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FINDING SUSTAINABLE PATHWAYS

OUR PROCESS

Our process helps Canada achieve sustainable development solutions that integrate environmental and economic considerations to ensure the lasting prosperity and well-being of our nation.

RESEARCH

We rigorously research and conduct high quality analysis on issues of sustainable development. Our thinking is original and thought provoking.

CONVENE

We convene opinion leaders and experts from across Canada around our table to share their knowledge and diverse perspectives. We stimulate debate and integrate polarities. We create a context for possibilities to emerge.

ADVISE

We generate ideas and provide realistic solutions to advise governments, Parliament and Canadians. We proceed with resolve and optimism to bring Canada’s economy and environment closer together.

1.0 Introduction – Facing the Elements

1.1 THE ISSUE
Businesses of all sizes, regions, and sectors are exposed to both direct and indirect impacts to their business from the effects of climate change. Just how prepared are Canadian businesses?

Climate change means business. Natural and human drivers combined have already caused the Earth to warm by about 0.8°C relative to pre-industrial times. 2 Temperatures in Canada have risen faster than the globe as a whole, with an average 1.3°C rise since the mid-twentieth century. 3 Impacts of this warming are increasingly apparent across the country and include a decrease in the extent of Arctic sea ice, shrinking Western mountain glaciers, earlier spring snow melt in most regions, shifting distributions of plants and animal species, more frequent water shortages and supply restrictions in some locales, increasing risk to people and property from extreme weather, constraints to winter recreation for parts of southern Canada, and heightened security and resource claim issues
in the Arctic. 4

And although many Canadian businesses are already thinking about mitigation — namely, slowing the speed and scale of climate change through reduced greenhouse gas (GHG) emissions — they allocate far less attention to adaptation, 5 — that is, adjusting to the consequences of climate change by managing risks and exploiting opportunities.

“…THE FIGHT AGAINST CLIMATE CHANGE, PERHAPS THE BIGGEST THREAT TO CONFRONT THE FUTURE OF HUMANITY TODAY…”

Prime Minister Stephen Harper, 2007 1

 
WHY SHOULD WE CARE?

FIRST, the failure of businesses to adapt to future climate realities has implications for their bottom line, for their investors, customers, workforce, and ultimately, for our economy and society. Changes in climate variables like temperature and precipitation and the physical impacts that flow from them— including shifting water availability and degrading permafrost — have a direct bearing on industrial processes, fixed assets like buildings, and commodities. Operational losses, business disruptions, layoffs, and, in some cases, a worsening of businesses’ competitive advantage could arise as a result. Lack of preparedness could lead to environmental and social impacts, to requests of relief assistance from governments, or in an extreme case of bankruptcy, abandoned sites and assets could become a liability for governments and taxpayers. The economic impacts of the mountain pine beetle in British Columbia, disruptions to Atlantic businesses from storm damages, and drought losses in the Prairies show what can happen when weather and climate take us by surprise.

SECOND, Canadians count on reliable access to essential services like electrical power, Internet and cellular services, and transportation; decision makers in public and private sectors alike should plan, build, and operate infrastructure that supplies these services with the future climate in mind. We currently have little idea about whether this is happening as routine practice, but some promising examples are taking shape. The U.K. government requires utilities and other businesses that provide public services to report to government on how they manage the risks and opportunities posed by climate change.6 Here at home, municipalities are starting to apply a Climate Risk Protocol developed by Engineers Canada to safeguard community infrastructure in a changing climate.7

FINALLY, for many businesses at least some of the physical impacts of climate change may present opportunities as well as risks. We should figure out what these are and how to capture them in a way that contributes to job growth and prosperity in Canada. As the impacts of climate change play out across our country and globally, demand for products and services to manage the risks of climate change will also rise. These products and services include novel insurance products, drought and pest-resistant crop and tree breeds, specialized risk-management services, and innovative engineering solutions, to name a few.8 In addition, the majority of financing for mitigation and adaptation in developing countries in the coming decades is expected to come from private sources.9 Canadian businesses could tap into the growing demand for financing adaptation in developing countries via project lending, credit lines, and microfinance schemes.

