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Turn Climate Change Risk Into Business Opportunity

This piece originally appeared on Bloomberg Government and is reposted with permission.

Extreme weather events and climate- related disruptions are occurring with alarming frequency and intensity, whether it’s the Mississippi and Missouri rivers overflowing or the sight of parched earth across the U.S. Southwest.

As climate-change models show, we’re on a course for more extreme weather and other environmental disruptions that don’t just affect the people and infrastructure in their path -- they also have profound effects on businesses, the economy and government policy. You need only look at the dramatic price surges in cotton or sugar to see how climate instability contributes to market risks. Prices for such commodities hit 30-year highs in recent months, as drought ravaged cotton crops in Texas, and floods and a cyclone inundated sugarcane in Australia.

These price shocks reverberate throughout the supply chains of interdependent global markets, sending costs higher for companies such as Levi Strauss & Co. and Hanesbrands Inc., which rely heavily on cotton.

This is where businesses can play a major role helping communities and nations adapt.

A new report, Adapting for a Green Economy: Companies, Communities and Climate Change, published by the World Resources Institute together with the UN Global Compact, UN Environment Program, and Oxfam, makes a business case for private sector and government action, including strategies that build resilience in vulnerable communities.

Chain of Impacts

Many companies are just starting to understand how to address flaws within their operations, supply chains, markets and surrounding communities.

Changing climate conditions exacerbate many economic touch points, creating a cascading chain of impacts. For example, the recent record heat wave in Arizona hampered efforts to contain raging wildfires, estimated to cost around $65 million. Preliminary reports from the National Oceanic and Atmospheric Administration found that extreme weather events in the U.S. between January and April already cost $20 billion.

Floods affect trade and transport along the Mississippi River where nearly 450 million tons of commodities are transported a year, including more than half of U.S. grain shipments. In China, reduced water levels in the Yangtze River left it partially impassible to ships that transport more than one billion tons of cargo each year.

Economic winners in tomorrow’s markets will anticipate and meet growing needs for climate-change solutions. This goes beyond mitigation efforts that reduce greenhouse gas emissions and capture “low-carbon” opportunities, such as cleaner fuels.

Innovative Alternatives

It’s equally important for businesses to adapt to climate changes that are already occurring.

For example, as cotton crops are wilting in severe drought conditions, businesses are finding new and innovative alternatives. Companies such as Naturally Advanced Technologies, based in Vancouver, British Columbia, are partnering with major cotton customers to create cheaper, more resilient fibers that can better withstand climate variability.

Similarly, in the face of record flooding, companies are finding “green infrastructure” strategies that re-establish natural flood protections, like wetlands and floodplains. Other green investments, such as forest protection, can be considerably cheaper than conventional infrastructure.

For companies and governments, success and stability will require them to raise their level of ambition to create new business standards. Climate-change vulnerabilities need to be factored into strategic business decisions. This calls more collaboration among companies and governments to understand and address climate-change stress points.

Public-Private Partnerships

Some promising public- and private-sector partnerships have already emerged. In New York City, the PlaNYC initiative brings together stakeholders from various industries and communities to create a shared vision for expected changes to the local climate. The collaboration has given industry leaders in telecommunications, electric power and water utilities a clear game plan of where they can contribute solutions and help the city adapt.

Chicago has partnered with scientists and businesses to create practical strategies and projects to prepare for a range of likely impacts from climate change, as reported in the New York Times. The city is using climate-appropriate materials, such as more permeable pavement to accommodate heavier and more sporadic rainfall. The city is also expanding green spaces and planting drought-resistant species to help reduce urban heat islands.

At the federal level, President Barack Obama created an adaptation task force led by the Council on Environmental Quality, with the Office of Science and Technology Policy and NOAA. Representatives across 20 federal agencies have been participating in various working groups to develop national- level strategies and solutions.

While adapting to climate change may seem like a daunting challenge, navigating risk and developing innovative solutions is part of America’s DNA. Business leaders and government officials who address critical risks can position themselves as solution providers as they help communities adapt to the climate challenges ahead.

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