Major Businesses Prepare to Deal with Climate Change
Posted July 25, 2012
According to The Economist Intelligence Unit, nine out of ten companies have suffered weather-related disruptions in the past three years, and most of them say these impacts are becoming more intense. Texas ranchers and farmers lost an estimated $5.2 billion in last year's droughts and fires. Hurricane Irene cost insurers about $400 million in the Carolinas alone, while in New Jersey, the evacuation of tourists in advance of the hurricane could have cost Atlantic City casinos as much as $50 million in lost business over the holiday weekend. Last year's economic losses due to extreme weather totaled an estimated $53 billion. And in the past month, we've seen a heat wave that left part of the nation's capital without power for days, as well raging wildfires in Colorado and flooding in Florida. The National Weather Service just reported that nearly half the continental United States is in severe drought. These are not one-off events, but a pattern of increasingly frequent extreme weather that is exactly what global warming models have predicted.
Some political leaders still seem to feel that denial is an effective strategy for dealing with global warming. But for many business leaders, denial is not an option. As Eric Roston recently wrote in Bloomberg News, "the free market has assimilated climate change risk more readily than some of the loudest free-market advocates." Hundreds of investors worth $20 trillion in assets signed onto the Global Investor Statement on Climate Change. Nearly 4,000 companies filed voluntary disclosures of their carbon emissions last year.
"If we sit by and wait until the impacts of climate change are so severe that it is impacting our supply chain, then that puts us at a greater risk," Starbucks sustainability director Jim Hanna told The Guardian last year. "From a business perspective we really need to address this now."
Last week, a consortium of leading companies, including Starbucks, Levi Strauss & Co, and global re-insurer Swiss Re, released a step-by-step guide for businesses on how to assess and prepare for the impacts of global warming.
The overall strategy is called "Corporate Climate Resilience," and while the term is relatively new in business-speak, the idea is slowly working its way into the fabric of the business world, as leading companies in major industries start to see the value of preparing themselves for the new business landscape of a warming planet. (Businesses are not alone in this regard--the military has been preparing for climate change as well, as I've written in the past.) The guide offers a toolkit for businesses as well as a multitude of case studies from several industries.
Global warming can affect business value chains on multiple levels, from the extreme weather that can disrupt production and distribution, to the new market opportunities presented by an increased need for climate-resilient products.
Utility companies are on the front lines of the climate change battle. Hurricanes, for example, cost the utility company Entergy $2 billion in 2005 alone, as the company struggled to repair infrastructure and restore power to customers in the storm-wracked Gulf. The possibility that powerful storms might become more frequent prompted Entergy to study how global warming might impact the region in general, as well as determine which of the company's specific assets and operations would be most at risk. Entergy identified cost-effective, short-term ways to adapt to climate risks, such as retrofitting distribution and transmission lines in high-risk areas, as well as public sector efforts, such as wetlands restoration and improved building codes, which would also help reduce storm damage.
Flooding is a major risk to the ports industry as well. In Colombia, seaport operator Muelles El Bosque (MEB), which operates a port in the Bay of Cartagena, discovered that sea level rise could potentially eat up 7 percent of its earnings, prompting a $10 million investment plan to protect the port from flooding.
Food and beverage companies can face supply chain disruptions due to global warming. Coffee crops, for example, are highly sensitive to weather changes and rising temperatures. A study commissioned by Green Mountain Coffee Roasters suggests that some parts of Latin America will be unsuitable for coffee growing by 2050. Green Mountain and Starbucks are working with coffee growers in Latin America and Africa to help them cope with extreme heat and scarce water resources, finding ways to maintain quality and increase their yields under new growing conditions. Growing coffee under a shady canopy of large trees is one such strategy. And by encouraging growers to produce shade-grown coffee, these companies are not only making their supply chains more resilient, but are curbing global warming by preserving tropical forests, which soak up carbon.
Food crops are not the only agricultural products at risk from global warming. Cotton is a notoriously thirsty plant, and global warming is predicted to disrupt water supplies in certain areas.
"Ninety-five percent of our products are made of cotton," wrote Amy Leonard, a senior vice president of the supply chain for Levi Strauss & Co., in her blog. "And that fact is one of the key reasons why we’re concerned about climate change."
To mitigate this potentially huge risk, Levi Strauss is helping cotton farmers reduce the amount of water they need to grow crops, as well as altering their manufacturing process to use less water, and also educating consumers on fabric care that uses less water and energy. The company estimates that its Spring 2012 Water<Less collection alone has saved 45 million gallons of water.
On the flip side, the changing climate can produce new business opportunities as well, not only in clean and energy-efficient technologies, such as renewable energy and clean cars, but products that help businesses and communities adapt to climate change. Earth Networks once focused on live, local weather monitoring for farmers, broadcasters, educators and others--now the company is expanding its operations to include greenhouse gas monitoring data, as well as other environmental data that can help communities respond to climate-related events, such as changing water supplies or frequent storms. Likewise, EBA, an engineering firm in Canada, is developing new materials and techniques for maintaining infrastructure in melting Arctic permafrost.
Global warming is changing the business landscape. Smart companies see this, and by examining the specific risks and opportunities that global warming presents, they are getting ahead of the game. As more businesses see the economic wisdom of investing in climate resilience, the benefits will extend beyond corporate boardrooms and to the broader community. From the coffee farmers and cotton growers who've found better ways to produce their crops, to the towns and cities that have stronger, more resilient power and water supplies, to the business owners finding new markets for efficient and climate-adapted products, it's clear that accepting the reality of climate change is not only a necessity--it's an opportunity we can't afford to pass up.
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