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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.

5.0 Conclusions and Recommendations – Facing the Elements

The NRT’s Paying the Price showed what the economic impacts of climate change could be for Canada; Facing the Elements explores the key role of Canada’s private sector in ensuring our country’s prosperity in a changing climate.

As a country we have abundant knowledge about the impacts of climate change we can expect and are beginning to understand what options are available for us to adapt. It’s time to talk about how Canadian businesses and industry sectors stand to both gain and lose from the local and global impacts of climate change, how targeted approaches can drive private-sector action, and how to capitalize on adaptation needs in Canada and elsewhere. Our three reports under Facing the Elements highlight examples of how business adaptation is unfolding in Canada and some challenges that lie ahead. We expect our work to start conversations in Canada that are long overdue.

Adapting to a changing climate by reducing risks, seizing opportunities, and building resilience can and should be part of any business strategy. For climate pacesetters, adaptation is no longer a far-off, theoretical concept, but a forward-looking way of doing business that takes advantage of public information on climate change and its impacts and embeds adaptation within existing management systems. But even for engaged and active companies, our research and stakeholder consultations have revealed barriers to making progress on adaptation. Here we summarize the main findings from our work, the implications of these findings for building business resilience in a changing climate, and the NRT’s recommendations for government action.

Consulter et télécharger le diagramme complet « Recommandations de la TRN » (haute résolution)

5.1 FINDINGS

Progress by Canadian businesses on climate change adaptation is variable but difficult to benchmark. Some Canadian businesses are actively integrating future climate considerations into the way they do business; others focus on managing extreme weather risks and water availability risks of today’s climate; while still others lack an understanding of the business relevance of climate and climate change impacts. Increasingly, large Canadian businesses are beginning to register concerns about the potential risks and opportunities presented by climate change in voluntary reports and, to a much lesser extent, in mandatory financial filings. Differences in perception of the physical impacts of climate change as a source of risk or opportunity are evident across industry sectors. No coherent mechanism exists in Canada to efficiently benchmark business awareness of and action on adaptation by industry sector, firm size, or other qualities. Added to this is the hesitation of some businesses to report actions to manage risks or opportunities of a changing climate because of confidentiality and reputational concerns.

Key enablers to action today include corporate governance and experience with climate-related impacts. The climate change adaptation experiences of thirteen pacesetting businesses helped us identify four key factors motivating action today. First is the ability and inclination to connect physical impacts and related risks or opportunities to business objectives; second, awareness of stakeholder expectations regarding environmental and social performance and a commitment to sustainability as a business imperative; third, strong risk-management practices; and fourth, previous experience with climate-related events or impacts.

Terminology, risk perception, short-termism, and capacity impede businesses’ progress to assess and manage risks and opportunities of climate change. Confusion remains between mitigating GHG emissions, adapting to GHG emissions mitigation policy, and adapting to future climate itself. To date, much of the policy attention and business concern has focused on the first two issues. As the impacts of climate change intensify and as adaptation permeates policy and management discussions on water, northern development, urban infrastructure, etc., familiarity with the third issue — adapting to future climate — will grow. In some cases, businesses question the need to do things differently in light of changing climate conditions. It’s possible that experience managing extreme weather risks and climate variability provides a false impression of built-in preparedness over the long term or that a reactive approach is sufficient to ensure continued profitability. Presenting a solid business case to justify investments and process adjustments is critically important when competing for scarce resources expected to yield short-term results. Managers within businesses need help using climate change information to express business risks and opportunities in metrics that are meaningful to executives and show the costs of not adapting.

