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Not Even the Mona Lisa is Safe from Climate Risks

Not Even the Mona Lisa is Safe from Climate Risks 150 150 Davis Cherry

The Mona Lisa will reportedly “stay dry” as historic floods sweep Paris. But the fact that the world-famous Louvre museum has closed its doors to the public and scrambled to protect its vulnerable artwork, shows that no industry or part of society is immune from extreme weather and climate risks.

The Seine river in Paris has risen 16 feet as of June 2 and is expected to peak June 3. At least 10 people have died as thunderstorms and heavy rain swept across western Europe, hitting Germany and France the hardest. Thousands have been evacuated in both countries, streets in Paris have been closed and power shut down in many regions.

While likely not to exceed the Paris flood of 1910, when the Seine rose 26 feet,  much more infrastructure, business and settlements are situated in vulnerable areas. The economic costs will be hard to calculate, but will certainly be comparable to the billions in losses incurred by communities in Northern England last year.

Based on future rainfall projections, a recent study estimated that by 2050, annual average flood losses across Europe will amount to about $26MM a year; up from current averages of $5.5MM.

Evidence of climate risks across society and industry, from food and beverage and consumer goods companies to investors and insurers, is mounting every day. It’s time to prepare for change and adapt with intelligence.

  • Davis Cherry
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More Evidence That Companies See Climate Risks As Material

More Evidence That Companies See Climate Risks As Material 849 565 Davis Cherry

Most Congressional briefings or hearings in the last decade on climate have focused on corporate or government efforts to reduce carbon emissions. Last week, major companies not only called for action on curb greenhouse gas emissions, but detailed how they are already beginning to feel the effects of climate-related impacts.

Kellogg, one of the companies represented in Washington, DC during this recent Capitol Hill briefing with national lawmakers, recently suffered financial losses from droughts in Egypt. Its Chief Sustainability Officer, Diane Holdo, stated that:

Climate change can impact both food security and our business by posing risks to the long-term health and viability of the ingredients we use in our foods.

Ben & Jerry’s, Clif Bar, Kellogg Company, Mars Incorporated, PepsiCo, Stonyfield and Unilever all shared their experiences of how climate risks are disrupting their supply chains and global agriculture production.

The sustainability organization Ceres organized the event and a representative, Anne Kelly, speaking of the briefing, stated that:

The food companies got very specific about the crops they need that are now threatened, from vanilla to sugar to rice to corn. Extreme weather events are now threatening their availability. These companies are seeing on-the-ground changes in their supply chains that affect the predictability of their businesses.

Climate risks are not just academic or think tank issues we need to worry about in the future. They are having tangible economic impacts now, and companies need more information about not just risks to their current supply chains, but where they will need to source new materials and goods in the future.

Through software, key partnerships and a keen understanding of emerging business risks, Adapt Ready is working to provide the best intelligence for companies that want to stay ahead of these emerging risks, reduce losses and gain competitive advantage.

  • Davis Cherry
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International Financial Stability Board Strengthening Climate Risk Disclosure

International Financial Stability Board Strengthening Climate Risk Disclosure 400 300 Davis Cherry

Climate risk disclosure continues to gain steam throughout the international financial community. The Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD) will release a final report by the end of the year that will provide guidance and seek to standardize climate risk reporting for investors. The TCFD is considering the interests of large institutional investors, such as pension funds, as well as insurers and asset managers so that the climate information needs of all parts of the “credit and investment chain” are considered.

This is in response to the scattered corporate reporting of climate risks, from carbon reduction to adaptation measures. There is increasing demand for climate risk information, however, currently, most investors are unable to seriously consider such risks in their portfolios due to a lack of consistent and comparable information. This conundrum was highlighted in a 2015 report by Mercer.

Led by Michael Bloomberg, TCFD will look at “near-, medium- , and long-term” risks from corporate emissions as well as physical impacts of weather and climate extremes. Notably, the task force seeks to correct the status quo of a “limited number of reporting regimes focusing on the financial risks posed by climate-related impacts.”

The task force has opened a public consultation to help it form its recommendations. Consultation ends May 1, 2016.

The FSB coordinates national financial authorities and international standard-setting bodies to work toward developing regulatory, supervisory and other financial sector policies in order to strengthen financial systems and increase the stability of international financial markets.

