For businesses impacted by climate change, managing the financial impacts of increased intensity of extreme weather events on a global scale, including wildfires, floods and hurricanes, can be a daunting prospect. Not surprisingly surveys suggest big business as a whole is slow to take proactive steps. “But delay is not a strategy. Organizations can benefit by taking action to recognize and even anticipate such climate-related risks as changing government policies, product-preference shifts, and price volatility,” McKinsey observes.
Three of the biggest risks businesses face as a result of climate change include:
- Physical, where infrastructure, factories and supply chain operations are damaged
- Reputational, where the probability of profit loss can be correlated to the public perception
- Product, where core products become unpopular or even unsellable
McKinsey: “This kind of risk, of course, is familiar; new products by definition, displace older ones. The difference is that responding to climate-related pressures can change the entire context in which a business operates, not just a specific segment. It’s more like the change from the horse-and-buggy era to the car than shifting from manual to automatic transmission.”
But as CNBC reports, the worst risk to climate change is not doing anything. “If we wait until the last minute, [the results] will make the recent banking crisis look like a tea party.”
With the specter of financial ruin as a result of climate change, big business is beginning to slowly but surely turn its collective attention to proactively managing the risk. As a result, an entire new industry is beginning to bloom. “To help companies and governments gauge which of these risks are most relevant to them, and figure out what they can do about it, a new breed of experts – climate adaptation specialists – is beginning to emerge,” according to Ensia. These are not climate mitigation experts, rather adaptation experts help businesses figure out how to continue profits while working within the climate change spectrum.
The first step a climate adaptation expert will take with a client is to conduct a vulnerability assessment to determine which parts of the business will be most impacted as a result of extreme weather conditions. Part of that assessment may include working with a climate modeler to help forecast high-level risk probabilities by region. The next step is to help institute a proactive action plan.
It is one thing to provide a client with a lot of scary data; but it is another thing to be able to communicate this in a constructive, understandable and proactive manner. “One of the most important services climate adaption consultants provide is translating climate science into clear, relevant information for business leaders and public officials.”
While many large-scale companies still need to get started in adapting to climate change, the good news is there are companies that are taking proactive steps. For example, IKEA has started to substitute renewables for conventional energy sources with the long-term goal of becoming energy independent. “There is still a long way to go in many respects, but it can be said that action has well and truly started,” McKinsey notes.