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CORPORATE RISK
Adaptation strategies
A BRIGHTER
OUTLOOK
Across many UK business sectors there is a growing interest in adapting to the
changing climate. Simple steps can be taken to prepare for climate risks – and for
some companies greater resilience is within easy reach. But, says Alex Harvey,
others may need to transform how they do business – and who they do it with, too
T
he climate is changing and this has management does not have to be difficult. risks are different for each company.
implications for your business. From For a drinks manufacturer, climate
SMEs to multinationals – climate Understand your risks impacts on their water supplies was a
change is increasingly recognised as a To make your business more resilient, you priority. Increasingly, scarce water
threat to profitability and resilience. need to understand the potential climate resources will affect the availability of
The weather affects business risks you may face. You need to know how water for cooling and production
performance in many different ways: good likely they are to occur. And you need to processes, causing more frequent
and bad. Many organisations already have understand what the impact would be if delays, reducing output capacity and
some degree of continuity planning to help they do. increasing costs. By assessing the
them respond to the consequences of Start with a high-level screening exercise. magnitude and likelihood of risks, a series
extreme weather, but this usually assumes This can raise awareness within the of adaptive actions was developed to
that past experience is a reliable indication organisation and help you identify which reduce the problems.
of potential future weather risks. With aspects of your business, your assets, your This company also needed to assess
growing evidence of how the climate has people, your suppliers and your markets which of its sites would face increased
already changed, and the larger changes could be vulnerable to a changing climate. flood risk in future, so that today’s
anticipated in future, this is a dangerous You will rapidly see where to follow up investment decisions would remain
game to play; we can no longer rely on the with a more detailed assessment. productive throughout their 80-year life. It
weather being just as it has always been. You will need to gather some evidence also considered the impact of climate
At the same time, there is a trend for about climate change to help you change on its products and packaging.
voluntary, and increasingly mandatory, understand and assess these risks. This High temperatures, storms and humidity
disclosure of climate risk. Companies might include, for example, getting a better could affect shipping to global markets.
responding to the Carbon Disclosure handle on potential climate changes in the This risk and its magnitude came as a
Project have answered questions about countries that are important to your supply surprise, but simple steps were identified to
climate risk. Local authorities report chain. An initial scoping of the key issues reduce the risk at minimal cost.
against an indicator of preparedness for will help you to decide whether and where In contrast, a global pharmaceutical
climate change. Now, government, to focus your risk assessment efforts. manufacturer’s major concerns were
investors and insurers are putting pressure Climate risks are difficult to quantify: storms and floods. The supply of electricity
on more businesses to understand and they are dynamic and they are long term. and water to their factories had already
address climate risks. This can make decision making challenging been disrupted by damage to power cables,
For example, under the UK Climate and can lead to under-valuation of risks. pipes, pumping and power stations.
Change Act, the Government can direct So, it is important to frame risks in a way These problems were projected to get
organisations with a responsibility for that makes sense to your organisation; use
national infrastructure to publish climate the language and systems that you already
risk assessments, and the US Securities and have in place for corporate risk
Exchange Commission has recently management. A risk communicated and
recommended that companies disclose accepted is one more likely to be acted on.
physical risks from climate change.
Business leaders are waking up to the What might these risks look like?
‘
Business leaders are waking
up to the challenges now
and taking steps to enhance
challenges now and taking steps to enhance AEA has worked with a number of
their resilience and build
their resilience and build competitive edge. organisations to identify and assess climate
The good news is that effective climate risk risks. This experience tells us that climate
10 April 2010 ❘ SB FutureProof
’
competitive edge
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