The reality is this: due to past emissions some degree of climate change is inevitable even if the globe drastically decreased greenhouse gas emissions today, so businesses must plan now to adapt to those irreversible effects. Yet relatively few companies are taking a structured and explicit approach to incorporating climate change risk management into regular business activities. The business case for taking proactive steps is complicated by uncertainty about both the magnitude and precise timing of impacts. Added to this is the fact that some changes are incremental and long term, which can mask the sense of urgency and lead to a passive attitude. And in grim economic times, short-term financial concerns may tempt businesses to defer initiating adaptation actions. But is this effective risk management? Just as businesses must readily manage financial and regulatory uncertainty, they must also understand the risks and potential opportunities presented by a changing climate and position themselves to respond appropriately.

1.2 OUR CONTRIBUTION

Facing the Elements: Building Business Resilience in a Changing Climate is the fifth contribution in the Climate Prosperity series by the National Round Table on the Environment and the Economy (NRT). Two previous NRT reports described the many implications for our country of a changing climate and made a strong case for adaptation as a means to minimize negative impacts and exploit opportunities. Published in 2010, Degrees of Change: Climate Warming and the Stakes for Canada highlighted a range of physical impacts of climate change that we can expect in Canada over this century. In 2011, we released Paying the Price: The Economic Impacts of Climate Change for Canada, in which we estimated the economic costs of climate change for the country as a whole and for coastal areas, forestry, and human health in particular.

Facing the Elements emphasizes the key role of Canadian business in defining our ability to prosper in a warming world — a role largely unexplored to date. It brings together new research and perspectives on businesses’ understanding of what’s at stake and experience in how to manage risks and opportunities. It informs a pathway to support and incent the integration of climate change into economic decisions by business. In addition to risk management, here we emphasize resilience as a success factor for business adaptation. By building resilience, businesses can respond swiftly and recover readily from surprises and events beyond their control. Robustness is a related concept, allowing businesses to stay competitive even when faced with a broad range of events and changing circumstances.10

Businesses play a role in mitigation and adaptation, but our focus is on tactics and strategies to adapt to the risks and opportunities of the changing climate itself. Still, we recognize that adaptation and mitigation are sometimes related, so it’s important to examine potential synergies and trade-offs between adaptation and mitigation. For example, investments in cleaner production in manufacturing can reduce energy or water use and reduce operational risk in the event of power and water shortages. And, as businesses pursue GHG emissions mitigation through renewable energy solutions such as solar, wind, or hydropower, operators and investors should apply adaptation thinking to manage weather-related risks to output volumes from renewable energy plants.

THE REPORT HAS THREE OBJECTIVES:

// Increase understanding of business exposure to and preparedness for risks and opportunities from the physical impacts of climate change. All industry sectors are exposed to upside and downside risks of climate change, but the extent and nature of this exposure varies, as does the capacity of different sectors and businesses to respond. How do Canadian businesses characterize their exposure to risk and opportunity from the physical impacts of climate change? Is adapting to them a priority? What key factors motivate and hinder firm-level action? We use a number of approaches to shed light on these questions.

// Demonstrate the relevance and applicability of climate change adaptation across Canada’s private sector today. Drawing from the experiences of 13 pacesetting businesses, among other sources, our report points to practical steps that Canadian businesses can take now to help them understand the issue and take action. “Climate change adaptation” remains an ambiguous term among the business community. We offer examples that relate adaptation to business strategy.

// Provide recommendations for government and organizations that engage with businesses to help shift business practices today and put our economy on a path to climate resilience.

We encourage readers to consult the two companion reports to this Advisory Report: Business Primer, a report for business executives that provides both the rationale and key steps to manage climate change risks and opportunities and our Case studies, a report for adaptation practitioners comprising complete case studies of thirteen “climate pacesetters.” Both are available for download on our website (nrt-trn.ca).

