Beyond Sea Level Rise

Building Business Resilience to Secondary Impacts of Climate Change

The business risks from the direct effects of climate change, such as rising sea levels, wildfires, and drought, are relatively well understood. However, the secondary impacts of climate change pose risks to businesses that may consider themselves insulated from climate impacts. RANE expert Christine Harada, President of i(x) investments and former US Chief Sustainability Officer, argues that building a climate-resilient company requires business leaders to re-think their assumptions about climate risk.

  • Businesses need to think beyond rising sea levels and stronger hurricanes, and carefully consider exposure to secondary effects of climate change, such as disruption to hydro-electric power supplies caused by drought or mounting pressure from activists and customers to adopt sustainable business practices, in order to avoid being blindsided in the future, Harada says.
  • Climate risk varies widely between sectors and geographies, so businesses need to consider their specific circumstances to ensure that climate resilience is incorporated at all levels of their operations.

Harada notes that while many companies are still in the early stages of adopting a more holistic approach to assessing climate change risk, there are resources available to build these capabilities.
  • The Materiality Map from the Sustainable Accounting Standards Board identifies sustainability issues that are likely to impact the financial position and operating performance of businesses in various industries.
  • Boston Consulting Group’s Total Societal Impact framework creates an approach for businesses to build sustainability into their strategic planning.

Harada believes businesses can benefit from viewing climate change as both a risk and a potential opportunity. The National Oceanic and Atmospheric Administration finds that the average annual number of billion-dollar climate disasters is rising, and the Bank of England estimates that losses caused by climate change could reach US$ 20 trillion, meaning that businesses face major risks by not increasing their resilience. However, new technologies and shifting consumer preferences also create opportunities for businesses to strengthen their resilience, while also increasing profits.

  • Harada encourages businesses to consider the “circular economy,” and look for opportunities to “make money out of others’ real or proverbial trash.” Finding these opportunities will require a change in mindset and a reexamination of core business processes and systems. She points to recent initiatives in the oil and gas industry to use carbon capture technology at existing facilities, and then sell the sequestered carbon to concrete manufacturers, as an example of how businesses can apply climate-resilient thinking to existing processes to increase both sustainability and profit.
  • Rising consumer demand for environmentally-sustainable investment initiatives presents an opportunity for financial institutions to distinguish themselves from their competitors by offering climate-resilient investment portfolios, but also poses a reputational risk to those viewed as slow to build a climate-resilient investment strategy.
  • Ultimately, Harada argues that while mitigating risks from climate change may require an initial investment and a shift in mindset, building a more sustainable and resilient business doesn’t necessarily require sacrificing returns.

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