Weathering the Storm: How businesses are navigating a changing climate

Weathering the Storm: Building Business Resilience to Climate Change

Economic damages from weather-related disasters climbed to near-record levels in 2012, with over 800 major events worldwide causing an estimated $130 billion in losses. Munich Re reported that it was the third-costliest year on record behind 2011 and 2005. Many …

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More than 800 major weather-related disasters last year led to over $130 billion in losses worldwide. Eleven of those events each resulted in economic losses of $1 billion or more.

A new C2ES report, “Weathering the Storm: Building Business Resilience to Climate Change,” examines how major global companies are beginning to assess and address the growing business risks associated with increased extreme weather and other impacts of climate change. Here’s what we found:

Leading companies are taking proactive steps to better anticipate extreme weather and climate changes, and to more quickly recover after their effects — where they see opportunities to become more efficient, reduce costs, or provide greater value to customers. Generally speaking, these companies follow a four-step process.

Step One is to build a common understanding across the company of the risks associated with extreme weather and climate change — based not on the past but on what could change in the future.

For example, mining giant Rio Tinto has brought in external experts to brief senior executives on climate science and the business implications. The company is now starting to consider climate and energy risks in water management and the engineering of new projects.

Step Two is risk assessment — determining how changes in the likelihood or magnitude of extreme weather events could affect a company’s supplies, operations, facilities, employees, customers, and costs.

After major floods in the United Kingdom in 2010, the energy utility National Grid conducted a detailed flood risk assessment of more than 130 electricity substations, determining that 13 sites needed to be rebuilt or elevated. After a similar assessment in Rhode Island, National Grid plans to rebuild or elevate parts of its substations in flood-prone areas, investing nearly $23 million over the next five years.

Step Three is to outline risk management strategies that are themselves adaptive and flexible over time, and pursue potential opportunities. Some of these steps may never have been considered before. After its experience with Hurricane Sandy, American Water learned that it needs to build even more redundancies into its fuel supply and, for the first time, also into its telecommunications systems.

As for opportunities, Bayer Material Science is researching, for example, crop productivity and resilience, high-performance insulation, and improved mosquito nets — products that could face greater demand under warmer conditions and more extreme weather.

Finally, Step Four is to incorporate climate risks into ongoing risk management activities and update them as new information becomes available. Weyerhaeuser, which manages more than 20 million acres of timberland around the world, is working to improve its resilience by regularly adjusting its planting and harvest activities to account for actual and potential losses from extreme weather.

In many ways, building resilience is doing what companies and communities have always done — strategic planning, risk assessment, investing in infrastructure, diversifying the supply chain, and safeguarding employees — using the best information available.

While uncertainties exist about precisely how climate change will manifest over the coming years and decades, leading companies are recognizing that, given the already substantial risks associated with the full range of projected climate change impacts, the costs of delaying action may be greater than the costs of acting now to become more resilient.