How Business Can Weather the Storm

This article is reprinted by permission from The Environmental Forum®, Jan./Feb. 2014, Copyright © 2014, Environmental Law Institute®, Washington, D.C. www.eli.org.

Companies have long engaged in risk assessment and mitigation as a core business practice. The Intergovernmental Panel on Climate Change in its 2012 report “Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation” observes that heavy precipitation, heat waves, and droughts have increased over the last half century. Businesses may not have a position on climate change, but they understand how a flood can shut down transportation, a hurricane can topple buildings and powerlines, or extreme temperatures can disrupt markets and threaten operations and supply chains.

As noted in a recent report by The Center for Climate and Energy Solutions, “Weathering the Storm: Building Business Resilience to Climate Change,” there are significant costs associated with these weather events. In 2012, over 800 major weather-related disasters worldwide led to $130 billion in losses. The most expensive events cost more than $1 billion each. Further, 90 percent of the S&P Global 100 Index identified extreme weather and climate change as a current or future risk. Of those, more than one third stated they’ve already experienced adverse effects. It isn’t about whether a company believes in climate change. This is about staying in business.

The C2ES report highlights companies’ efforts to build business resilience. Not surprisingly, the insurance industry is among the first sectors to pay attention. Utility companies are building redundancy and looking at innovative approaches to handling storm surges. Natural resource companies have the added risk that their “factories” are directly exposed to weather conditions.

To get more insight on these issues, I asked Eileen Claussen, president of C2ES, to respond to a few questions raised by the report.

What does business resilience really mean?

Companies have always navigated a changing business environment. But now they face a changing physical environment, as climate change leads to more frequent and intense heat waves, higher sea levels, and more severe droughts, wildfires, and downpours. Business resilience means assessing and managing these impacts on a company’s facilities, operations, supply and distribution chains, and costs.

Is building business resilience risk management or new business development?

Both. Extreme weather is certainly a risk. It can close facilities, delay production, disrupt supply and distribution chains, raise operation and capital costs, and reduce demand. Extreme weather can also keep employees from getting to work, disrupt communication systems, and threaten the availability of power and water supplies. But there also are business opportunities in becoming more resilient. Some companies are already working on drought-resistant crops, storm-resistant building materials, and weather-related insurance products. Forms of distributed generation, which provided resilient electricity in the aftermath of Hurricane Sandy, are promising growth areas as well.

Are you encouraged by what you see being undertaken by businesses to prepare for and respond to extreme-weather events?

What’s encouraging is that in our discussions with CEOs and members of corporate boards, we’re not being asked, “Is this a problem?” We’re being asked, “What should my company do?” Most of the largest global companies are using existing business continuity and emergency management plans to assess and manage their climate risks. But only a few companies say they’ve used climate-specific forecasting tools to assess how these risks are evolving and the potential business impacts. These companies are generally dependent on a key commodity or operate in high-risk locations. So while the vast majority of firms acknowledge risks from extreme weather and climate change, their actions so far to address the risks aren’t going much beyond business as usual.

Where do you think more should be done, and what do you see as the biggest barriers for companies? Companies tell us they need user-friendly, localized projections of climate change, and models that can link these projections to specific business impacts. Those in regulated sectors such as water, electric- ity, and insurance need regulators to be open to the case for increased spending on resilience and policies that encourage customer decisions about sufficient levels of risk mitigation.

Is building business resilience private or public sector work?

Both. Companies need to manage risks to their facilities and supply and distribution chains, but they also need governments to invest in strengthening resilience of public infrastructure. That’s one reason why we recommend voluntary public-private partnerships to bring together government and business expertise to develop and improve resilience planning.

My view: The bottom line is that extreme weather events are likely to continue and companies should think about building business resilience in a changing climate. We all will be better off if we’re better prepared.

Sara Kendall is vice president, corporate affairs and sustainability, Weyerhaeuser Company.