The Auto Industry's Real Climate Risk

An article caught my attention last week from the Auto Industry Action Group, entitled “How Climate Action May Impact the Auto Industry.”   Initially, I thought it might tell the story of an industry that has seen significant disaster-related setbacks taking charge to prevent future problems. Actually, it proved to be a polemic about how to protect the industry from climate-related regulations.

Like the finance industry, which gained important business-continuity planning lessons from 9/11 and more recent disasters for example, Goldman Sachs’ stellar disaster-recovery preparations that enabled it to keep its lights and power on in lower Manhattan after Hurricane Sandy). I presumed that automakers were also familiar with risk mitigation, drawing lessons from disruptions to their supply chain after Japan’s devastating 2011 earthquake, tsunami and nuclear disaster.

I bet there are a few leaders in the auto industry who are assessing the realities of the climate-change issue  and are mulling risk evaluations that, for instance, include a look at the relative vulnerability by country of origin of their major suppliers – China Japan, Korea and Mexico.  As of 2011, Japan and Korea possessed a similar level of readiness, and Mexico and Japan’s vulnerability matched, but China was the least prepared and most vulnerable of all of them. (Check out the vulnerability/readiness matrix here to compare countries.)

Others closer to home may be thinking about these risks. The environmental choir, namely The American Sustainable Business Council, published an interesting article about small business risks from climate adaptation.

I can only assume that many car dealerships, which stand at the tail end of the industry’s value chain, consider themselves small businesses. Without climate-adaptation leadership, they could find themselves in trouble.  Among several compelling statistics noted in the article, an estimated 25 percent of small- to-mid-sized businesses don’t reopen after a major disaster, and 57 percent of small businesses have no disaster-recovery plans.

These small businesses represent our American jobs and the backbones of our communities. As climate-related risks grow at home and abroad, we should make it a priority to find the right tools to help all business owners manage for a dramatically changed future.

A Full-Time Focus (and Idea Exchange) on Corporate Climate Adaptation

A Full-Time Focus (and Idea Exchange) on Corporate Climate Adaptation After five years of focusing peripherally on climate change adaptation, I have thrown myself full time into that passion and pursuit. I’ve joined the Global Adaptation Institute, now known as the Notre Dame Global Adaptation Index (more on that shift in a future post).  I’m on a listening tour, of sorts, during my first few months. And I hope we can make the most of the “exchange” part of this blog’s title.  Please send your feedback as I share my beginner’s-mind thinking on our work.

For those of you new to ND-GAIN (see past blogs about it here and here), the following may bring to life the value of this index tool for assisting you in your decision making:

1. ND-GAIN is the world’s only index that measures the vulnerability of each nation to climate change and its readiness to adapt, making it an important tool for preparing for disasters, developing infrastructure, and managing ecosystems around the world.
2. ND-GAIN provides the private sector with the means to gauge adaptation-related opportunities in developing countries. With this ability, the private sector can address the critical needs of vulnerable populations while identifying new markets well-suited to their business model, products or services and investment-risk profiles.
3. ND-GAIN helps policymakers identify the easiest-to-achieve avenues – the low-hanging fruit – for rapidly improving a country’s investment attractiveness to the private sector as well as to motivate and create incentives to employ  the best public policies.
4. ND-GAIN helps international organizations rank their resources based on need and effectiveness

Our mission is to enhance the world’s understanding of the importance of adaptation and facilitate private and public investments in communities most susceptible to climate change.

We envision building resilience to climate change and other global forces as a vital component of sustainable development and market growth.

To accomplish this work, we need your input.  I look forward to hearing from you.

Joyce E. Coffee, managing director at ND-Global Adaptation Index

Urbanization and climate adaptation – how at risk is your supply chain?

Maplecroft, a global risk and strategic consulting firm in the U.K., noted recently that “resilience to major weather ….events is not improving in some of the world’s most important growth markets, leaving large sections of their populations, essential infrastructure and economies at ‘extreme risk.’” That view aligns with that of Notre Dame Global Adaptation Index.  The open-source GAIN Index underlines that climate change, population growth, urbanization and resource scarcity jeopardize urbanizing nations.

Why should we care?  Because we care about humanity and should make it a priority to help the most vulnerable adapt.  And because supply chains and investors are exposed to greater risk than anticipated as natural disasters exacerbate other political and societal risks.

Maplecroft describes an interesting contrast.  Its Socio-Economic Resilience Index ranks the U.S. at 169^th and ‘low risk,’ even though it features in the “20 most at-risk countries for exposure to hurricanes, tsunamis, extra-tropical cyclones, storm surges, flooding, volcanic risk and wildfires.“  The Philippine’s socio-economic resilience to natural disasters, meanwhile, ranks No. 65 and ‘high risk’ Because, while it has registered strong economic growth over the last four years, “better disaster resilience has not materialized,” which keeps its index ranking unchanged.

