Business Primer – Chapter 3: A Business Case for Action
Business executives and managers may ask why adapting to a changing climate should be on their radar. Six reasons are apparent:
THE CLIMATE IS ALREADY CHANGING;
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Due to past greenhouse gas emissions, some degree of climate change is now inevitable, even if drastic cuts in global emissions occurred today. GHG emissions mitigation will limit the speed and scale of future climate |
BUSINESSES STAND
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A changing climate will directly affect businesses’ assets and supply chains, the health and safety of their employees, and the communities and environments in which they operate. Chiquita Brand International acknowledged in its 2010 10-K report to the U.S. Securities and Exchange Commission just how significant weather-related disruptions can be to its business.26 “For example, as a result of flooding which affected some of our owned farms in Costa Rica and Panama in December 2008, we incurred approximately US$33 million of higher costs, including logistics costs, related to rehabilitating the farms and procuring replacement fruit from other sources.” Today, Canadian businesses appear to be increasingly aware of operational and financial risks stemming from severe weather and shifts in water availability,27 in addition to the prospect of permafrost degradation, reduced winter site access, and sea-level rise.28 |
STAKEHOLDERS
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In the coming years, businesses will be driven to adapt by the changing perceptions and expectations of governments and communities, in addition to key capital market players like investors, lenders, shareholders, and insurers.29 Assessing the potential impacts of a changing climate on a business includes taking into account the positions adopted by these stakeholder groups — a strategy to get out in front of reputational, regulatory, and financial risk. As insurers adjust their price structures, businesses will need to adjust their behaviour in response. For example, owners of offshore platforms and associated infrastructure in the Gulf of Mexico have faced increasingly expensive insurance coverage from asset damage caused by windstorms and hurricanes, which were due, in part, to 2008 losses from hurricanes Ike and Gustav. Insurers re-evaluate their pricing structures after every windstorm season, basing prices for the following year on the damages accumulated in the past season. In 2009, many businesses chose to self-insure against the risk of hurricanes.30 |
EARLY ACTION
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Businesses can save money by moving quickly to assess and manage the risks and opportunities of changing weather and climate. Upgrading infrastructure or incorporating climate change into capital investments now is often less expensive than doing a retrofit later.31 Early adaptation builds skills and technical capacity and positions businesses to better manage future adaptation. The NRT report Paying the Price concludes that small investments in adaptive measures can offset the high costs that unabated climate change can impose on Canada.32 Investments in managing current business risks from weather, water, and environmental shifts are even more justified in a changing climate. For instance, Suncor Energy’s continued efforts to reduce water withdrawals from the Athabasca River for production33 not only reduce input costs now also but shelter the business from reduced water availability that could be caused by climate change in the future. Johnson & Johnson’s business continuity plans consider weather risks for all its major global operations. As a result of updating business continuity plans and risk assessments, and implementing adaptive measures, over five years the firm avoided $2.4 billion in expected losses from hurricane damage at its Puerto Rico facilities.34 |
ADAPTATION DOESN’T NEED
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By integrating climate change alongside other business risks, firms can use existing management systems and procedures like enterprise risk management, business continuity planning, quality assurance, and environmental management systems to efficiently build on their expertise in these areas. In addition, several low-cost and no-cost measures can save businesses money and improve the performance of infrastructure and assets. To deal with rising flood risks, for example, businesses can relocate critical equipment and other property of high financial value to upper floors or higher elevation. Water-efficiency measures are a low-cost response to seasonal water stress. Natural ventilation and shading offer cheap solutions for businesses in cities exposed to extreme heat, with the added benefit of conserving energy. For Whistler Blackcomb, a ski resort in British Columbia, adapting to climate change is both an environmenal and business necessity. The resort concentrates on inexpensive strategies such as diversifying guest experiences for the off-peak months of May through November by offering nature walks, hiking trails, mountain biking routes. It wants to avoid over-adapting, given that other climate change risk management measures, such as buying and operating snow-making machines, are costly. |
IF YOU DON’T ACT,
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A changing climate presents commercial opportunities for businesses,35 such as opportunities to access new markets, develop new technologies and products, and stay ahead of regulation. In a survey of global businesses, 86 per cent described responding to climate change risks or investing in adaptation as a business opportunity.36 Such activities can be a source of competitive advantage — or disadvantage, if a competitor gets there first. Munich Re, in response to the growing demand for risktransfer solutions to climate change challenges, now offers insurance coverage to solar electric producers. The insurance covers loss of revenue in the event of unusually low sunlight conditions. The following three sections of this report set out a process to advance adaptation within the business, starting with awareness raising, then assessing and managing risks and opportunities, and ending with building climate resilience across the enterprise. |
[23] Intergovernmental Panel on Climate Change 2007c
[24] National Round Table on the Environment and the Economy 2011
[25] Munich Re 2009
[26] Chiquita Brands International Inc 2010
[27] Ceres and Climate Change Lawyers Network 2012
[28] Wellstead 2011
[29] Investor Group on Climate Change 2012
[30] Stenek, Amado, and Connell 2010
[31] Fankhauser 2009
[32] National Round Table on the Environment and the Economy 2011
[33] Wellstead 2011
[34] Johnson & Johnson
[35] UK Trade & Investment 2011
[36] United Nations Global Compact et al. 2011