Adapt Ready is very excited to see initiatives like this unfold. Simultaneously, our climate risk intelligence software will enable companies to identify and disclose risks in line with TCFD and other investor and stakeholder expectations.

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Adapting to Climate Change with Intelligence

Adapting to Climate Change with Intelligence 1200 800 adapt ready
  • Ruben Villarroel
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Don’t Let Mr. Buffet Take Your Hard-Earned Money

Don’t Let Mr. Buffet Take Your Hard-Earned Money 334 190 Ruben Villarroel

Feb. 27 2016, marked the release of the 2016 Berkshire Hathaway’s shareholder letter to investors, and the highlight of the 30-page report (taking aside the performance of their funds) seems to be that Warren Buffett dismisses the idea that climate change could be a big financial risk to Berkshire Hathaway’s insurance business.

And you might, rightly, ask: how does this topic come about now? The answer is that for a number of years now, there has been a growing concern amongst Berkshire Hathaway’s shareholders regarding the company’s stand on climate change risks. So much so that a proposal has been filed by the Nebraska Peace Foundation (which owns a single Berkshire share) asking the investment firm to file a formal report on the risks climate change poses to its business.

However Berkshire (one of the world’s largest property insurers and insurers against catastrophic risks) challenges those claims, stating that insurance policies are customarily written for one year and re-priced upwards to reflect growing risks, so climate change could actually increase Berkshire’s profitability.

Here at Adapt Ready we think differently.

Firstly, one must realize that extreme weather events are happening more frequently than even before (these include long-lasting drought in the state of California, flooding of “biblical” proportions in South California, etc.). Research shows that extreme heat-waves and heavy rain-storms that previously only occurred once every 1,000 days are happening four to five times more often now.

Secondly, every recent year marks a record high of the Earth’s surface temperature. NASA warns that most of the warming occurred in the past 35 years, with 15 of the 16 warmest years on record occurring since 2001.

Last year was the first time the global average temperatures were 1 degree Celsius or more above the 1880-1899 average. This tendency will only increase the likelihood of extreme weather events happening near you.

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Lastly, the enterprise community is becoming more and more aware of these risks and is taking steps to become more resilient, overcoming frequent short-termism of business decision-making and embedding sustainable practices by orienting themselves to much longer term goals.

The insurance industry must adapt and work closely with communities and enterprises in order to match the needs of those parties in reducing the effects of climate change.

The moral of the story: Don’t let Berkshire’s insurance conglomerate take a bite of your hard-earned bottom line, invest in proactive protection and save on insurance premiums.

  • Davis Cherry
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Investors Ramping Up Research and Interest in Corporate Climate Risks

Investors Ramping Up Research and Interest in Corporate Climate Risks 830 551 Davis Cherry

While 2015 was a record-breaking year for climate and extreme weather events, 2015 and the beginning of 2016 also showed a clear uptick in concern from the market about the material risks of climate change.

This February, Larry Fink, the CEO of Blackrock, stated that companies should increase consideration of long term risks, particularly climate risks, into their business planning. Blackrock is the world’s largest investor with $4.6 trillion in assets under management.

In January, The World Economic Forum, for the first time, listed “failure to mitigate and adapt to changing climate” as its top global risk in its annual Global Risk Report. As a reviewer of the adaptation section of the 2013 risk report, I’ve watched this risk gradually rise to the top of concerns of many business and governmental leaders.

Adapt Ready expects the stringency and enforcement of climate risk disclosure, reporting and process management requirements to be more fully realized in the next few years (e.g., ISO will release ISO standards related to adaptation in 2017). However, the foundations of how investors, in particular, are increasingly grappling with this issue were on display from a multitude of sources.

Responding to the physical impacts of changing climate is no longer an “if” question but “how,” according to investment consulting company Cambridge Associates. Moody’s and Standard & Poor’s are intensifying climate risk research and already consider climate risks in their credit ratings.

The Economist Intelligence Unit released The cost of inaction: recognising the value at risk last year. The report highlights the direct and indirect climate impacts that the asset management industry must address due to this “probably irreversible problem beset by substantial uncertainty.” They take a meta view of global financial losses, considering different discount rate and temperature scenarios into account. They note:

If investment managers are aware of the extent of climate risk to the long-term value of the portfolios they manage, then it could be argued that to ignore it is a breach of their fiduciary duty.