The WEF Global Risks 2013 Eighth Edition posits that the twin threats of economic upheaval and accelerating climate change will collide during the next decade, delaying adaptation efforts while exposing nations to unpredictable financial loss from disasters. It contends that denser cities are more threatened by higher temperatures, exacerbated drought, storms and heat waves, although rural areas certainly are vulnerable from many of these weather-related events.  I do see a big climate risk derived from the ongoing population shift toward coastal zones.

In the CDP Supply Chain Report 2012-13, “Reducing Risk and Driving Business Value,” 70 percent identify a current or future risk related to climate change.  Seventy-three percent say they feel that climate change presents a physical risk to their operations.  More than half of the supply-chain risks identified due to drought and precipitation extremes already are affecting respondents’ operations or are expected to have an effect within the next five years.  According to the survey, the primary impacts will be a reduction/disruption in production capacity and increased operational costs.

Since 2011, the World Economic Forum has been leading a Supply Chain Risk Initiative to consider safeguards for global supply chains.  Among other priorities, it aims to:

• More explicitly assess supply chain and transport risks as part of procurement, management and governance processes
• Develop trusted networks of suppliers, customers, competitors and government focused on risk management
• Improve network risk visibility, through two-way information-sharing and collaborative development of standardized risk assessment and quantification tools
• Improve pre- and post-event communication on systemic disruptions and balance security and facilitation to bring a more balanced public discussion

Combining those with a Ten Point Checklist for Making Corporations Resilient and Asking the Climate Question: How to Create a Climate Adaptation Plan, would deliver a robust execution plan.

So, as you consider your supply chains, you might want to ponder if food shortages, fragile states, variable water supplies and the vagaries of emerging economies have affected it before, since these geopolitical, societal, environmental and economic factors are likely to be stressed simultaneously by climate change in the future.

Especially since these issues are likely to take priority for limited resources, it is worth considering how climate adaptation can be a collateral benefit of actions aimed primarily at nearer-term economic, geopolitical, societal and environmental factors.  If we don’t, twining these threats with accelerating climate change could collide in the next decade, delaying adaptation efforts while exposing companies to unpredictable financial loss from disasters.

National Climate Assessment – getting people to do something about it

A few weeks after a spirited conversation with a client about how best to communicate sustainability, I spied an opportunity at the National Adaptation Forum early this month. The Forum was chock-a-block full of convincing data that emphasize we need to act.  But fewer actors than I would have liked attended; corporate participants were noticeably absent, except for a few private sector consultants, like me. Image from the January, 2013 DRAFT National Climate Assessmen

while the NCA process is designed to be highly inclusive and participatory, we need to ensure that the private sector is, indeed, meaningfully engaged.  The corporate sector has real risk and opportunity related to climate change and they should join the brave folks who have the temerity to ask what can be done to bring the rich resource – the national climate assessment – into the space of action.

(By the way, if you read no further, please note that the National Climate Assessment (NCA) will go to President Obama in December, and you have until the end of this week to comment.  Whoever you are, if you have a stake in your home, your business or your community, the report relates to you, so give it a gander!)

I maintain that the NCA nurtures several super powers:

1.       The power of the prez: Obama can meet with a key group of corporate scions (as he does when seeking assistance with passing key legislation) to share the national climate assessment and ask them to relate and discuss their own adaptation actions and challenges.

2.       The power of story:  There are millions of companies in America.  Climate change already has affected countless numbers of them.   What are they and other companies with foresight doing to adapt?  A nonfederal convener as impartial and neutral as Facebook could offer a cloud on which corporate adaptation stories could reside, with the NCA serving as a foundation.  For each chapter – health, agriculture, forestry, etc…..we could create a wiki of examples to inspire and cajole others to action.

3.       The power of accountability: Somewhere between the big donor and the common man sits the 300-plus U.S. companies that are part of the Carbon Disclosure Project or the more than 4,000 companies from 60 countries that report through the Global Reporting Initiative.  These companies are embracing accountability as a way to earn and burnish their license to lead. We must strongly encourage CDP and GRI to create a community of climate adaptation leaders by giving credence to adaptation.

The Carbon Disclosure Project has cast a spotlight on supply-chain engagements.  How about illuminating climate adaptation next?

In the meantime, check out NCAnet, a network of organizations working with the NCA to engage producers and users of assessment information across the United States.  Perhaps a group you collaborate with has already joined.  Or perhaps you can be the spark to ignite engagement.

