Business Adaptation to Climate Change

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Business Adaptation to Climate Change

• A systematic review of the body of research

Prepared by David Nitkin Ryan Foster Jacqueline
Medalye
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Table of Contents
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STUDY BACKGROUND
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Study Background Guiding questions

• Are businesses incorporating climate change into
  their business models and strategies? If so, how?
  And are do differences exist across business
  units, in terms of risks, opportunities,
  processes, and outcomes?
•  Are certain sectors ahead of others? If yes,
  what drivers account for these differences, and
  what lessons can leading industries offer the
  laggards?
•  What tools and processes do businesses use to
  evaluate the opportunities to be gained from
  adapting to climate change? Are there any
  examples of businesses creating a competitive
  advantage by building adaptive capacity?

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Study Background Methods

• Systematic review (i.e., comprehensive,
  transparent search) of academic, practical, and
  teaching related sites (e.g. ABI Inform, Google,
  ECCH case studies)
• The universe of 2,455 eligible studies were
  culled to 201, based on relevance and uniqueness
• The 201 studies were rated and categorized by 2
  PhD students
• Questions
• What do we know?
• What dont we know?
• What are the stakes?
• How to be a leader?

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Study Background Definition of Adaptation

• Adjustments in natural or human systems in
  response to actual or expected climate stimuli
• and their effects or impacts
• which moderates harm or exploits opportunities
• -IPCC Third Assessment Report

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Study Background Adaptation vs. Mitigation

• MITIGATION
• Cut GHG emissions
• Long term
• Global
• Causes focus
• Regulation
• Compliance themes
• Public good

• ADAPTATION
• Change practices
• Short term
• Regional/ local
• Consequences focus
• Voluntary
• Leadership language
• Business, individual

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Study Background Adaptation vs. Mitigation

• ADAPTATION
• Direct benefits to actor
• Selected systems
• Benefits seen more immediately
• Effectiveness less certain
• Mostly ancillary benefits
• Monitoring more difficult

• MITIGATION
• Indirect benefits to actor
• All systems
• Benefits not seen for decades
• Effectiveness more certain
• Sometimes ancillary benefits
• Monitoring relatively easy

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State and Shape of Literature
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Literature Status

• Search key words 2,400 candidates
• Sensitivity, vulnerability, resilience,
  adaptative capacity, risk, opportunity
• Identified and reviewed 201 studies
• New language (climate proofing, climate
  resiliency, processes of co-adaptation)

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Literature Types

• Academic
• Journal articles
• Government, International Organizations
• Educational organizations
• Climate change leadership councils (Pew, Tyndall)
• Practitioner Literature
• Insurance, reinsurance, finance company reports
• Carbon Disclosure Project Industry Referrals

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Literature Number of studies by source type
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Literature Findings by Sector (sectors with more
than 5 studies)
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Literature Findings by Sector (sectors with
fewer than 5 studies)
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Literature Content Analysis
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Literature Focus on Academic Literature

• Sector level
• Approach adaptative cognition and action
• Closely linked to IPCC assessments
• Avoid definitions in abstract in favour of
  operationalizing the concept through
• Theoretical construct
• Empirical studies

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Literature Limitations of the Literature

• English language only (there are other language
  sources, notably German)
• Available on web
• Reports, case studies and articles that are web
  accessible
• Articles or web sites, not books or book chapters

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Key Findings
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Findings Literature

• We are in early stage of early adapter
  literature citations in last ten years
• Not many sectors have heavy coverage (more than
  10 case studies) in literature
• Not many companies have a well told story in
  literature on adaptation
• Some adaptation literature is really adaptation
  to mitigation challenges

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Findings Management

• Important to add climate change risk and
  vulnerability analysis to decision-making
• Place to start is to define risk because climate
  change has many indirect
• Rationale based on traditional economics save
  money, reduce risk, increase energy efficiency,
  minimize waste

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Findings Action

• One size or answer doesnt fit all
• Whats right for one company may not readily
  work for another (management, geography,
  business strategy)
• Not all businesses need to take action now, but
  most need to ensure decision-making includes a
  good vulnerability analysis (property damage,
  business disruption)

