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How to prosper in an uncertain world? Businesses wake up to climate risk

  • 25 Apr 2014, 16:45
  • Roz Pidcock

Even supermarket giants and the biggest multinational corporations may struggle to stay afloat as valuable natural resources dwindle. From food retailers to engineers, the private sector is becoming increasingly aware of how climate change could affect future profits.

A collection of papers in Nature Climate Change today looks what businesses are already doing to future-proof themselves against climate change - and what more needs to happen.

Climate impacts

Scientists expect greenhouse gas warming to bring changes to temperature and rainfall patterns and an increase in the frequency and intensity of extreme weather, a report from the Intergovernmental Panel on Climate Change (IPCC) concluded in September.

Overall, wet places look set to get wetter, while dry places get drier. Regions that already experience heavy rainfall face an increasing risk of flooding, the report said.

AR5_rainfall

The UK is set to see about a 10 per cent rise in annual average rainfall by 2100 (right) compared to the period 1985-2005 (left). Source: IPCC 5th Assessment Report  Sumary for Policymakers (p20).

Extreme weather, such as heat waves, droughts, floods, cyclones and wildfires, has knock-on effects for the environment and human society, a second IPCC report out last month warned.

The impact on increasingly volatile weather on access to food and water worldwide is a particular concern. The report's Summary for Policymakers said:

"[S]everal periods of rapid food and cereal price increases following climate extremes in key producing regions indicate a sensitivity of current markets to climate extremes among other factors".

Water stress

But while the IPCC identifies food security as a serious global problem, water availability is an even bigger one. Its recent report says :

"Freshwater-related risks of climate change increase significantly with increasing greenhouse gas concentrations … The fraction of global population experiencing water scarcity and the fraction affected by major river floods increase with the level of warming in the 21st century."

The World Economic Forum ranked water stress third in the top ten global environmental and economic risks in 2014.

A collection of papers published in Nature Climate Change today looks specifically at the problem of climate-related water stress - and what it means for the business community. In one article, ASDA employee Paul Kelly describes the complacency that has existed until now. He says:

"The established tendency to see water everywhere as an endless resource is being increasingly challenged in many parts of the world, including here in the UK. For too long, water has been taken for granted and UK businesses rarely debate the consequences of water mismanagement at the regional and national levels."

As water becomes limited, businesses will start to face operational problem or disruptions to supply chains, the articles explain. Even companies in water-abundant regions can be vulnerable because supply chains typically stretch across the globe, one paper says.

Supermarkets and food retailers will be particularly badly affected. Kelly describes a recent report highlighting the supermarket giant's vulnerability to climate change - and it makes for a sobering read:

"[O]ur recent study ... has shown that only five per cent of our fresh produce supply chain is not at risk from future impacts of climate change."

Emptyshelves 

Food retailers are particularly vulnerable to supply chain disruption as a result of climate change, risking empty supermarket shelves.

But it's not just businesses relying directly on agricultural produce that will be affected. The "ripple effect" reaches right across the economy, with retailers, engineers, manufacturers and investors whose business relies on predicting commodity prices all taking a hit.

Future-proofing

So how to cope with unpredictable and far-ranging new risks? An effective response means managing risk and making the best possible choices to ensure businesses' survival in the coming decades, says Nature Climate Change.

Some private sector companies are taking big steps toward improving sustainability. A commentary by Peter Simpson from Anglian Water describes the company's sustainable roadmap for balancing supply and demand out to 2020, called 'Love Every Drop'.

ASDA employee Paul Kelly describes how the supermarket is engaging with growers to achieve better quality crops sustainably and offering guidance on saving water. Kelly says:

"There are tangible business incentives to urgently respond to these risks and guarantee the long term ability of the food chain to meet market demand … When water becomes scarcer locally, it has knock on consequences on the retail industry."

The private sector is a natural problem-solver, a Nature Climate Change editorial says:

"Businesses are traditionally innovators and are mostly concerned with finding practical solutions. They are increasingly stepping forward as key players to identify new sustainable strategies for the benefit of their own operations as well as society".

Companies will continue to be profit-making entities but they are waking up to the fact that contributing to societal well-being secures a more prosperous future, the editorial adds.

Call for bolder action

But businesses need to be making much bigger changes, argues Arjen Hoekstra from the Dutch Twente Water Centre in another article.

Companies need to think not only about the direct impacts of water scarcity but also how stricter regulation might affect them, says Hoekstra. There's also the reputational risk to consider as the public and media become increasingly aware of companies who persist with unsustainable practices.

What needs to happen? Hoekstra suggests the business sector needs to start setting targets for reducing the water footprint of individual supply chains, establish benchmarks for the footprint of water intensive products and ensure greater transparency for consumers through product labelling or certification.  

But it is difficult to see quick progress if governments don't force companies to do it, Hoekstra adds. He says:

"Despite good efforts undertaken by several companies, it is unlikely that the business sector as a whole will sufficiently regulate itself. There is an urgent need for governmental regulation and international co-operation."

A 21st century approach

The solutions exist, it seems. The challenge is creating incentives to start moving at speed in the right direction. As Anglia Water's Peter Simpson puts it:

"Adapting to the variability of our weather can be done, but it will need a twenty-first century approach. It means that we need to innovate and collaborate to transform the way we deal with these problems."

How much will a water-secure future cost? One study Hoekstra cites calculates closing the water availability gap would cost less than 0.1 per cent of current global GDP by 2030.

As the latest IPCC report highlights, adaptation strategies can help alleviate the climate change impacts we're locked into because of past emissions. But such strategies aren't enough on their own, adaptation plans need to happen alongside efforts to bring down emissions - that's the bottom line for limiting climate change risks to any sector.

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