Pacesetting businesses demonstrate that it’s possible and advantageous to act now to prepare for future climate realities. Benefits of getting out in front of the issue lie in both value protection, by reducing existing weather and climate-related risks, and in value creation, by exploiting opportunities and strengthening market positioning relative to peers. In the long term it means incorporating climate change into capital investments so that assets continue to perform reliably in the future. It also pays to be informed about risk exposure and viable options for risk control ahead of stakeholder demands for this information. Raising awareness within the firm of the business implications of a changing climate provides a foundation to assess and manage risks and opportunities. Instead of creating new business procedures, an efficient and effective approach is to integrate adaptation thinking into existing ones at operational, planning, and strategic levels. By doing so, businesses build climate resilience across the enterprise. Emphasizing co-benefits and short-term results to build momentum to go further, navigating uncertainty by combining best available information with structured decision-making processes, and making incremental improvements as new information comes to light can all boost the success of investments to adapt to climate change. Collaborating on pre-competitive research and on initiatives to ensure implementation success is an efficient way to leverage external data, information, knowledge, and trust –otherwise costly to procure by the business alone.

Private-sector adaptation will proceed unaided by governments, but focused actions to enable and accelerate action are needed. Governments can support and encourage proactive planning for a changing climate by business in four ways. First, governments can ensure access to business-relevant climate change information and decision-support tools for application by a range of users. Second, governments can use existing policy and regulatory mechanisms to signal the importance of long-term adaptation planning, level the playing field, and streamline the assessment, disclosure, and, management of business risks posed by climate change. Third, governments can take steps to safeguard critical infrastructure, which is essential to business profitability and the performance of our economy. A fourth role lies in anticipating, prioritizing, and undertaking research and stakeholder dialogue to prepare for future policy development for effective, efficient, and sustainable adaptation in the decades to come. In many cases, public–private collaboration, as well as partnerships with research and practitioner communities, will be necessary to set objectives and ensure implementation success.

5.2 IMPLICATIONS

Organizations that engage with businesses must raise the profile of climate change risk management and adaptation as a business issue. Beyond one-off interactions, governments have had little engagement with business on adaptation. It’s time to change this approach and begin to assemble a picture of unique and crosscutting needs by Canada’s industry sectors. Non-governmental organizations and institutional networks also play important roles in awareness-raising, advocacy, and engagement. Adaptation is a legitimate and critical response to the climate change challenge. Businesses should be encouraged to reduce risks and seize opportunities posed by a changing climate and to talk about their efforts. In all engagement, language and framing matters. Targeted communications to clarify how adapting to climate change is a departure from business-as-usual, why and when anticipatory action makes sense, and what the costs are of not adapting can only help inform businesses’ risk calculations.

To enable action, governments and business must embed adaptation within existing mechanisms and processes. Governments already engage business and industry on a range of issues and make several kinds of information asks. Experience shows that messages about climate change adaptation without a context do not work. That’s why it’s important to build it into ongoing discussions and consultations with industry, whether on northern development, energy policy, or Great Lakes shipping, as examples. Several decision-making, management, and planning systems already used by businesses could be useful entry points for embedding climate change and adaptation considerations. But they are only useful if they promote effective risk governance today and can accommodate uncertainty about climate change and its impacts.

Both small and practical steps as well as systemic changes are necessary to ensure business resilience in a changing climate. This report highlights a range of tactics and strategies that businesses can undertake now, with existing information, tools, and capacity, including several low- or no-regrets approaches. However, we recognize the existence of systemic barriers that, although not unique to climate change adaptation, still weaken incentives to plan ahead and invest in long-term measures. In 2007, the NRT issued a report on capital markets and sustainability, which included recommendations to address the impact of short-termism on the integration of environmental, social, and governance risks in capital allocation decisions.116 Advice in that report remains relevant today. Internationally, we are seeing examples of leading businesses taking the long view in investment and business strategy decisions. They do so by adjusting their communications strategies with investors and customers, creating financial incentives for executives and staff, and setting targets.117

5.3 RECOMMENDATIONS

The NRT offers twenty-one recommendations to help build the resilience of Canadian businesses in a changing climate (see Figure 6). We applied the following criteria to guide our choices: we favoured recommendations that addressed identified barriers, created benefits regardless of future impacts of climate change, and where evidence of gaps existed and options to move forward were apparent. Because private-sector adaptation is an emerging issue, we focus on areas that we consider fundamental to demonstrating near-term success in integrating adaptation thinking in decision making. All contribute to the goals presented in chapter 4 on information, disclosure, critical infrastructure, and future policy development.


