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Climate Change: Business As Usual...or Not

by Rita Yu  This email address is being protected from spambots. You need JavaScript enabled to view it. | 8 February 2017

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Climate change affects more than polar bears.  Society can face new challenges if risks arising from climate change are not better understood and addressed.  According to Munich Re1, 2016 natural catastrophe losses totalled US$ 175bn, the costliest since 2012 (US$ 180bn), with only 30% insured losses (US$ 50bn).  North America had the most loss events since records began in 1980; the 160 recorded events accounted for US$ 55bn (33%) of losses worldwide, of which 54% were insured.  The U.S. experienced 19 separate floods, the most floods since 1980.  The devastating floods in China in June and July was the second costliest natural catastrophes in 2016 (overall losses US$ 20bn; only some 2% of which were insured).

 

In the past, extreme climate/weather events have led to costly disasters and widespread disruption.  For instance, the extreme drought and heatwave of 2003 caused more than 30,000 premature deaths (15,000 in France) and over 13 billion euros of losses across Europe2.  Several countries experienced public water supply shortages; failing crops and dying livestock raised food prices; forest fires broke out (5.6% – 390,000 hectares – of forest in Portugal destroyed).  Some of France’s nuclear reactors that were cooled by river water had to shut down; two nuclear power plants in Germany also closed down.

 

Superstorm Sandy of 2012 is the second-costliest tropical cyclone on record, after Hurricane Katrina of 2005, with an estimated total damage of over US$50 billion.  In Northeastern U.S., the Caribbean and Canada, 147 deaths were directly attributed to Sandy.  President Obama declared a state of emergency in 6 states and Washington DC; 6,700 National Guard were on active duty or being activated.  Three nuclear reactors experienced trips or shutdowns.  By 30 October 2012, 7.9 million businesses and households had no electricity in 15 states and Washington DC; 9,000 people in 13 states stayed in 171 Red Cross operated-shelters.  The New York Stock Exchange closed for two days.  More than 15,000 flights were grounded.  Flooded phone and cable facilities caused regional communication outages.  The estimated damage in NYC is US$19 billion; the estimated total business losses in New Jersey is US$8.3 billion.  Sandy damaged/destroyed 651,000 housing units in New York and New Jersey.  The NY Metropolitan Transportation Authority estimated US$5 billion in losses from infrastructure damage, lost revenue and increased operating costs.  By October 2013, the Federal Emergency Management Agency (FEMA) approved over US$1 billion to assist NYC’s families with damaged/destroyed property; US$5.6 billion in aid was paid out to New Jersey storm victims.

 

Half of California is still in drought3, after four years of severe drought (2012–2015).  Fallowing is estimated at 540,000 acres in 2015 and 78,800 acres in 2016.  The direct costs are estimated at US$1.8 billion and 10,100 jobs in 2015, and US$550 million and 1,815 jobs in 2016.  The total economic loss –from businesses supporting farming and the loss of household incomes – is estimated at US$2.7 billion and 21,000 jobs statewide in 2015, and US$603 million and 4,700 jobs statewide in 2016.  Large-scale unsustainable groundwater pumping has forced current and future generations to dig deeper wells to find alternative drinking water sources while subsidence has damaged infrastructure.  Besides agriculture, water restriction also has implications for other industries such as food processing, semiconductors, energy, tourism and leisure.

 

Pacific Andes Group, the world’s 12th-largest seafood company, filed for Chapter 11 bankruptcy in New York on 30 June 2016.  CEO Ng Puay Yee mentioned in court filings that the company’s liquidity crisis was partially triggered by El Nino and the associated depleted Peruvian anchovy stocks.  Since January 2017, the UK – which imports an estimated 50% of its vegetables and 90% of its fruit – has been facing a shortage of courgettes, spinach, iceberg lettuces and cabbages, and escalating produce prices.  This is caused by cold weather in Italy, flooding in Spain's south-eastern Murcia region as it suffers from the heaviest rainfall in 30 years, and poor light levels.

 

While it is difficult to directly attribute individual extreme events to climate change, more frequent and/or intense events may become increasing likely in future.  Beside extreme events, climate change also affects businesses indirectly.

 

Community risks are business risks – companies with global supply chains are more likely to feel the climate impacts sooner as their suppliers, customers and employees in developing countries are disproportionately vulnerable and have less capability to adapt.  Local resources (e.g., raw materials), services and infrastructure upon which businesses depend on are exposed to climate risks such as more storms, water scarcity, declining agricultural productivity and poor health.  Therefore, community well-being has implications for business and industry and, in turn, overall economic growth.

 

In addition, there could be legal repercussions.  Since November 2015, New York Attorney General Eric Schneiderman and Massachusetts Attorney General Maura Healey have been probing ExxonMobil into whether the company deceived investors and consumers by hiding its internal research since the 1970s on the link between burning fossil fuels and climate change; on 11 January 2017, a Massachusetts judge ordered ExxonMobil to turn over documents dating to 1976.  In September 2016, the U.S. Securities and Exchange Commission also launched an investigation into how ExxonMobil values future projects amid climate change and plunging oil prices.  Furthermore, Conservation Law Foundation launched legal action4 against ExxonMobil, which aimed at holding it liable for endangering communities by ignoring the threat posed by extreme events and rising sea levels to its Everett facility along the Mystic River in Massachusetts, despite its awareness of the climate risks.

 

In fact, businesses are increasingly concerned about climate change, and they are taking actions.  More than 600 businesses and investors signed and released an open letter5 on 10 January 2017 urging President-elect Trump, U.S. Congress and global leaders to address climate change.  Signatories include adidas Group, Campbell Soup, eBay, Gap Inc., Intel Corporation, Johnson & Johnson, Levi Strauss & Co., Starbucks Coffee, Virgin, amongst others.

 

However, many companies are focused on climate mitigation — slowing the rate of climate change through reducing greenhouse gas emissions, for example.  Most have yet to develop adaptation strategies – which aim to deal with the immediate and long-term, direct and indirect consequences of climate change.  Climate adaptation adds costs, but lack of preparedness and resilience will cost far more.  The development of climate adaptation strategies may involve the following steps:

 

  • Identify the problem and objectives – e.g, decide on the scope and scale such as building a facility at a geographic location, or a business segment
  • Establish risk tolerance level and decision-making criteria – e.g., decide on the timeframe such as the expected lifespan of an asset
  • Determine the importance of climate in business risk – e.g., is flooding a big concern for the facility?
  • Identify and evaluate the potential physical climate risks – e.g., potentially more frequent and/or intense rainstorms
  • Determine the cost of a wrong decision – e.g., how much damage could result if the facility was flooded?
  • Decide the need for a more comprehensive risk assessment – if the cost of a wrong decision is big, does it warrant a more detailed probabilistic assessment or expert opinion?
  • Identify a range of adaptation options – e.g., accept the flood risk and bear the losses, improve the level of flood protection, relocating 

2. UNEP Environment Alert Bulletin: http://www.unisdr.org/files/1145_ewheatwave.en.pdf

3. Josué MedellínAzuara, Duncan MacEwan, Richard E. Howitt, Daniel A. Sumner, and Jay R. Lund (2016), Economic Analysis of the 2016 California Drought on Agriculture, A report for the California Department of Food and Agriculture, with research support from Jennifer Scheer, Robert Gailey, Quinn Hart, Nadya D. Alexander, Brad Arnold, Angela Kwon, Andrew Bell and William Li, Center for Watershed Sciences, University of California – Davis, August 11, 2016.

5. Open Letter: http://www.lowcarbonusa.org/