A new report from the Intergovernmental Panel on Climate Change (IPCC) Working Group warns that no one on the planet will be untouched by the damaging effects of global warming in coming decades.
While public policy and government intervention can help raise the importance of and address the climate change issue, it is actual corporations that can make the most impact through their own individual greenhouse gas reduction and sustainability efforts. This could also ensure their own business success and continuity.
On Earth Day, with those priorities top of mind, we focus on climate change adaptation in a series of special posts that explore the steps that businesses should be taking now to weather the coming storm and build greater resilience into their operations, supply chains, preparedness policies and risk management plans.
“Agriculture is highly sensitive to climate variability and weather extremes,” writes Sophie Abraham, Policy Analyst for the Capital, Science & Policy Practice at Willis. To forestall price spikes and widespread hunger, agriculture will need to employ “new technology, to better farming practices and increased investment in developing countries.”
The combined trends of globalisation and increasing incidents of extreme weather are likely to mean more disruption for multinational businesses in the future; therefore adaptation is crucial, says Torolf Hamm, Executive Director in Willis’ catastrophe risk management practice. The first step for companies, he says, is often to identify the parts of their supply chain that are most exposed to natural hazards and what risk mitigation measures are in place. Going through this process helps them become far more resilient.
Opportunities also arise from a changing climate, but companies need to understand the changes at hand and develop strategies to leverage their resources to best effect. Timing is everything, says Geoffrey Saville, Willis Research Network’s Atmospheric Hub Leader.
Companies should consider the demands that climate change places on a building over its entire lifespan. Insurance companies increasingly want to know about built-in mitigation measures, such as the energy efficiency of a building. And according to Jonathan Gratton, Global Construction Practice Group leader for Europe, certain insurers are even looking at products that provide financial compensation based on the prospective savings afforded by the adoption of energy efficiency improvements if those targeted savings are not realised.
As the threat posed by natural disasters becomes increasingly acute companies are coming to terms with the fact that they may need to pay a price for carbon, says Anthony Wagar, Executive Vice President for Willis’ Environmental practice. In addition, he warns that adverse weather events can lead to unexpected clean-up costs for companies, for example drums and storage tanks containing hazardous waste or chemicals could be washed away by floodwaters, distributing contaminants downstream.
Ann Longmore, Vice President of Willis’ Executive Risks practice, warns that climate change related claims could be brought against board members and executives if, for example, they were found to have not promptly disclosed or properly accounted for climate change exposures.
Climate change also raises some important human resources concerns, says Jay Kirschbaum, practice leader of Willis’ Human Capital Practice’s National Legal and Research Group. Disruption caused by extreme weather can affect people’s ability to get to work either because of disruption to infrastructure or because people are dealing with their own family matters. There are many factors that employers should consider as they prepare for the next disaster.
Meanwhile, governments are no longer the sole source of political risk in emerging markets, says Andrew van den Born, Executive Director in Willis’ political risks practice. Issues such as poverty, human rights, labour disputes and growing income disparity are often and increasingly more likely to be the touch paper that ignites political disturbances. Factors arising from climate change—such as a hike in food prices owing to poor harvests caused by drought—are another key factor driving social unrest and instability. Food price rises aren’t the only thing that could trigger volatility. High energy prices—driven by increased competition for resources and shifts in global weather patterns—could also produce rising tensions.
The climate change challenge is enormous but the convergence of the insurance and capital markets is surely a small part of the solution, says Stewart McLaughlin, Account Director in Willis’ Global Captive Management Practice. The birth of the insurance linked securities (ILS) market in the early 1980s and its subsequent growth has enabled insurers to access the alternative capital markets, which now account for approximately 15% of global catastrophe reinsurance capacity. This is set to grow considerably in the future as the global (re)insurance sector’s exposure to natural hazards increases.
“Insurers have learned the hard way that being slow to incorporate new drivers of higher claims is not a good long-term strategy for their financial well being,” writes Dave Ingram, Executive Vice President of Willis Re. He recounts the ways in which the industry is already responding to the threat of climate change, making it a bellweather for the economic impact of climate change.