GOAL 1 // TAILOR CLIMATE CHANGE INFORMATION TO ADDRESS BUSINESS ADAPTATION NEEDS

Government agencies and research organizations generate and disseminate information of value to businesses that are planning for climate change. But much more could be done to expand the use of these information resources by business. What’s needed is a basic understanding of business needs by industry sector and follow-up actions to improve access to reliable, relevant, and user-friendly climate change information and related guidance. Our recommendations are as follows:

Reduce barriers to access by putting reliable information on climate change and its impacts in one place

1 // Led by Environment Canada the federal government and regional climate service centres should improve access to existing climate data, projections, and physical impacts research by consolidating what’s available in a single window. User needs should drive its architecture and functionalities. So an essential first step is to engage industry sectors to understand climate parameters and physical impacts variables that matter most, gaps in capacity to use information, characteristics of “useful” information, and entry points for climate change information in operational and strategic decisions by business. Flexibility to accommodate multiple sources of information and new sources over time is important, as is the ability to facilitate (virtual and face-to-face) dialogue among users and between users and providers of climate change information.

Provide advice to business on which future climate conditions to plan for

2 // Led by Environment Canada, the federal government should develop and promote business-savvy guidance on how to interpret and apply climate data and projections in long-term plans and decisions by industry sectors with large capital assets and legacy impacts. Information on this topic offered by the Canadian Climate Change Scenarios Network (CCCSN) is primarily for researchers, but provides a foundation to develop guidance for industry audiences.118 Once developed, this guidance should be actively and consistently promoted by government departments, agencies, and Crown corporations implicated in industrial and business development. At the same time, Canada should learn from international experiences in disseminating detailed sets of climate projections that act as a default “go to” data source for users.

Make business impact data available

3 // Governments must define their role in undertaking physical impacts modelling so industry sectors and businesses can assess the investments needed to convert publicly provided climate change information into physical and economic metrics (i.e., business impacts) for use in operational and strategic decisions, and begin to make the necessary investments. A market opportunity also exists to develop industry-specific guidance on this conversion process.

4 // Industry associations should collect data and disseminate aggregate statistics on the costs of climate change impacts and adaptive strategies to contribute to the crucial quantification of short-, medium-, and long-term impacts and inform reporting and disclosure efforts, and publish this information in a way that protects business confidentiality.

Raise the profile of climate change adaptation among Canada’s small and medium-sized enterprises

5 // Industry Canada and its provincial and territorial counterparts should engage small and medium-sized enterprise (SME) business-delivery agents such as Chambers of Commerce and trusted advisors including banks, lending agencies, accountants, and insurers to raise awareness of risks and opportunities of a changing climate and enable adaptive action among SMEs. An effective approach to reach SMEs is to integrate climate change adaptation messaging and information into advice and services that SMEs already receive.


GOAL 2 // AUGMENT IN VESTOR INFORMATION THROUGH BETTER CORPORATE DISCLOSURE

Quality disclosure is the foundation of strong capital markets; this includes disclosure about material risks from climate change and its impacts. Despite guidance to the effect already issued by the Canadian Securities Administrators, climate change risk disclosure in financial filings is limited, at best. Better enforcement of disclosure requirements is necessary, as are effective approaches for companies to demonstrate the value of climate change risk management and adaptation actions to investors. Our recommendations are as follows:

Improve enforcement of existing securities rules and regulations as applied to climate change disclosure

6 // Securities regulators should educate staff to enhance their familiarity with climate change-related risks they should be looking for in reviewing issuer’s financial filings. Facilitating dialogue between securities and environmental regulators will help identify key risk factors.[bb]

7 // Securities regulators should notify companies from sectors of known climate change vulnerability when there is no or poor disclosure of risk from the physical impacts of climate change and of related adaptive strategies. This will send a signal to companies of the need for greater transparency and detail in disclosure and will strengthen disclosure quality over time.[cc]

8 // The Office of the Superintendent of Financial Institutions Canada should monitor and evaluate the quality of climate change risk disclosure by insurance companies to ensure that adjustments in pricing, underwriting, and investment practice account for physical risks of climate change.