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Findings Value of Literature

• Possibilities of collaboration
• Organizational adaptation is individual and
  direct response
• Mitigation not enough curb GHGs too late to
  prevent significant warming
• Some businesses, managers confuse weather (daily)
  and climate (long term)

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Findings Climate Change

• Requires diligence in looking not only at extreme
  events (flooding, hurricanes, drought) but also
  at
• greater intensity of extremism
• Significant uncertainties
• May lead to technical change for some sectors and
  not others
• When it does, it can either enhance or badly hurt
  (destroy) a company

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Risks, Opportunities Barriers
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Risks Opportunities Landscape

• Risks are tangible and real
• Canada highest country risk
• Africa highest vulnerability
• Mitigation may not be enough
• Opportunities are dramatic
• Prosper not just survive
• Positive cost-benefits

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Risks Opportunities Types of Climate Change
Risk
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Risks Opportunities Scientific Status Climate
Change

• Scientific community has accepted that (a)
  climate change is happening (b) that it is
  largely man-made and (c) it will have
  significant effects (IPCC 2007, Stern 2006,
  Source 178)
• Increase risk drought, desertification, melting
  ice, flooding, intense hurricane activity

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Risks Opportunities Opportunities

• The business sourced literature puts an especial
  emphasis on business opportunities
• Mitigation and adaptation are co-dependent but
  different contexts of climate change
• Actions involve shorter term adaptation
  (decreasing unavoidable damages) together with
  longer term mitigation can reduce risk

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Risks Opportunities Forms of Adaptation

• Bearing the cost
• Preventing losses
• Sharing or spreading losses through insurance
• Changing the activity (for example, making ski
  resorts four season facilities)
• Changing the location of activities
• Enhancing the adaptive capacity of ecosystems to
  be more resilient.
• Source Natural Resources Canada

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Risks Opportunities Types of Adaptation

• Intent timing relative to climate change
  (proactive, reactive)
• Temporal (short-term, long-term)
• Spatial (local, regional)

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Risks Opportunities Barriers to Adaptation

• Lack vision
• Lack regulation
• Lack leadership
• Lack long term sector specific climate change
  data
• Poor pricing certain resources (water)

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Risks Opportunities Findings on Vulnerability
(1)

• Degree to which system is susceptible to and
  unable to cope with adverse effects of climate
  change
• Three factors affect vulnerability
• Nature of climate change to which exposed
• Climate sensitivity of system
• Capacity of system to adapt (IPPCC, p 21)

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Risks Opportunities Findings on Vulnerability
(2)

• Businesses likely affected by
• Climate change itself
• Exposures regulatory, physical, competitive and
  reputational
• While climate change may well be a slow-moving
  force, relative to terrorism or hurricane, asset
  prices will on occasion move sharply when
• new evidence reaches the market
• policies are changed.
• Source Lehman Brothers

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Risks Opportunities Time Scales and Forecast

• Short 3-12 months, typical biz, long range
  hurricane info on coming season, year
• Medium 5-10 yrs, longest biz can consider
• Long 10-100 yrs pension fund, nuclear
  generation or waste limited climate data
• Source Med Office Consult

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Leaders and Laggards
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Leaders and Laggards High Resources Dependence
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Leaders and Laggards Long Planning Horizons
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Leaders and Laggards Already Affected by Climate
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What You Can Do
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What You Can Do Strategies (1)

• Rethink business strategy look into pure
  adaptation
• Prepare for the worst contingency planning
• Cut green exposure/taxes really mitigation
• Determine if there is any/no risk
• Develop climate resilience strategy with
  co-dependent mitigation, adaptation actions

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What you can do Strategies (2)
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What you can do Adaptation Pyramid
Risk opportunity Adapt initiative
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What you can do Lessons from Insurance

• Pricing and capital markets are deficient and
  lacking
• Extreme windstorm events will increase in
  particular with major impact on businesses and
  insurers
• Climate change will have great impact on asset
  values more important to price risk accordingly
• Not addressing these issues will bring lawsuits
  from shareholders, investors and clients

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What You Can Do Why Mitigation is Not Enough

• UNEP critical to adopt vigorous adaptation
  measures even as we strive to cut emissions
  because even with aggressive mitigation
• cant avoid further warming
• benefits of mitigation not seen before 2040
• oceans at least 0.6 degrees warmer due to
  inertia, whatever we do
• Key is to realize triple dividend
• Need integrate and/or synergize sustainable
  development, risk management and adaptation.
• This will integrate adaptation policies with
  sustainable development policies and disaster
  management.