Although in a macroeconomic sense, The Economist (possibly coining) uses the phrase Climate Value at Risk or ClimateVaR — the size of the loss a portfolio may experience, within a given time horizon, at a particular probability. They estimate a global ClimateVaR to be in present values US$4.2 Trillion from the perspective of a private investor. This is just as applicable from a corporate perspective and a key concept Adapt Ready uses in its technology.

Mercer’s Investing in a Time of Climate Change lays out a risk factor framework “TRIP” (Technology, Resource availability, Impact of physical damages and Policy) that is affected by different climate scenarios (e.g. rapid decarbonization corresponding with limited warming of 2°C versus significant climate change of 4°C or more). It assess the degree to which different asset and equity classes are sensitive to climate scenarios — agriculture and utilities have the most potential risk.

Screen Shot 2016-01-30 at 8.40.50 AMMercer even looks into bond ratings risk for different countries, noting Japan and New Zealand as higher-risk outliers for sovereign bonds in the developed-market. A key recommendation is better investor understanding of portfolio risks by industry sector, including company-level data.

This last point is a harbinger of what will almost certainly be a fast-moving, and perhaps sudden, ESG investment requirement —  providing company-level information on the physical risks from climate change and extreme weather.

Adapt Ready is dedicated to becoming the leader in providing companies with this climate information, not just to provide to investors, but, so that customers can gain competitive advantage, reduce risk and innovate.

Keep up with our Adapt Now Blog to learn how we are providing a full-service technological solution to address this rapidly emerging risk.

  • Davis Cherry
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Recurring Record-Breaking

Recurring Record-Breaking 1603 511 Davis Cherry

As we like to say at Adapt Ready, “the past is no longer a predictor of the future.” That’s certainly becoming the case given the recurring record-breaking news coming from the world’s leading institutions.

On January 20, 2016, NASA and the National Oceanic and Atmospheric Administration both announced that 2015 was the warmest year “by widest margin on record.” Much of 2015’s strange weather, from a snowless December on the U.S. East Coast to more than a decade’s worth of rain in 24 hours in Chile’s Atacama Desert (while record temperatures were recorded on the Antarctic peninsula), can be attributed to the periodic El Niño. However, climate change drove record temperatures likely independent of El Niño.

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With 2016 predicted to be another record setter, will continued record-breaking galvanize further action to halt accelerating climate change or be perceived as a commonplace occurrence?

Regardless, climatic changes and extreme weather will continue to change in frequency and intensity over the coming years. And, what ultimately matters to communities, organizations and decision-makers are the smaller-scale impacts from these larger global macro trends.

Communicating how and when these increasingly hard to predict climate impacts will affect our customers is Adapt Ready’s core mission.

Watch this space.

  • Shruthi Rao
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Adapting to Climate Change with Intelligence

Adapting to Climate Change with Intelligence 227 207 Shruthi Rao

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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Switching to New Crop May Pose Climate Risks to Beverage Industry

Switching to New Crop May Pose Climate Risks to Beverage Industry 498 453 adapt ready

PepsiCo’s June 4, 2015 announcement that it will launch a new line of craft sodas, called Stubborn Soda, caught our attention. In response to growing customer demand for more natural refreshments, PepsiCo will sweeten its Stubborn Sodas with sugarcane instead of high-fructose corn syrup.

As PepsiCo and possibly other beverage companies transition to using sugarcane as an alternative to high fructose corn syrup and for bottling production, are they considering how climate variability could affect and potentially disrupt this supply chain input?

The importance of understanding the impacts of climate variability can often get lost during larger discussions of climate change, a continuous and long-term increase or decrease to average weather conditions and/or ranges of weather (e.g. more severe or frequent storms). Climate variability describes the way in which climate fluctuates yearly above or below a long-term average value. However, this variability, which is impacted by long-term climate change, will be a key driver of risks to company assets and supply chains in the 21st Century.

How will future climate variability affect Brazil’s sugarcane and PepsiCo’s supply chain?

PepsiCo sources a majority of its sugarcane supply from Brazil, followed by Thailand and India. Brazil is the global leader and largest producer of sugarcane, accounting for roughly 60% of global trade and 25% of the world’s supply. Sao Paulo’s region, in particular, boasts approximately two-thirds of Brazil’s sugarcane production with sugar plantations and mills in the northeast supplying the remaining third (Figure 1).

