Hot enough for you? Heat waves seem to be spreading across the United States and beyond like kudzu. It’s summer, of course. But is it climate change?
Maybe so, maybe not. For a growing number of companies, “Is the climate changing?” is not a relevant question. The reality is that extreme weather is on the rise — heat waves, cold snaps, floods, droughts, hurricanes, tornadoes, and all the rest. And whatever the cause and the reality, companies are viewing volatile weather as a risk, one that needs to be mitigated and managed.
Ours is a world in which a flood in Thailand can cut off global supplies of computer disk drives for the better part of a year; where a record-low Mississippi River can choke the flow of commerce; where an unprecedented hurricane (or “superstorm”) can upend one of the world’s financial centers for weeks.
In that context, a growing number of companies are viewing volatile weather — caused, as many of them believe, by climate change — as a key factor in business decisions, risk calculations, and investment analyses.
Consider: The 2011 Tohoku earthquake and Thailand floods both had serious implications for the supply chain for consumer electronics. In Thailand, The World Bank has estimated $45.7 billion in economic damages and losses due to flooding. Most of that loss was born by the manufacturing industry, as seven major industrial estates were inundated by as much 10 feet during the floods. Disruptions to manufacturing supply chains affected regional automobile production and caused a global shortage of hard disk drives, which lasted through most of 2012.
The global nature of business today increases the likelihood that volatile weather will disrupt companies’ ability to operate. Research by Zurich, one of the world’s largest insurance groups, shows that 64 percent of UK businesses have suffered a supply-chain disruption due to extreme weather conditions.
The World Economic Forum — the group of business and government hotshots that meets each February in Davos, Switzerland, to assess the state of business and the economy — named "rising greenhouse gas emissions" as the third most likely risk to the global economy in its Global Risks 2013 report — after economic inequity and government deficits and debt.
CEOs are feeling the heat. Earlier this year, Unilever chief executive Paul Polman claimed that the impacts of climate change such as drought or flooding were already costing the company €200 million (US$261.6 million) a year. That represents about 5 percent of Unilever’s profit in 2012.
There’s a steady stream of reports about the cost to business from extreme weather. The latest came last month from the United Nations. Its GEO-5 for Business study (PDF) UN cited as an example flooding in Australia in 2010 and 2011 that led to more than $350 million of claims for reinsuring giant Munich Re and $245 million for mining company Rio Tinto. True, attributing individual natural disasters to climate change is a risky business, but rising temperatures, whatever the cause, will likely lead to continued increases in extreme weather events.
Among the impacted of extreme weather cited by the UN:
- Building and construction companies may find opportunities limited in some areas due to water scarcity
- Chemical companies will face increasing government regulations and consumer pressure to minimize water usage and cut waste.
- The reliability of power grids may be put under pressure by increasing heat waves.
- Food and beverage companies face depleted fish stocks and shifting agricultural zones.
- The loss of plant and animal species will limit discoveries of compounds used in health care.
- Energy-intensive data centers for information and communication companies are vulnerable to rising power prices.
- Tourism may decline in some areas due to environmental degradation.
- Transportation companies face supply chains disrupted by extreme weather, and regulations to reduce their emissions.
