Business Primer – Chapter 1: Introduction

Climate change is real and is happening now. Together with natural drivers, global emissions of carbon dioxide and other greenhouse gases (GHGs) are acting like a heat-trapping blanket, and have already caused the Earth to warm by about 0.8°C since 1850.¹ The impacts of this warming are being felt in Canada and around the world, as evidenced by changes to sea levels, extent and thickness of sea ice and glaciers, rain and snowfall patterns, and annual cycles of plants and migrating animals.² Climate scientists have now drawn a statistical link between global GHG emissions and the global rise in the number of hot days and in the frequency and intensity of rainfall events observed in the past decades.³ Since climate governs the weather we can expect in a particular place and time, a changing climate is more than a couple of years of unusual weather.

Recent experience with extreme events highlights our economic exposure to changes in weather and climate phenomena. Heavy downpours and other climaterelated events are now the leading causes of worldwide natural catastrophes. In Canada, insured losses due to catastrophic events totalled about $1.3 billion in the first seven months of 2011,^4,5 with storm-related property damage as a chief source of claims.⁶ In a poll by Zurich Financial Services Group and the Business Continuity Institute, covering 559 businesses from 14 different industries and 62 countries, one in two businesses blamed weather-related events for supply-chain disruptions in 2011.⁷ In October 2011 alone, flooding in Thailand’s manufacturing districts suspended operations and caused output losses to more than 400 Japanese businesses — particularly auto manufacturers and computer hard-disk drive businesses — both operating in Thailand and relying on inputs sourced from Thailand.⁸ The flooding in Thailand contributed to insurance rate hikes of 10 per cent or more during the fourth quarter of 2011 for businesses that experienced major losses and are exposed to catastrophe risks.⁹

Climate change can put businesses’ reputations, legal responsibilities, regulatory obligations, financial reporting, operations, and supply chains at stake. Businesses’ risk profiles and, in some cases, their strategic positioning can be directly affected by global and local changes in temperature, the frequency and severity of extreme weather conditions, and the availability of water and other natural resources. Businesses must plan now to adapt to the irreversible impacts of climate change.

Opportunities from the impacts of climate change and how people adapt to them are also apparent. Some businesses are exploring and starting to exploit the commercial opportunities of climate change adaptation. Bombardier is assessing opportunities to meet rising demand for firefighting aircraft in a world with more frequent and severe wildfires.¹⁰ SNC-Lavalin foresees a rise in business for sea-water desalination and for water transportation.¹¹ Scotiabank has created an investment product designed to profit from businesses mitigating GHGs and adapting to the physical impacts of climate change over the long term.¹² Hybrid Air Vehicles (a manufacturer of unmanned airships) delivers cargo to remote northern areas, reducing reliance on winter roads and saving money relative to floatplane services.¹³

Yet few Canadian businesses have adopted a structured and explicit approach to incorporating climate change risk and opportunity management into their routine activities.¹⁴ Despite a growing awareness of the business risks and opportunities that a changing climate presents, the business case for taking proactive steps is complicated by uncertainty about both the magnitude and timing of impacts. Further, some changes are incremental and may be long term. 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.

This report demonstrates tactics and strategies that business executives and managers can use to stay competitive in a changing climate. It illustrates how Canadian firms are exposed to climate change now and in the future and why acting now can make good business sense. It offers practical strategies to help build the resilience of businesses to a changing climate, and it provides key messages and recommendations. This business- focused report is part of Facing the Elements. In combination with the Advisory Report and Case Studies, this Business Primer sets out what Canadian businesses can and should do to manage the risks and opportunities of a changing climate and how governments can help.

Between January 2011 and January 2012, the National Round Table on the Environment and the Economy (NRT) researched this issue and convened stakeholders from business, governments, nongovernmental organizations, and academia, both to understand the issues at stake for Canadian businesses as a result of our changing climate and to learn from the experiences of business pacesetters from Canada and abroad. This report builds on the lessons of these pacesetters, who have discovered the business implications of climate change, are assessing and managing risks and opportunities, and are building climate resilience across their enterprises. ¹⁵ These businesses demonstrate that adjusting their practices in response to a changing climate is not only feasible but also offers real benefits for preserving and creating value.

[1] Solomon 2007
[2] Intergovernmental Panel on Climate Change 2007c; Lemmen et al. 2008a; National Round Table on the Environment and the Economy 2010
[3] Intergovernmental Panel on Climate Change 2011
[4] Unless otherwise noted, all monetary figures are in 2010CAD.
[5] Robinson October 27, 2011
[6] Power 2012
[7] CSCMP’s Supply Chain Quarterly 2011
[8] Watkins and Ito 2011
[9] Johnson 2012
[10] Carbon Disclosure Project 2009
[11] SNC-Lavalin ND
[12] State Street Global Advisors 2008
[13] Wallace January 24, 2012
[14] Deloitte 2011
[15] Our research included commissioning Acclimatise to prepare case studies outlining specific steps and strategies thirteen businesses have already taken to adapt to a changing climate. These businesses are: Cameco, Royal Bank of Canada, Hydro-Québec, Tolko, EBA Engineering, JD Irving, Summerhill Pyramid Winery, Rio Tinto Alcan, Coca-Cola, Whistler-Blackcomb, Entergy, Munich Re, and BC Hydro.