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Figure 1: Brazil’s Regions for Sugarcane Production – South Central (Sao Paulo) and Northeast Regions

Successful sugar cane yield, production, and quality are dependent on the right combination of climatic variables. Optimal growing conditions for sugarcane exist primarily in the tropics due to the abundance of direct sunlight, rainfall, and long, warm/temperature seasons, conditions representative of Brazil’s south central and northeast. Yet, as essential as the temperature and sunlight are to the development of sugarcane, adequate and well-distributed rainfall is pivotal for the quality and quantity of sugarcane yields. Furthermore, the sustainability of sugarcane is wholly dependent on how regional climatic variables such as precipitation will vary and/or alter with climate change over time.

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Figure 2: Projected Average Wet-Season Precipitation (Nov-May) in South Central Brazil 2010-2030*

IPCC’s fourth and fifth assessment reports (AR4 and AR5) both project that climate change and variability will disrupt the frequency and intensity of extreme events, heat waves, floods, and droughts. Exemplary of an increase in variability –  this February was the wettest month in south central Brazil since 1995 even though the region and the whole of Brazil is still experiencing its worst drought in 80 years. Below normal rainfall has been observed during the November-May wet season for the third consecutive year and directly coincides with the sugarcane planting season in the south central region – Sao Paulo and surrounding areas have experienced 13% and 3% declines (respectively) in sugarcane production for June 2015 when compared to June 2014. Figure 2 shows the high variability in the frequency and intensity of rainfall events averaged November-May precipitation projections for South Central Brazil into 2030. The figure also illustrates the decrease in precipitation from 2012 contributing to the current drought.

PepsiCo and other sugarcane-invested beverage companies will likely take note of UNICA’s recent report estimating a significant drop in sugarcane yields for the 2014/2015 harvests caused by a drought stretching from 2012 in the south central region of Brazil (near Sao-Paulo).

PepsiCo has a history of depending on sugarcane in their operations, not only for sweetening beverages, but also for creating their bottles. Diversification of PepsiCo’s sugarcane acquisition sites or even downscaled sugarcane production in Brazil may be an effective strategy going forward. Otherwise, reactive decision-making could lead to loss of resources, time and revenue

By proactively identifying and responding to climate change risks, companies can more readily adapt to potential climate shock losses and capitalize on climate variability opportunities.  Adapt Ready seeks to help global companies do just that by uncovering a variety of physical risks and opportunities, including those associated with climate change, for short, medium and long-term decisions.

* Projected precipitation data obtained from 15 separate Global Circulation Models within the International Research Institute for Climate and Society Data Library (http://iridl.ldeo.columbia.edu/index.html?Set-Language=en). Model data was run under the RCP 4.5 scenario accounting for GHG mitigation into 2100 and within the latitude/longitude constraints/grids of 19.5S-23S, 47W-53W in order to capture the region of south central Brazil.  Models include: ACCESS1-0, bcc-csm1-1m, CanESM2, CCSM4, CESM1-CAM5, CNRM-CM5, CSIRO-Mk3-6-0, GFDL-CM3, GISS-E2-R, HADCM3, IPSL-CM5A-LR, MIROC5, MPI-ESM-MR, MRI-CGCM3, and NorESM1-ME.

  • Davis Cherry
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Financial markets failing to incorporate climate impact risks

Financial markets failing to incorporate climate impact risks 1024 768 Davis Cherry

The World Economic Forum blog just posted an excellent piece covering the disconnect between the impending known climate risks to businesses and the lack of movement from major banks and credit agencies to incorporate these risks into their investment ratings. Author Megan Rowling, in her piece “Why financial markets ignore climate change at their peril” notes that a very small percentage of companies experience downgrades (60 out of 6,300 since 2005) due to material physical risks such as storms and droughts. However, she notes that,

Standard and Poor’s Ratings Services said the prospect of more frequent and severe climatic events would make the information companies disclose about their exposure to natural disasters more relevant to their credit rating in future.

Adapt Ready believes S&P’s prediction is an inexorable trend and that, even if not out of internal motivation, external financial ratings will drive a stronger and stronger demand for climate impact information.

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