1.3 OUR APPROACH
TWO OVERARCHING QUESTIONS GUIDED OUR RESEARCH AND STAKEHOLDER ENGAGEMENT THROUGHOUT THE PROJECT:

// What can and should Canadian businesses do to prepare and take action to manage the risks and opportunities of a changing climate?

// How can and should governments support business capacity and action, alone and in collaboration with others?

We started from the vantage point of the firm, learning from the experience of leaders to explore adaptive strategies and tactics already within the reach of Canadian businesses. Next, we considered how government support could enhance the ability of Canadian business to successfully manage the impacts of a changing climate.

Along the way, we learned three factors to keep in mind when engaging business on climate change adaptation.

FIRST, observed and expected impacts of climate change are one driver among many with the potential to influence business decisions. It’s important to put adaptation in the context of internal (e.g., profitability, business risk tolerance) and external (e.g., market competition, social licence to operate, regulation) drivers for business. At the same time, the impacts of climate change exacerbate existing business risks and influence existing drivers. For example, regions already exposed to water scarcity could become even more so in a changing climate, triggering new regulation.

SECOND, the current economic backdrop, where many businesses are struggling to improve their quarterly results, puts short-run performance front and centre. Dedicating resources to prepare for impacts expected decades down the road can be a tough sell, heightening the importance of demonstrating proof of value.

THIRD, some businesses already manage the risks of extreme weather, or have strategies in place to cope with water scarcity risks. These businesses can and will take advantage of these existing risk governance procedures and incorporate future expectations about the climate and it impacts, with no guarantees that they will call this adaptation.

To answer the questions we’d set out for this project, we undertook three types of research between January 2011 and January 2012: research to identify gaps, to highlight practical approaches for business, and to develop advice for the public and private sectors.

// SCOPING: An initial step was to understand current business perspectives on the importance of adapting to climate change and their progress, and on the extent and need for government support. We did this by first drawing on the literature, including sources like the Network for Business Sustainability, the World Business Council for Sustainable Development, the UK Climate Impacts Programme, the Council of British Industry, PriceWaterhouseCoopers, the World Bank, Acclimatise, and academic research. Next, we undertook original research: analysis of 27 interviews with representatives of a cross-section of Canadian business and of Canadian responses to the Carbon Disclosure Project from 2003 to 2010. This gap analysis and a scoping workshop in June 2011 shaped our research agenda on practical business approaches and our work on government action, both explained below.

// PRACTICAL BUSINESS APPROACHES: Early in the project the need to highlight practical and specific steps for business became evident. The business community is relatively new to the adaptation discussion, compared to municipalities, for example. We decided that the NRT could make a contribution by demonstrating the feasibility and benefits of adjusting business practices to preserve and create value in a changing climate, and by pointing to information and tools for ready application by business. For this phase of research, we commissioned case studies of strategies by 13 businesses to adapt to a changing climate.These businesses are: Cameco Corporation, Royal Bank of Canada, Hydro-Québec, Tolko, EBA Engineering Consultants Ltd., J.D. Irving Limited, Summerhill Pyramid Winery, Rio Tinto Alcan, Coca-Cola Canada, Whistler-Blackcomb, Entergy, Munich Re, and BC Hydro. It also included the in-house development and testing of a list of screening questions that small and mid-sized businesses can use to identify risks and opportunities from a changing climate, as well as commissioned research on best practices to enhance supply chain resilience in a changing climate.

// OPPORTUNITIES FOR GOVERNMENT ACTION: This research was iterative and responsive to our findings on barriers to and enablers for business adaptation to climate change in Canada. Our choices also considered direct feedback from businesses and industry associations on government roles in promoting and supporting private-sector adaptation. Commissioned research entailed a review of 35 corporate financial disclosures to securities regulators to assess whether and how risks from a changing climate are presented, analysis of gaps in climate change risk management of Canada’s public and private infrastructure and possible ways forward, and analysis of the effectiveness of existing government policies promoting low-carbon technology and sustainable water management among the private sector.

We also convened stakeholders to promote dialogue among Canadian businesses and industry associations on key issues and to maximize the relevance and utility of our work.