Increase engagement on climate change disclosure among companies and capital market players

9 // Industry associations and other non-governmental organizations that work with large businesses should educate businesses about disclosure issues including the sector-based guidance available, trends and emerging issues, consistency in reporting in mandatory and voluntary venues, and risks related to legal liability. These groups should also engage accounting businesses and other key capital market players to enhance understanding of the long-term financial impacts of a changing climate.

Help businesses benchmark performance

10 // Industry associations should develop key performance indicators for climate change risk and adaptation in a way that facilitates efficient and effective disclosure across their membership.119 Each industry should identify performance indicators that provide a useful proxy for climate change risk management and adaptation, such as water use per unit of output, or nature and magnitude of insurance coverage for business disruptions. These indicators could be used by businesses to set goals, assess, and report on their own performance.

11 // Industry Canada, in collaboration with the Canadian Institute of Chartered Accountants, should engage industry sectors to assess the value of developing an online database where businesses can benchmark disclosure of risks of a changing climate and management actions, allowing best practices in disclosure to be highlighted.


GOAL 3 // ENHANCE THE RESILIENCE OF CRITICAL INFRASTRUCTURE

The resilience of our critical infrastructure — both public and private — to the impacts of climate change is key to our economic prosperity: companies that can’t access essential services or efficiently get their products to market face competitiveness risks as a result. So, we must capitalize on existing processes and mechanisms to understand the economic risks we face and to encourage owners or operators to assess infrastructure risks posed by a changing climate and implement management actions where appropriate. And, since companies must also account for climate vulnerabilities in critical infrastructure systems in their business plans, providing access to this information is also important. Our recommendations are as follows:

Integrate assessment of climate change risk into Canada’s National Critical Infrastructure Strategy

12 // As federal lead of the National Critical Infrastructure Strategy, Public Safety Canada should ensure sector risk profiles currently under development factor in both the direct risk of a changing climate on specific infrastructures and the risks due to cascading failures for the economy, society, and the environment. Guided by sectoral risk profiles, Public Safety Canada should lead a public–private dialogue to assess interdependencies among sectors and develop systems-wide risk assessments, analyze choke points and weak links through systems mapping, define acceptable risk tolerances, and establish priority actions to enhance the climate resilience of critical infrastructure.

Use a range of levers to drive assessment and reporting of climate change risk to critical infrastructure

13 // In consultation with industry, infrastructure practitioners, and climate scientists, Public Safety Canada should develop, publish, and disseminate guidance on conducting risk assessments of the impact of climate change on infrastructure and promote a standard reporting framework to foster comparability in assessment and reporting. This guidance should align with existing corporate risk assessment tools to the extent practical and build on existing methods to assess climate change risk to infrastructure.

14 // Federal and provincial/territorial governments should use procurement processes, existing regulations (e.g., Canadian Environmental Assessment Act, Canadian Environmental Protection Act), and the leverage afforded by project financing of Crown corporations to mandate climate change risk assessment of privately owned and operated critical infrastructure. The results should be used to ensure projects are adequately funded to allow for investments to manage infrastructure vulnerabilities.

15 // Governments should mandate climate change risk assessment of publicly-owned and operated critical infrastructure and use the results to identify and fund short-, medium-, and long-term adaptation investment priorities.

16 // In collaboration with other levels of government, Public Safety Canada should compile and disseminate the results of public and private climate change risk assessments of critical infrastructure through a centralized, publicly accessible and user-friendly database so that businesses can understand where critical vulnerabilities exist and make risk-based decisions to locate facilities, optimize supply chain and logistics planning, and update business continuity plans.


