Most of us agree that climate change is an important issue “someone” should pay attention to, but it is now time to better understand the impact that climate change can have on the management of our companies.
Multiple experts and some governments have started to highlight the importance of “Climate Change Adaptation Strategies” due to the tremendous economic and social implications for companies and for society. These strategies should be used as a complement to the better known “Climate Change Prevention Strategies”. But why should a company have a climate change adaptation strategy? How can it affect its financial performance? Are there examples of companies that are already developing such strategies?
***What does adapting to climate change entail?
Climate change is the change in climate patterns that has been occurring in an accelerated way in the last decades and that translates, above all, into higher average temperatures and more frequent severe weather phenomena.
The scientific community has reached a wide consensus that these changes are mostly caused by human activities and, in particular, by our use of non-renewable energies and the polluting emissions related to them. Governments have tried to agree on different occasions on how to prevent these emissions. However, the results are still very limited and the initiatives tend to be isolated and insufficient. Therefore, it is not a surprise that there has been a growing emphasis on the importance of adapting to a climate change. Adaptation strategies to climate change consist of actions that minimize the negative impact of climate change without aggravating the factors that cause it.
***Why is it important for companies to adapt to climate change?
Changes in the climate can affect businesses in multiple sectors and in multiple ways. The following list may include climate changes consequences that may affect your industry directly:
- Water will become increasingly scarce (and expensive!). Water intensive activities (such as agriculture or producing soft drinks) will have to compete for this resource, which is also one of the population’s most basic needs for consumption and hygiene. Hence, these companies will have to reduce their use of water to a maximum. Water management companies and organizations will have to justify the efficiency of their own pipelines and guarantee public services when there is a need for them.
- Environmental disasters (floods, tornadoes, droughts, etc.) will continue to increase every year. Insurance companies will need to consider in greater detail the risks that their insurances cover for these issues and, perhaps, increase premiums. In this context, energy producing and distributing companies will need to make new estimates on energy planning for emergency situations.
- Warm areas, which have usually become tourist destinations, may have difficulties to maintain their attractiveness and to provide services to populations of seasonal consumption of water and natural resources. The tourism industry is constantly watching closely the implications of climate change in coastal areas (such as rising sea level in low areas and the increasing temperature or salinity of water) and the emergence of new tourist areas.
- Extreme temperatures are generating a clear need for specialized equipment for employees whose work must be done outdoors (such as construction, fishing or mining). Specialized equipment capable of adapting to extreme weather patterns is also gaining in importance indoor, even at the risk of making the problem worse in some cases. For example, the increase in air conditioning installation systems in geographical areas where they were not traditionally considered necessary seems now irreversible (such as in Northern Europe). Finally, energy producing and distributing companies will need to make new estimates on energy demand since they are also detecting an increase in energy consumption during the winters of traditionally warm areas, whose inhabitants are now experiencing days of extreme cold.
This video from the OECD explains some of the international initiatives that have been taken for adapting to climate change. We also discuss below some initiatives in the building industry.
***A more detailed example:
The University of Granada has completed an investigation on the adaptation of the construction industry to climate change. This study is one of the first in Europe on this subject. The financing for this project was granted by the Biodiversity Foundation, under the Ministry of Environment. Additionally, the project has benefited from the collaboration of the Association of Builders & Promoters of Spain and the National Confederation of the Construction Industry.
The project identified the most recommended methods to build homes in the face of climate change and its economic implications. The analysis highlights the importance of methods to maintain or improve the quality of life in homes, but without a greater energy expenditure that in the future could become unsustainable both economically and environmentally.
The researchers, together with a panel of 16 technical managers in the industry from different companies, have made calculations to measure the economic effects of using the recommended construction methods. Regarding the cost-benefit analysis of these adaptation methods, the necessary investment for the construction of a multi-family building with 4 floors and a “B” energy rating was studied as an example. The study concluded that improving the building to an “A” rating could lead to an increase of about 7% in ROA for the building company (considering a moderately optimistic scenario in terms of sales and prices.) As one of the principal investigators of this project, together with Professor Nuria Hurtado, “I must emphasize that these economic estimates are general and require personalization, although already very illustrative in themselves”. The results of the study and the free software applications developed are available on the “Sustainability” webpage of the Research Group on Innovation, Sustainability and Business Development (ISDE) of the University of Granada.
80% of experts recommend “passive measures” for this project that represent a lower cost per square meter than the average of “active measures”. Specifically, improving the insulation of the windows and roof of this building deserve special attention in order to improve the energy efficiency of homes according to 87% and 93% respectively of the panel of experts consulted. Moreover, the use of heat recovery equipment has been an active measure chosen by all the experts consulted, which suggests that its cost / efficiency ratio may be favorable. The study also emphasizes that certain measures not directly related to energy consumption, such as those related to a better design of the water supply network in homes, will also be essential in future sustainable homes.
Climate change is here, but few companies seem to have realized… Some will make profits “thanks” to climate change. Others may have to shut down. Either way, it is important that our adaptation to climate change is done in an orderly, responsible manner that ideally, still allows us to maintain our levels of wellbeing while reducing the pressure on the factors that cause climate change.
References (to know more about Climate Change :
United Nations (2018): UN Climate Change Annual Report 2017. Geneva, Switzerland. (retrieved from: https://unfccc.int/resource/annualreport/)
UNDP (2015): Empowering the Poor: Experience from UNDP supported Initiatives on Adaptation. United Nations Development Program (UNDP), Banghkok.
(*) Thanks to Cleo Guillou, who made the translation of this post from the original one in Spanish. Her enthusiasm, interest, and growing expertise on business and sustainability are remarkable. Any potential mistakes and the views in the text are only my responsibility as author.