Adapting to Climate Change: A Business Approach
Prepared for the Pew Center on Global Climate Change
Frances G. Sussman and J. Randall Freed
This report outlines a sensible business approach to analyzing and adapting to the physical risks of climate change. It focuses on a critical first step in assessing these climate impacts: understanding the potential risks to business and the importance of taking action to mitigate those risks. Not all businesses need to take action now; this paper develops a qualitative screening process to assess whether a business is likely to be vulnerable to the physical risks associated with climate change, and whether a more detailed risk assessment is warranted.
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In 2007, the Intergovernmental Panel on Climate Change (IPCC) affirmed that warming of the climate system is unequivocal, with effects such as increasing land and ocean temperatures, rising global average sea level, and reduced snow and ice already being observed. These changes—which are linked directly to human activities producing greenhouse gases—are already causing changes in ecosystems, water supply and availability, and patterns of extreme events, with (in many but not all cases) consequent damages to human health, buildings, livelihoods, and infrastructure. The question is no longer, “Is there human-caused climate change?” but “What can be done to react and adapt to it?” Adaptation does not preclude steps to reduce greenhouse gas emissions, but recognizes that we are unavoidably committed to some amount of climate change, and that changes are already occurring.
The business community has for some time been aware of the risks and opportunities associated with greenhouse gas mitigation and current and future climate change policies. Many businesses have taken steps to reduce greenhouse gas emissions voluntarily. Many are taking into account some of the impacts of climate change—potential state and federal regulations, shareholder perceptions, and changes in consumer and supplier markets, for example—on the cost of doing business now and in the future. Fewer businesses, however, are incorporating the risks and opportunities associated with the physical effects of climate change in their business planning. As trends in climate become clearer and the uncertainty surrounding future changes is reduced, more businesses will want to consider whether to adapt to projected changes by taking action now. This, in turn, involves reacting to and managing risks as well as taking advantage of opportunities.
Climate change represents a new and somewhat daunting topic for many businesses. The challenge is compounded by the diverse and uncertain projections of changes in temperature, precipitation patterns, extreme events, and other effects. This paper outlines a sensible business approach to analyzing and adapting to the physical risks of climate change. It focuses on a critical first step in assessing these climate impacts: understanding the potential risks to business and the importance of taking action to mitigate those risks. Not all businesses need to take action now; this paper develops a qualitative screening process to assess whether a business is likely to be vulnerable to the physical risks associated with climate change, and whether a more detailed risk assessment is warranted.
Section I of this paper offers context on the broader risks and opportunities presented by climate change. Sections II and III summarize the case for business action to adapt to the physical effects of climate change, and the pathways by which climate can affect business. Section IV describes a screening process that businesses can use to assess whether they are likely to be vulnerable to the physical risks associated with climate change. If the screening indicates that climate change may pose a significant risk, a business can decide whether to undertake a more detailed financial risk assessment, and then, if indicated, take action. Section V presents case studies of three companies that have begun to look at climate risks. These case studies highlight the very different circumstances that motivated each company, and how the companies may be moving towards different conclusions about the appropriate response to the changing climate. Section VI concludes with a summary of key points.
About the Authors
Frances Sussman is a senior economist with ICF International and has been analyzing issues associated with the economics of climate change for nearly two decades. For several years following the adoption of the UNFCCC in 1992, Dr. Sussman led ICF’s climate change economics group, which conducted pioneering research on design options and practical considerations for greenhouse gas (GHG) emissions trading and credit programs, and developed the seminal GHG mitigation cost curves for the United States. Recently, her research has focused on the appropriate use and interpretation of economics and economic models in policy analysis. As part of this, she has been investigating approaches to setting priorities for adaptation and evaluating the business opportunities and risks associated with the physical effects of climate change. She is also the one of the lead authors of a Synthesis and Assessment Report of the Climate Change Science Program (CCSP), Analyses of the Effects of Global Change on Human Health and Welfare and Human Systems. In addition to her affiliation with ICF, she is an adjunct instructor at Southern Connecticut State University. Prior to joining ICF, she worked as an economist in the Office of Toxic Substances at the Environmental Protection Agency and at the Congressional Budget Office. She received her doctorate in Economics from the University of Maryland.
Randall Freed leads ICF International’s Climate and Energy Policy group, with staff in the US, Canada, UK, Brazil, Russia, and India. The group develops GHG inventories/ carbon footprints, programs and strategies for mitigating GHG emissions, risk assessments of climate change impacts, and risk management plans to promote sustainability and adapt to climate change. Mr. Freed’s expertise includes analyzing climate change impacts and adaptation related to water resources, ecosystems, land use, and infrastructure; GHG emissions and sinks associated with waste management and non-energy uses of fossil fuels; and policies and programs to mitigate emissions. He has over 30 years’ experience and is an internationally recognized expert in exposure and risk assessment, environmental program development and policy analysis, and water quality issues. Mr. Freed has an MS in Water Resource Management and a BS in Zoology, both from the University of Maryland.