WE USED SEVERAL EXPERT ENGAGEMENT VEHICLES TO PREPARE THIS REPORT:[a]

1 // SCOPING WORKSHOP: We consulted with industry associations and adaptation experts in June 2011 to obtain stakeholder input and advice on the current status of climate change adaptation in Canada’s business community, barriers faced, and roles of government in advancing private-sector adaptation.

2 // ADVISORY COMMITTEE: An advisory committee including representatives from businesses, the federal government, industry associations, non-government organizations, and the research community met four times throughout the project, providing feedback on research directions, convening events, and report framing.

3 // EXPERT REVIEWS: Selected practitioners reviewed draft sections of this report on supply chain resilience, financial disclosure, and small and mid-sized enterprises.

4 // STAKEHOLDER ENGAGEMENT SESSIONS: In partnership with the Network for Business Sustainability, the NRT hosted a forum in October 2011 to explore the business case for adaptation from two perspectives: capital market trends and leading business practices. Together with The Delphi Group, the NRT also convened stakeholders to discuss ways to improve the use of public climate change information among private sector decision makers through a two-part webinar series held in November and December 2011.

The NRT’s advice in this report and other reports of this project benefited from two distinct sources:

// A framework for diagnosing barriers to climate change adaptation. The framework, published by Moser and Ekstrom in 201111, helped us organize information gleaned throughout the project on barriers faced by Canadian businesses in adapting to a changing climate. A clear view on barriers was an important part of developing useful and credible advice.

// A one-day stakeholder engagement session in January 2012. With the support of the Network for Business Sustainability, we convened 23 representatives from businesses, industry associations, federal and provincial governments, non-governmental organizations, and academia to advise the NRT on the direction, focus, and priority of actions needed to position Canada’s private sector to thrive in a changing climate. Participants prioritized, clarified, and discussed the merits of 33 preliminary recommendations aimed at governments and business. The day’s discussions directly shaped the recommendations in this report.

OUR REPORT HAS THE FOLLOWING STRUCTURE:

CHAPTER 2 provides insight on the relevance of climate change risks and opportunities for Canadian business and drivers for adapting. We highlight current perceptions of risk exposure and challenges some businesses confront in getting started on adaptation. Based on the experience of our 13 case study companies, it then summarizes key motivations for understanding, assessing, and managing risks and opportunities posed by the impacts of climate change.

CHAPTER 3 presents a dashboard for business success in a changing climate that includes three phases: (1) understanding the business implications of climate change, (2) assessing and managing risks and opportunities, and (3) building climate resilience across the enterprise. It includes examples of how leading businesses in Canada and abroad are accounting for future climate realities in the way they do business and as a result, enhancing risk management and future growth prospects and positioning themselves to seize opportunities.

CHAPTER 4 explores barriers that prevent businesses from taking forward-looking action to adapt to climate change. It discusses government roles and policy instruments to enable a proactive rather than reactive stance by businesses. It outlines four key areas for action by governments, business, and others to remove barriers and help build business resilience to a changing climate: tailor climate change information for application by business, augment investor information through corporate disclosure, enhance the resilience of critical infrastructure, and prepare now for future policy innovation.

CHAPTER 5 concludes with the key messages stemming from this work. It also includes priority recommendations for governments and organizations that engage with businesses.


[a] A list of participants to our stakeholder sessions appears in Appendix 6.3.

[1] Government of Canada 2007

[2] Solomon 2007

[3] Environment Canada Meteorological Service of Canada Climate Research Branch 2009; as cited in Statistics Canada 2009

[4] National Round Table on the Environment and the Economy 2010

[5] Environics Research Group 2010; Acclimatise 2009; PricewaterhouseCoopers LLP (U.K.) 2010; United Nations Global Compact et al. 2011

[6] United Kingdom 2008; Environment Agency ND

[7] D.J. Danyluk Consulting Ltd. 2012

[8] UK Trade & Investment 2011

[9] World Bank 2011

[10] Farber 2011

[11] Moser 2010