GOAL 4 // PREPARE NOW FOR FUTURE POLICY INNOVATION

Efficient and effective management of climate change risks and opportunities requires both public and private sectors alike to plan ahead. Governments must anticipate the need to correct for market failures hindering long-term adaptation by business. A forward-looking approach by government that integrates new investments in science and research, explores the potential of market-based instruments, and monitors the availability and affordability of adaptation solutions, intervening when necessary, will help position Canada to adapt and prosper in a changing climate in the decades to come. Our recommendations are as follows:

Invest in new science and research based on user needs

17 // On a consultative basis, the federal government should develop an adaptation science agenda to create data and information that supports private decision-making on adaptation. This agenda should be multidisciplinary — spanning climate science to behavioural economics — subject to periodic performance reviews, collectively owned to promote continuity, and adequately resourced to ensure delivery and effective transfer of research outputs. Jointly established principles should guide priorities. The adoption of “value-ofinformation” principles (e.g., perfect information may not be worth its cost of acquisition; information is less useful if no action can be taken in response) merits consideration.

Investigate commercial opportunities of climate change adaptation for Canada

18 // The federal government should undertake a sector-based assessment of commercial opportunities of climate change adaptation for Canada that identifies near- and longer-term priorities targeting domestic and international markets. The assessment should analyze Canada’s comparative advantage and the value of developing and marketing innovative technologies for adaptation. Wide dissemination of assessment results to Canadian businesses is key, as is the integration of assessment results in industrial development and trade policy.

Assess the potential for market-based instruments to shift behaviour in a changing climate

19 // Federal and provincial/territorial governments should investigate using markets and pricing as incentives to safeguard our natural adaptive defences (e.g., through ecosystems goods and services payment schemes like wetland banking, biodiversity offsets) and to manage demand of services such as water supply and electricity to ensure resources flow to the most valued use in a changing climate. Implementation of market-based instruments to promote adaptation is an emerging issue, requiring new research. Research on the effectiveness of pricing to induce behavioural shifts, backstops needed to protect the integrity of supply, the impact of pricing on access to essential services and across different users, and the appropriate use of revenues from pricing schemes will be necessary.

Monitor the efficacy of risk transfer mechanisms

20 // Insurance and other risk transfer mechanisms can create market signals that encourage adaptation, but can also create moral hazard, and pose financial risks if insurance becomes prohibitively expensive or coverage for specific climate-related perils stops (e.g., damage from windstorms). Federal and provincial/territorial governments should monitor the efficacy of risk transfer mechanisms and the take up of insurance innovations that respond to shifting risk profiles, industry needs, and intervene when necessary. Interventions could include requirements to disclose anticipated dislocations to insurance markets due to a changing climate.

Monitor development and uptake of technologies for adaptation

21 // Federal and provincial/territorial governments should monitor and identify emerging innovations that help reduce risk from the impacts of acute and chronic climate changes and determine the need for financial incentives (e.g., capital cost tax deduction) to encourage market penetration domestically and boost export potential.


[bb] This type of collaboration has taken place for GHG emissions mitigation. In the U.S., Securities and Exchange Commission (SEC)‐ Environmental Protection Agency (EPA) collaboration was important in developing interpretive guidance, and continued collaboration is expected since the public release of new EPA GHG facility data in January 2012. In a 2004 report on environmental disclosure, the U.S. Government Accountability Office recommended such collaboration to protect investors, stating, “[B]ecause environmental disclosure is one issue that is specifically addressed in SEC’s regulations—and is important to a growing number of investors — it makes sense for SEC to ensure that its staff is taking advantage of relevant information available from EPA” (U.S. Government Accountability Office 2004, p. 36).

[cc] Since the U.S. SEC issued interpretive guidance on climate change disclosure in 2010, 15 companies have received comment letters asking for improved climate change-related reporting, including seven companies in high‐risk industries such as electric power and insurance. This figure is based on internal research conducted by Ceres.

[116] National Round Table on the Environment and the Economy 2007

[117] Curran 2011

[118] Canadian Climate Change Scenarios Network 2010

[119] See rationale in Canadian Institute of Chartered Accountants and Canadian Performance Reporting Board 2010