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What you can do The wait-and-see option

• Wait See Approach Predominates
• North American Task Force FI, UNDP study of costs
  of waiting by time periods
• Wait and see is folly as issue is inescapable
  carbon footprint responsibilities its the
  market curve, not the regulatory curve its a
  business imperative, not an environmental one

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What you can do Proactive and Reactive Matrix
Lead
Wait for govt regulations
Adapt
React
Act
Do risk analysis
Monitor
Follow
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What you can do Collaborations (1)

• Industry collaborations
• Insurance
• Academic/industry centres
• Pew Centre
• Tyndall Centre
• Intergovernmental Panel on Climate Change

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What you can do Collaborations (2)

• Institutional networks or shared action-study
  mechanisms
• Carbon Disclosure Project
• Equator Principles
• UNEP Financial Initiative
• CERES
• Investor Network on Climate Risk (INCR)
• Institutional Investors Group on Climate Change

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Future Work
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Gaps in Knowledge Literature

• Lack of consensus surrounding meaning of business
  adaptation
• early literature Not often literature address
  risks, opportunities and adaptation at firm level
• Rarely reveal insights not only of actions
• taken and why but also what action alternatives
  not taken, or why

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Gaps in Knowledge Decision Making

• Uncertainty re statistically significant
  variations
• climate change risk by region
• Perceptions of climate change risk
• Actual risk exposure for each sector by country
• Lack empirical data carbon emissions/risk measure
  for each plant, office
• Lack transparency firm level opportunities
  analysis

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Gaps in Knowledge Meteorology

• Near absence projections beyond 2012
• Weather and climate info needed across a range of
  time scales
• Need know impacts climate change on water,
  weather, food, health and ecosystems at
  temperature increases 1 to 5 degrees

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Gaps in Knowledge Future Research Agenda

• Research collaboration
• Industry associations
• Multi-stakeholder networks
• Academic-practitioner collaborations
• Assess efficacy various decision-making models
• Climate change scenarios
• Disaggregate, sectoral

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Sector Strategies
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Sector Strategies Agriculture (1)
Challenge drought in Africa
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Sector Strategies Agriculture (2)
Challenge increased incidence weather
extremes
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Sector Strategies Automotive Sector
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Sector Strategies Building and Construction (1)
Challenge high tides and storm surges
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Sector Strategies Building and Construction (2)
Challenge droughts, less water
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Sector Strategies Chemicals
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Sector Strategies Electric Utilities
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Sector Strategies Energy (1)
Challenge lower water levels, less water
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Sector Strategies Energy (2)
Challenge extreme events, melting permafrost
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Sector Strategies Finance
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Sector Strategies Fisheries
Challenge more severe floods, droughts, storms,
spread of disease
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Sector Strategies Food and Tobacco
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Sector Strategies Forestry
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Sector Strategies Health
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Sector Strategies Industrial Products

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Sector Strategies Insurance (1)
Challenge increased incidence of catastrophic
losses
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Sector Strategies Insurance (2)
Challenge increased natural catastrophe exposure

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Sector Strategies Mining and Metals
Challenge more extreme weather events
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Sector Strategies Oil and Gas
Challenge extreme weather events
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Sector Strategies Pharmaceuticals
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Sector Strategies Real Estate
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Sector Strategies Retail

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Sector Strategies Tourism Recreation

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Sector Strategies Transport (1)
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Sector Strategies Transport (2)
Challenge change in permafrost, sea and lake
ice, and snow cover
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Sector Strategies Water Utilities
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More resources on climate change from nbs.net

• Reports from this study
• Other resources on climate change