact on business, but increased globalization means that what happens in one part of the world greatly affects organizations in another part.
This stark reality was seen in 2011, when extreme flooding in Thailand sent reverberations throughout global electronics and automotive supply chains. The flooding hit Toyota so hard that it contributed to its drop from first to third in the ranking of the world’s biggest car manufacturers in just one year. Likewise, Sony was forced to delay the launch of a new camera product.
Overall, the flooding caused global production to slow by 2.5 percent in 2011 and cost insurance firms more than $5 billion in claims — greater than the cost of Japan’s large earthquake and tsunami that same year.
“Here we really see how damages in one geographic area can literally impact a whole supply chain,” Hendel-Blackford said.
Resilience is a business imperative
Most businesses should expect to face climate change impacts, even if it’s just indirectly, Hendel-Blackford said. Insurance doesn’t always cover the significant costs created by these impacts, which is why building resilience against them has become a business imperative.
To achieve more resilient supply chains, companies should take an integrated approach, said Hendel-Blackford. This includes understanding current and future vulnerabilities, identifying critical points of intervention to build in adaptation measures and resilience and diversifying supply chains, logistics and markets that can build in flexibility and resilience for faster recovery to realize new market opportunities.
“Those companies that really have a plan to recover and capture the organizational learning from such events can really reduce their uninsured costs,” Hendel-Blackford said.
And doing so quickly is becoming a legal imperative as well, as the legal system catches up to consider environmental impacts in companies’ fiduciary duties. Investors also are beginning to push for firms to disclose their climate change adaptation strategies.
Investors demand resilience
Investors increasingly are paying attention to the way companies manage and disclose sustainability and resilience performance because it has a direct impact on their long-term health and vitality, said Evan Harvey, director of Corporate Responsibility at NASDAQ, during the webinar.
“Exchanges want more information about how listings are expected to perform in a resource constrained environment — how they’re planning for things that are going to happen with the climate and elsewhere,” Harvey said. “But they also are very sensitive to the resource burden of companies. We do not drop burdensome regulations on companies for no reason.”
“The intersection between the amount of information we can request from companies and stifling a potential entrepreneurial or business impulse with overregulation is where it gets kind of sticky,” he said.
WFE Sustainability Working Group, for example, has been active since 2013 and includes 24 exchanges from 20 countries, such as Nasdaq, NYSE, Shenzhen, Deutsche Borse and CME. It addresses corporate sustainability from many angles, including direct and indirect emissions, carbon intensity and water management.
Similarly, the U.N. Sustainable Stock Exchanges, active since 2010, includes more than 40 exchanges from 28 countries, including Nasdaq, NYSE, London Stock Exchange and Euronext, which look at how industries can become more sustainable and resilient without stifling business.
“The more we are in the business of finding and developing businesses to list on our various exchanges that are tackling environmental problems and facing climate change head on using new tools and new technologies to repair problems that have been left behind, the more good we’re doing,” Harvey said.
Accenture finds value in energy efficiency
While companies with global supply chains may have a more clear idea about what sustainability and resilience means, for professional services such as Accenture, this can be much more nebulous.
“As a professional services organization, we don’t dump bad things into the water supply, we don’t step on endangered frogs on the way to work,” said Michael Nicholus , global operations environment director at Accenture. “But we do have an impact and most of that is couched in indirect emissions from our business delivery model — especially business travel and office electricity.”
By focusing on energy efficiency, the company has been able to save $65 million in energy costs while avoiding more than 330,000 metric tons of related carbon emissions since 2007.
“This also also illuminates where business performance is an outcome of addressing climate change,” Nicholus said. “Because all of these electricity kilowatt hours that we’re no longer using — the tons of CO2 that we’re no longer emitting — when you start to add that up over time, it starts to add up financially as well.”
Treliance on carbon assets.