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Climate Change Hero

Climate Change Blog

  • 12
  • December
  • 2013

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Resilience Planning in the Global Business Community

The Center for Climate and Energy Solutions (C2ES) recently released a report entitled “Weathering the Storm: Building Business Resilience to Climate Change” that evaluates the current state of risk assessment and resilience planning in the global business community. The Report focuses on companies listed on Standard & Poor’s Global 100 index (“S&P 100”) as well as six case study companies. Based on its analysis of public financial reports and carbon disclosure project reporting, the Report concludes that ninety percent of the S&P 100 companies acknowledge that extreme weather and climate change pose current or future risks to their bottom line. Many (55) report that they are already experiencing the impacts of climate change or expect to in the near future. Among companies that recognize or anticipate risks from extreme weather and climate change, some of the top concerns identified were property damage; the disruption of water or power supplies; the disruption of supply and distribution chains; and increasing operational costs.

Interestingly, companies were considerably less likely to mention climate change impacts in their financial filings than they were in their carbon disclosure project survey responses. Eighty-two of the S&P 100 companies and all of the case-study companies addressed extreme weather and climate change in their survey responses, but only 36 did so in their financial filings. The Report hypothesizes that the difference could suggest that the risk has not yet reached the level of financial materiality for most of companies involved.

The Report finds that companies surveyed are currently taking a range of approaches to manage climate risks. Some of the methods used are: (1) relying on existing business continuity or emergency preparedness plans; (2) conducting specific environmental vulnerability assessments; (3) upgrading equipment or infrastructure; (4) transferring risk through insurance policies; and (5) using climate change forecasting models and research to supplement conventional risk management plans. By far the most commonly reported of these was relying on existing business continuity or emergency preparedness plans. Seventy-seven of the S&P 100 companies reported that extreme weather risks are already incorporated into their existing plans. However, because business continuity and enterprise risk management plans draw upon a historical picture of risk, the Report warns that they may not be sufficiently robust to prepare companies for climate change impacts.

According to the Report, only 28 of the S&P 100 companies have conducted climate-specific vulnerability assessments of all operations, key sites or key suppliers. C2ES found that companies investing in long-lived assets were most likely to have undertaken these sorts of assessments. A few of these 28 companies have taken additional steps to work with their suppliers to minimize adverse impacts from extreme weather events. Others have taken steps or plan to geographically diversify their supply chain.

The report further finds that only 23 of the S&P 100 companies have worked to upgrade equipment or infrastructure to protect against climate change impacts. Some examples of such upgrades include building flood walls and moving data centers to higher ground. The Report found that companies in the oil and gas sector were most likely to have invested in such steps. Finally the report concludes that only 21 companies reported using insurance as part of their risk management strategy

The Report also addresses a key question raised by the findings described above: if the majority of companies evaluated recognized potential risks, why has the business response thus far largely been to continue existing practices based on a historical picture of risks?

The Report identifies a number of impediments to change, but broadly speaking, uncertainty about the timing and severity of climate impacts hinders investment in resilience beyond “business as usual.” Besides the inherently uncertain nature of the changes involved, the Report finds that another factor inhibiting action is the absence of user-friendly information on weather-related risks. The studies that are available tend to look at large geographic areas and long time horizons, but such information is difficult to translate into location-specific business decisions. The Report also concludes that there tends to be a low level of awareness and expertise on climate change and weather-related risks within companies and that spending to enhance resilience has to compete for limited company resources. Since the benefits of such spending might not be realized until much later, the Report concludes that short-term costs will often be prioritized over spending on resilience.

In addition, the Report finds that a lack of government action is an additional barrier to investment in measures to enhance resilience. In the absence of government efforts to upgrade public infrastructure or provide guidance on preparedness, businesses will tend to adopt a “wait-and-see” approach.

Despite these challenges, the Report identifies actions that companies can take now to enhance resilience to climate change impacts. First, the report encourages companies to build awareness of the risks associated with extreme weather and of potential effects on operations, facilities, supply chains, employees, and customers. Next, the Report encourages companies to build on existing risk assessments to assess exposure of their facilities and operations to the physical impacts of climate change. The Report acknowledges that this step may be the biggest obstacle for companies to overcome in building resilience because it requires consideration of past indicators, current trends and future climate projections. Finally, the Report suggests that companies periodically update their understanding of risks and their planned responses to those risks as new information becomes available. 

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Author

Margaret E. Peloso

Margaret E. Peloso Partner