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Six Things Companies Need to Know About Climate Change Adaptation

In a survey of global businesses, 86 percent described responding to climate risks or investing in adaptation as a business opportunity. So finds a new report jointly released yesterday by the UN Global Compact, the UN Environment Programme (UNEP), Oxfam and the World Resources Institute.

Already, businesses worldwide are beginning to see the risks and economic impacts of more frequent and intense storms, water scarcity, declining agricultural productivity and poor health. This new study, Adapting for a Green Economy: Companies, Communities and Climate Change makes the business case for private sector adaptation to climate change in ways that build the resilience of vulnerable communities in developing countries.

Here are some important things about climate change adaptation that all companies should know:

1. Climate change adaptation differs from climate mitigation.

Climate change adaptation refers to the set of actions taken by business and others to address the risks and opportunities associated with the physical effects of climate change e.g., changes to temperature, rainfall and ecosystems. These effects occur across the spectrum of business operations, from supply chains to communities, and from operations to customers. Climate mitigation, in contrast, focuses on reducing greenhouse gas emissions. A comprehensive corporate climate change strategy incorporates both climate mitigation and climate adaptation.

2. Climate change is already happening.

Climate change is no longer a distant phenomenon. Recent extreme weather events have been at the limits of modern human experience. A few examples:

  • In the summer of 2010, one fifth of Pakistan was flooded, affecting 20 million people, inundating thousands of schools and health centers and destroying 2.2 million hectares of crops.

  • In the new year, torrential flooding submerged an area of Australia the size of France and Germany combined, while downpours in Brazil triggered mudslides that killed more than 600 people, one of the country’s deadliest natural disasters on record. The Brazil disaster followed four consecutive years of torrential winter downfalls, suggesting this destructive weather pattern may soon become the country’s “new normal” to which government, citizens and the private sector must adjust.

3. Climate change creates business risks at multiple points along corporate value chains.

Consider, for example, the impact a 2001 drought in the U.S. Pacific Northwest had on Anheuser-Busch, the world’s largest beer manufacturer. First and most obviously, beer is 90% water. Less intuitive is the fact that water is used to produce barley and to supply the electricity needed to produce aluminum cans. Because irrigation was curtailed in Idaho, barley became scarce and more expensive. At the same time the cost of manufacturing aluminum for cans rose because less water meant less cheap hydroelectric energy. The result: a perfect storm of intersecting forces in the beer supply chain.

4. Preparation is everything – different levels of readiness can lead to very different outcomes.

Companies can do much to prepare themselves, using modern technologies, even with limited resources. The following non-corporate example illustrates this point. Over the past decade, Bangladesh's Comprehensive Disaster Management Program has combined hazard mapping of hotspot areas most vulnerable to climate impacts, with early warning systems and evacuation policies. When Cyclone Sidr, a category 4 cyclone, hit the country in 2007, the death toll was kept to less than 4,000, while a previous category 4 cyclone in 1991 took an estimated 140,000 lives. The different outcomes in 2007 and 1991 were driven more by Bangladesh's level of preparedness than by the level of force of the cyclone.

5. Climate change creates business opportunities as well as risks.

Much of tomorrow’s growth for companies is in developing country markets. These markets will likely be hit hard by climate change. Companies that proactively develop products and services that reduce their customers’ vulnerability to climate change will be well positioned to grow their markets.

Two examples follow. Cemex, a global cement company is exploring new markets for low cost, climate-resilient housing for underserved populations starting in Mexico, with a view to expanding to other developing countries, if successful. Swiss Re, one of the largest reinsurance companies in the world, has developed tailored insurance products, including weather risk insurance, for rural poor in developing countries.

6. Climate adaptation is a mainstream challenge.

Climate change affects all aspects of a business, just as it affects all aspects of society. Yet for many leading corporations, climate change actions are still the domain of the environment department and focus on mitigation (e.g. measuring and reducing their greenhouse gas emissions). A few enlightened companies are starting to expand their focus to adapting products, supply chains and operations in response to the consequences of a warming world. We urgently need to grow this number. To this end, Adapting for a Green Economy provides practical recommendations for how internal champions within companies can integrate climate risk into existing management systems.

In summary, climate change is already upon us. Its impacts create risks that ripple through corporate value chains. Being proactive in response to these changes is a business necessity, not a luxury. And in proactively adapting, companies can not only reduce their risks, but also discover new business opportunities building climate resilient products, markets and societies. This report points the way forward.

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