Climate Change Risk & Resilience

The climate is changing faster and faster. Not a week goes by without even more extreme weather somewhere on earth. Experts have been warning about this for many decades: more frequent, more severe weather. Drier, wetter, more intense storms, heat waves, and so on. Sea level rise was always considered a concern for the future, but it’s already an issue for a growing number of areas today. Climate change already impacts each and every organisation today, although most are unaware of where and how it could affect their business beyond the major disasters.

The main cause of climate change is the burning of fossil fuels for energy use. Agriculture, steel, cement production, and deforestation are additional sources leading to CO2 and methane emissions. Climate is how the atmosphere behaves over longer timeframes, and the weather is the conditions over a short period. From a specific weather event it cannot be said it is the result of climate change, but climate change does lead to average long-term changes in daily weather patterns.

The term “climate change” is used for many different underlying topics. Most Google hits are about climate mitigation. How do we decrease the impact we all have on our planet? Reducing our emissions through using less fossil fuel, carbon capturing technologies, net zero initiatives, and the energy transition of our societies and economies.

But even if we were able to completely stop our emissions today, the climate will continue to change for the next century because of our emissions since the start of the industrial revolution. It’s vital to start adapting and moving on from traditional risk management towards strategic resilience as a boardroom leadership agenda. A couple of arguments:

First, climate change has a much wider impact than the disasters it is mostly associated with. The attitude of businesses towards extreme events has predominantly been that preparing for disasters was never a priority. They don’t happen often, are difficult to predict, and costly to prepare for. But for many decades, society and businesses have been striving for more optimisation and efficiencies: produce cheaper, just-in-time supply chains, less costly stock. That means that today’s processes have become more vulnerable to smaller and smaller events. A ship blocking the Suez channel disrupts supply chains on a global scale for many months. A broken car can lead to a major traffic congestion leading to substantial economic costs. More frequent, more severe weather is quickly becoming the cause of many types of disruptions impacting your daily operations.

Second, climate change leads to cascading or knock-on effects, largely unknown to most decision-makers in business. Dry soil is less capable of absorbing rain, increasing the chance of flooding. Less snowfall in the mountains leads to lower water levels of the connected rivers. Humid weather has a profound effect on fungi growth. Increasing seawater temperatures impact coral growth.

Third, the combination with human activity can often lead to strengthened consequences. Large-scale subtraction of groundwater for drinking water production leads to subsidence, putting an area more at risk from flooding or even drier areas making them more at risk for forest fires. Concrete cities heat up under the sun, making them even hotter areas during heatwaves and less able to absorb intense rainfall and preserve the water for dry periods.

How these knock-on effects and the combination with human activity impact business processes is not yet well understood. The German economy took a 5 Billion euro hit last summer as the result of low water in the river Rhine. Resource shortages for production processes, up to switching from coal to gas, lead to price increases on the energy trading markets. Cruise tours had to switch to buses.

Airplanes have maximum operating temperatures - when air gets too warm, the air becomes thinner, impacting the lift the wings generate. More often, airports must stop operations. When humidity is high, combustion engines burn fuel less efficiently, providing less power. The combination can lead to several degrees lower safe operating temperatures impacting the cargo capacity of airplanes.

Energy production is often impacted by the availability of water. Either for hydropower generation or as cooling water for other types of power plants along the rivers. Energy use is high during warm weather as people turn on air-conditioning. The availability of energy is something businesses should start considering in their risk assessments.

We are just starting to build up our understanding and insights into this complex system of interrelated effects. As a business, you are likely exposed to supply chain vulnerabilities, risk management changes, business continuity, employee safety, changing market conditions for your products, legislation changes, and investors demanding insight in your climate risk. Without understanding how climate change impacts your business, you run the risk already today of being confronted with events that can hurt your business substantially.

Finally, traditionally risk management considers a limited number of natural hazards, often limited to high-value facilities, products, and processes, and infrequently. Today’s technologies enable you to run these assessments on hundreds, even thousands of locations continuously, including suppliers and customers, and on many natural hazards.

Historic risk profiles, based on how often natural hazards of a specific intensity occurred in the past, are less and less dependable to extrapolate into the future. When conditions are uncertain, complex, and subject to ever quicker changes, the only option available is continuous monitoring and an organisation that is able to sense & respond quicker. For that, you need to be aware of how your organisation is vulnerable in all its aspects, understand where you are exposed now and in the future, and take adaptive measures, so you become more resilient. This is not the responsibility of a single person or department but requires the collaboration and a managed business transformation process of many until weather and climate change become business as usual in all your daily operations.