Firms’ Climate Risk Management ‘Lacking’

Extreme weather

by | Jul 19, 2013

Extreme weatherNearly 90 percent of S&P Global 100 Index companies identify extreme weather and climate change as current or future business risks, across all industry sectors.

But they lack the data and tools needed to effectively assess and manage these risks, according to a report from the Center for Climate and Energy Solutions (C2ES).

The report, Weathering the Storm: Building Business Resilience to Climate Change, provides a picture of the state of resilience planning across a range of global companies. Sixty two percent have either experienced negative impacts of climate change or expect to within 10 years. Their top concerns include damage to facilities, loss of water or power supplies, higher costs and disruption of supply and distribution chains.

But C2ES says that despite firms’ awareness, because they don’t have the knowledge or tools to relate these concerns and risks back to their operations, most resilience measures do not go beyond “business as usual.” Most companies are managing these risks through existing business continuity and emergency management plans and only a few have used climate-specific tools to comprehensively assess risks.

The report also include case studies of American Water, Bayer, The Hartford Group, National Grid, Rio Tinto and Weyerhaeuser, highlighting what companies can do to prepare for climate change and extreme weather.

To help Bayer analyze the potential future risks from climate change impacts, its environmental and sustainability group worked with financial experts to build a climate change “risk matrix” to evaluate and prioritize climate-related risks over Bayer’s 10- to 20-year planning horizon, the report says. The matrix ranks risks according to their potential extent of damage and frequency of occurrence, and assigns a simple high, medium or low impact rating.

For example, when the potential supply chain risks related to shipping were assessed, lower water levels on the Rhine River due to more intense droughts were assigned a rating of “low risk,” given the availability of alternate transport via rail and truck.

Another case study examines American Water, the largest publicly traded water utility in the US. American Water anticipates greater uncertainty and risk under changing climatic conditions. So it’s adopting a more integrated management approach to water resources that will expand available water supply options through more water conservation and re-use — something it did only on an occasional basis in the past.

The C2ES report recommends creating a clearinghouse for reliable, up-to-date data and analytical tools. It says companies need user-friendly, localized projections of climate changes and models that link these projections to impacts that are relevant to company operations. It advices investing in public infrastructure resilience, since companies rely on public resources, including roads, bridges and ports, to get their goods and services to market and need these resources to withstand extreme weather and climate impacts.

The report also suggests considering resilience needs in regulated sectors, such as water, electricity and insurance, where regulators need to be forward-looking and open to companies making the case for more spending on resilience. Setting up voluntary, public-private partnerships that bring together government and business expertise will improve resilience planning, it concludes.

Other organizations have also sounded the warning bell about the impacts of extreme weather on business. In June, a report from the United Nations Environment Programme said extreme weather events, water scarcity, biodiversity loss and other global warming-related changes in the environment will increasingly affect businesses and how they operate.  The report said private sector’s operating costs, markets for products and availability of raw materials will be affected by climate change.

A Worldwatch Institute report that came out in May says the US was seriously affected by weather extremes last year, accounting for 69 percent of overall losses and 92 percent of insured losses due to natural catastrophes worldwide.  Hurricane Sandy, the summer-long drought in the Midwest and severe storms with tornadoes accounted for $100 billion of those global overall losses, the report says.

The insurance industry covered $58 billion of the losses. These losses were the second highest overall and insured losses since 1980 in the US.

Image Credit: C2ES


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