A Strategic Corporate Response to Sandy

As corporations along the East Coast struggle to return to normal in the wake of Hurricane Sandy, many will be reconsidering their environmental strategies and, in particular, how their long-term risk planning may have caught them off guard.

Although greenhouse gas (GHG) reduction programs now seem more important than ever, more pressing issues will be climate adaptation strategies, and how to protect physical assets in a world of more frequent Sandy-like storms.

Groups such as the Union of Concerned Scientists (formed in 1969) have provided decades of warnings that climate disruptions threaten our basic human needs, and that human activity is the primary cause. Increasingly, scientists such as NASA’s James Hansen are speaking out boldly about the moral hazard of failing to act: “The cost of acting goes far higher the longer we wait — we can’t wait any longer to avoid the worst and be judged immoral by coming generations.”

It is not too late for companies to take responsible action to mitigate future risks. However, for many, this will require rethinking their current strategy.

Insurance companies have been understandably vocal as extreme weather risks are growing and climate change will likely increase future losses. Climate change will not only affect insurance company and shareholder profits, it will also increase property insurance rates, and therefore, reduce insurance availability. Munich Re recently stated that North America has experienced a nearly fivefold increase in extreme weather patterns over 30 years, adding that when “global warming combines with natural weather cycles,” it exacerbates the perils and the insured losses.

Executives must take a leadership role by addressing challenges that can no longer be considered long-term, and were previously deprioritized. Disclosure of GHG emissions and climate change strategies should not just be seen as an annual requirement — ongoing governance is needed to address the material issues raised.

In addition to measuring and reporting environmental information, companies should accelerate their GHG reduction programs, and consider adaptation methods, such as disaster recovery plans, that address the risks to their daily operations and supply chains. A 2012 Information Week study of over 300 mid- to large-sized U.S. companies found that only 38 percent have such processes in place.

Sustainability and environmental teams should take a proactive role in highlighting climate risk and the importance of implementing disaster recover strategies as a way to protect companies from business downtime and other losses. Stakeholders would also benefit from staying informed about a company’s evolving disaster response processes within the context of its existing environmental program.

The devastating effects of Sandy have presented an opportunity for companies to implement bold visions for a more stable and better-prepared business environment. With total storm-related loss projections upward of $50 billion, the business case for building climate risk mitigation into corporate budgets is stronger than ever. The corporations that take the lead on understanding the nature of these risks and accelerate responsible business practices will be the ones that thrive in a more disrupted world.

Read about strategic corporate responses to Hurricane Sandy on www.addison.com