Adapting to Climate Change with Intelligence

Shruthi Rao highlights three problems that inhibit a company’s ability to properly plan for future climate risk.

By Shruthi Rao, CEO & Co-Founder of Adapt Ready

I returned from COP 21 in Paris last month with great excitement. As a former sustainability consultant who had closely watched (and expressed frequent frustration with) the negotiation’s lack of progress for years, it was quite a cathartic moment when nearly every country in the world agreed to halt warming at or below 2 degrees Celsius.

As we move forward with energized global commitment to reduce greenhouse gas emissions, we still have much work to do. Success will depend upon countries living up to their pledges as well as continuously improving upon current efforts. Even with complete international fidelity to the agreement, we are still locked into continued warming for decades to come.

At Adapt Ready, we are risk averse. We want to be prepared for current as well as the highly uncertain rate of continued climate change – from drought emergencies in California and Brazil to production disruptions caused by flooding and other extreme weather events.

The New Climate Calculus

Successful 20th century organizations can no longer rely on historic data to plan for the future. Simplistically, organizations look at the probability of a climate event occurring and the value at risk (what the Economist Intelligence Unit terms “Climate VaR”) to make investment decisions. But the probability of an extreme weather event occurring is changing as rising global temperatures alter the frequency, timing and severity of climatic events. What was once a 100-year catastrophic storm may become a 1-in-12-year event.

Further, the trend lines of sea level rise and changing agricultural patterns must factor into all companies’ risk profiles for their operations and supply chains.

Corporate Catch Up

One significant take-away from COP21 – financial interests, insurance and governments were all talking about climate adaptation and managing physical climate risks, however, corporations were mostly absent in this conversation. It won’t be this way for much longer.

Responding to the physical impacts of climate change is no longer an “if” question but “how,” according toinvestment consulting company Cambridge Associates. Moody’s and Standard & Poor’s are intensifying climate risk research and already consider climate risks in their credit ratings. Climate risk is progressively becoming a concern for corporate financial officers who will report and disclose these risks to investors that expect companies to understand not only how their carbon emissions are impacting the planet, but how a changing planet will impact business operations.

The government must be informed about private sector climate risks when it is making infrastructure investments and planning in order to adequately protect ports, transportation and energy systems. The U.S. Securities and Exchange Commission is already asking companies to disclose physical climate risks.

Risk managers and compliance officers will need to meet international management standards, such as those being established specifically for climate adaptation by the International Organization for Standardization (ISO). Sustainability practitioners need this information for a variety of reporting purposes as well as community, stakeholder and customer engagement.

Clearly, managers across a company need to be aware of climate risks in order to collectively invest in more resilient operational assets and reduce vulnerability across the value chain. Different departments will need to better coordinate climate planning, hence a very good workflow management system will be needed to ensure easy coordination between teams spread out geographically and functionally. Sustainability departments are often not aware of the processes and/or software systems that operations or risk departments use to manage and plan for these risks and supply chain managers are often struggling to understand climate supply chain impacts.

Making Climate Science Work for Business

This isn’t to say that companies across industries do not want to know where, when and how their assets are increasingly at risk from climate change and extreme weather. They are using tools developed by NGOs and services provided by a select few consulting companies to address their climate vulnerabilities. However, research (and our own interviews) consistently reveal that companies lack “in-house” expertise to make sense of the available data, which continues to inhibit their ability to properly plan for future climate risk.

Three general problems with the current state are frequently cited. First, translating complex, heterogeneous climate data (from multiple sources) is extremely difficult to do internally without significant scientific and technological expertise. For example, most climate data are provided at long-term 30-50 year intervals – not particularly useful for business decision-making.

Third, when companies turn to existing technological solutions to manage physical risks – typically Business Continuity Management (BCM) software – external data, let alone predictive climate data, is not incorporated. Thus, additional internal research would be required to make these BCM systems useful for managing climate risks.

At Adapt Ready we are dedicated to making climate science work for companies. For more information on how we are addressing the above problems and helping companies better prepare for climate change and extreme weather, and our pilot program, please visit us at www.adaptready.com or follow us on Twitter at:@AdaptReady.

We wish you all a happy, safe & resilient 2016!

* This blog post originally appeared in the Corporate Eco Forum’s EcoInnovator blog

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