As climate change sets in, its impacts—such as increasing severity of storms and weather disasters, receding snow and rivers, advancing deserts, and more frequently occurring landslides, floods, and sinkholes—will test companies’ ability to effectively deliver products and services.
In response, BSR has developed a series of briefs to illustrate how these changes will affect each industry and what current adaptation practices look like.
Some effects of climate change will be familiar to business—such as crop failures and ensuing price shocks—but over the next several years, they will happen with more frequency and with even higher costs of insurance. Beyond direct business impacts, companies will also need to understand how climate change will affect their most vulnerable stakeholders—the poor, citizens of developing countries, and women—who will become more at risk to drought, disease vectors, and the perils of migration.
The good news is that many resources on business adaptation to climate change are already available (see sidebar). A cost curve for adaptation, for example, shows that investment paybacks can be short. Also, companies do not need to choose between adapting to climate change or stopping it (nor is the distinction between these two always clear); we can and should do both together. There are also additional tools that translate state-of-the-art monitoring, prediction, and imagery into practical information to help companies improve their governance and decision-making processes as they relate to responses to climate change. These tools include: CAKE, Google Earth Engine, International Research Institute for Climate and Society, NOAA Climate Prediction Center, and weADAPT. Companies can also take advantage of new market opportunities by providing climate-adaptation solutions.
There are several obstacles to climate adaptation, even for those most committed to proactive and responsible responses. First, the language of adaptation does not resonate well beyond specialists, so communicating on the topic is difficult. As Carmel McQuaid, Climate Change Manager at Marks & Spencer, recently told us: It’s usually more effective to engage stakeholders by communicating on the topics that matter most to them. For example, retailers would be most concerned with their ability to continue to sell high-quality products, such as coffee. For companies that thrive on innovation, positioning adaptation as part of the portfolio of trends affecting the industry is usually more effective than treating it as a standalone topic.
Another obstacle is the complexity and uncertainty of the climate. This goes for today’s climate, let alone a future and changing one, as evidenced by the fact that we have not been well-equipped to handle recent disasters, such as the floods in Pakistan a few months ago. The fact is that we do not know how to properly prepare for disasters even when they are expected. This is partially due to the cognitive difficulty of coping with low-probability, high-impact consequences, and it is also partially a result of markets and organizations that don’t encourage or reward proactive preparation.
Third, our first reactions may not serve us well. Companies are at risk for taking seemingly sensible actions that may lead to adverse effects elsewhere or on others. Such maladaptation could take many forms, such as combating the heat by turning up the air conditioning (which would produce more greenhouse gas emissions), using desalinization technologies that pollute marine environments, raising prices for or excluding vulnerable customers that depend on insurance or other essential services, or giving customers more resources without the incentives to conserve. This is partly a result of focusing on the specific, current problem at hand, while not taking into account the broader repercussions. It is also a result of failing to identify where weather risk and other familiar issues have climate change dimensions.
We’ve been following adaptation through discussions with BSR member companies, leading and participating in workshops and forums—from a luncheon in New York to talking with experts at the UN climate talks in Cancun—and examining business responses to the Carbon Disclosure Project on climate risks and opportunities. In doing so, we’ve found that while climate change is ubiquitous, there are some lenses that companies can use to understand and identify vulnerable “hotspots” in their operations, supply chains, and key markets. Hotspots emerge both as physical locations and features of the company.
In terms of location, companies with operations in Asia, Africa, and Latin America face some of the greatest risks due to the extreme water loss or flooding predicted for those regions. In addition, these areas suffer from a general lack of resources to respond to problems. In all parts of the world, coasts, flood plains, and ecological boundary zones—including mountains and islands—are vulnerable. In many cases, cities, as well as settlements where subsistence is marginally viable, are especially risk-prone. Companies should consider how their direct operations and key partners and markets are situated in relation to these physical areas.
As for companies themselves, a key vulnerability is a dependence on natural conditions to foster crops, snow, and other climate-sensitive inputs, which are likely to migrate and, on average, degrade. In general, long-lived and fixed assets, like mines, as well as extended supply chains and distribution routes, tend to be more exposed to physical disruption. Finally, non-transparency is a problem: A combination of weather events and climate-related political actions are increasingly likely to disrupt energy availability and general operations of suppliers and other partners. While companies may be able to take steps to mitigate their vulnerability, they will have a hard time doing so if they are unable to make informed judgments about their partners’ key issues, options, and systems for decision making.
Our research on climate change adaptation aims to help companies access existing research and tools, and understand what their industry peers are doing and what stakeholders say they should be doing.
We help companies:
- Communicate on climate risks and opportunities: Investors expect companies to report on physical, regulatory, and other risks and opportunities of climate change through the Carbon Disclosure Project. The U.S. Securities and Exchange Commission has also made informed reporting on climate risks a requirement. Meanwhile, working with distressed communities to cope with climate change is an increasingly material issue for annual sustainability reporting. We help companies new to the issue understand the most important considerations they should be reporting on and identify familiar and effective ways to reach stakeholders, starting with their executives.
- Meet needs responsibly: From delivering hydration and other growing basic needs, to applying finance and information and communications technology to build more resilient infrastructure, to solving the potential problems of maladaption, the private sector is being called upon to drive an effective response to adaptation. BSR will help foster connections and discussions for companies to enable them to deliver sustainable solutions to society under dynamic, uncertain conditions.
- Prepare local communities: Many sources of risk for companies are likely to be found well away from their headquarters and centered in local communities. These communities need help with local-capacity investments to support them in developing disaster-response systems and continuity plans. From Latin America to Bangladesh, BSR has helped companies work with many of the communities most vulnerable to climate change. Leveraging our insights and partners on development initiatives, we intend to bring stakeholders—from government, civil society, and business—together to enhance triple-win impacts.