- By Dakota Murphey
A recent Global Risks Report published by the World Economic Forum (WEF) identifies climate change as the top risk to businesses, predicting that we are heading for an environmental catastrophe.
Despite US President Donald Trump proclaiming climate change as a hoax (he even dismissed his own administration’s devastating climate change report), overwhelming scientific evidence suggests global warming is very real.
NASA reports that “the scientific evidence for warming of the climate system is unequivocal.” As a result, we are experiencing extreme weather conditions all over the world in the form of heatwaves, droughts, storms, hurricanes and floods. Sea levels are rising and ocean acidification is occurring due to excessive carbon dioxide in the atmosphere.
Alison Martin, Group Chief Risk Officer at Zurich Insurance Group writes that “risks are intensifying, but the collective will to tackle them appears to be lacking.” Time have also recently reported on the fact that governments are failing their citizens on climate change.
We can’t ignore the fact that global natural disasters caused $160 billion worth of damage and claimed 10,400 lives in 2018. Businesses, it seems, understand this better.
Business and climate change
Reducing emissions is imperative. This can only be achieved if we change our behaviour. Individuals can choose to consume from environmentally responsible businesses, but individual behaviour is just a small piece of the pie. Corporations must take responsibility for curbing industrial emissions.
Negative workplace culture has enabled scandalous business malpractice, but a seismic shift towards socially responsible business is taking place.
In 2017 WEF reported that an alliance of global CEOs have called for greater disclosure of climate-related financial risks and recognised that climate change isn’t just an environmental issue, but also a business one.
Millennials, already the largest segment in the global workforce, are a beacon of hope. Geoff Dembicki in his book Are we Screwed? paints a hopeful picture of the future with climate-conscious Millennials opting for meaningful lives over unethical business.
Understanding climate change risks
A group of American academics (Howard Kunreuther, Robert Hartwig and Keith Gilless) recently debated how communities can better prepare for disasters in 2019.
Hartwig argues that the area suffering damage from wildfires in California will take at least a decade to recover with rebuilding becoming slower and more expensive. The three experts agree that natural disasters will increase in frequency and severity, and that government, businesses, communities and individuals need to prepare now.
Property insurance requires a long-term adjustment process and the built environment must be made more resilient.
What exactly are the climate change risks to business?
A review of the US’s Fourth National Climate Assessment named an increase in natural disasters such as wildfires and hurricanes, possible breakdowns in logistics infrastructure, shifts in resource availability and volatile trading relationships as possible risks to business supply chains. More extreme weather and rising sea levels will play havoc with business logistics.
Last year, 13 US federal agencies offered stark warnings about the consequences of climate change, predicting it will knock as much as 10 per cent off the US economy.
The agencies report, the Fourth National Climate Assessment, states that “Without substantial and sustained global mitigation and regional adaptation efforts, climate change is expected to cause growing losses to American infrastructure and property and impede the rate of economic growth over this century.”
Greater action required
Climate risk awareness and risk assessment varies across companies, industry sectors and countries. Speaking to Risk Management Magazine, Don Reed, from sustainability consultancy Anthesis Group, said, “While climate risk may be climbing up the board’s risk agenda, it still does not come anywhere close to cyberrisk in terms of executive consideration”.
Reed believes that investors, however, will ensure that the risk is not ignored. “In many cases, institutional investors are taking a longer-term view of corporate performance and risk than the companies they invest in are”.
There needs to be more integration of climate risk-assessment into business strategy. US federal agencies suggest a greater focus on adaption activities, including financial risk reporting, development of engineering standards, military planning, and disaster risk management.
Governments, businesses and individuals have a responsibility to do more to future-proof our planet. While the forecast is bleak there is plenty businesses can do to start addressing climate change risks.
Powerful global businesses must step up. Those most likely to be affected by climate change are the poorest and most vulnerable. Governments must legislate to hold businesses accountable.