North America -In the Eye of the Storm

As the East Coast grapples with the dire aftermath of Hurricane Sandy, a new study by Munich Re reveals that weather-related extreme events have most affected North America in recent decades. Research by the German reinsurer of 30,000 records of natural catastrophes showed such disasters have risen five-fold in North America over the last 30 years. For me, the Munich Re report, “Severe weather in North America," simply becomes the most recent reminder that climate adaptation must be a corporate priority. The report notes that the five-fold increase in weather-related losses in North America the past three decades compares with an increase factor of 4 in Asia, 2.5 in Africa, 2 in Europe and 1.5 in South America.  It also explains:

Anthropogenic climate change is believed to contribute to this trend, though it influences various perils in different ways. Climate change particularly affects formation of heat-waves, droughts, intense precipitation events and, in the long run, most probably also tropical cyclone intensity.

Past exchanges on this blog have been about extreme heat and precipitation, but perhaps the most germane for the moment is our discussion about Corporate Learning from Past Disaster.

It’s too soon to tell if Sandy has had a disproportionate impact on the private sector, but it’s likely that flood damage will net out a major cost to New York City’s businesses, even as Mayor Bloomberg and city officials consider infrastructure improvements to shore up against future storms.

Businesses newly committed to climate adaptation will find resources from peers with their own plans. They also may find good tools from government-backed organizations that discuss what climate adaptation looks like and, importantly, how to create an institutional commitment to climate adaptation.

Two that I especially like are:

“Private Sector Engagement in Adaptation to Climate Change,” a new report from the Organization for Economic Co-operation and Development

Making Cities Resilient:  My City is Getting Ready a guide for the United Nations International Strategy for Disaster Reduction, which I tweaked for a corporate audience here.

It’s likely the storm will prod corporate risk managers and business-continuity planning managers to take stock and begin instituting telecommuting policies, diversifying their supplier chain to other geographies and advising the small businesses upon which they rely about how to develop a resiliency or adaptation plan.

As Hurricane Sandy galvanizes us to examine more closely our climate adaptations, I’m inspired that you, readers, are taking leadership.

Institutional investor vs. individual investor – who is the climate adaptation actor?

Calvert Investments, CERES and Oxfam have just released a splendid guide for companies and investors dealing with disclosure and management of climate impacts entitled “Physical Risks from Climate Change.” I had the pleasure of speaking recently on a panel with Matthew Alsted, Calvert’s vice president of Channel Marketing and Brand Strategy at the LOHAS Forum 2012. He noted that, 50 years ago, individual households owned an estimated two-thirds to three- quarters of publicly traded stocks (U.S.) whereas institutional investors held the balance. Today that ratio has flipped.  This shift is remarkable and reminds me how much we must rely on the good minds at places such as Fidelity and Vanguard (I invest in both mutual fund houses) to encourage corporations to make good climate adaptation decisions.

The guide includes sets of key questions for different sectors that should be required reading for fund managers. They, in particular, should study them since passing along risk decisions to companies isn’t sufficient anymore, in my opinion.  I believe mutual fund investors have an important role in magnifying the opportunities and minimizing the risks of climate change.  As they have with corporate-governance issues, such as favoring the splitting of the chairman and CEO roles, perhaps financial houses could serve as part of the market solution to climate change by expecting responsible climate-risk avoidance.

Why are investors important?  Because from their questioning and probing, they help make climate adaptation material to companies.  The CERES/Calvert/Oxfam report makes clear that information related to long-term climate risks aren’t mandatory disclosures since these long-term risks aren’t deemed material to investors interested in the short term.  Regrettably, as the Colorado fires illustrate, the increase in adverse climate impacts will have a material effect on companies’ assets and operations.

ISC Corporate Services  “Disclosing Climate Risks: How 100 Companies are Responding to New SEC Guidelines” indicates that investors concerned about physical climate risk have actively pursued disclosure from the companies in which they invest and are using tools that track and evaluate companies’ climate-risk disclosures.

That’s encouraging!  I’ll be looking for ways to help more companies do the same.

Ports: Staying Competitive Through Climate Adaptation

Climate change will impact longstanding infrastructure, such as our ports. And since the vast majority of non-service-sector corporations rely on ports for some part of their supply chain, I encourage you to read Climate Risk and Business Ports, a framework for both evaluating and mitigating the risks of climate change on port operations. Its summary can help us find ways to evaluate risk. The report notes that climate change is likely to impact:

• Demand, trade levels and patterns affecting total trade through the port

• Navigation and berthing

• Goods handling

• Vehicle movements inside the port

• Goods storage

• Inland transport beyond the port

• Environmental performance

• Social performance

• Insurance

Suggested solutions include raising causeway road heights, paving unpaved surfaces, increasing bridge clearances, increasing culvert diameters, reconsidering road underpasses, improving drainage, managing refrigeration’s energy intensity, developing trade in climate-resilient commodities, protecting storage areas from flooding and adding additional insurance.

Generally, building to a higher standard is now a viable climate adaptation for long-life infrastructure. Ports that begin now to increase the reliability of their infrastructure can improve their economic performance and attractiveness to investors and users.

A UN Resource for the Private Sector:

If you haven’t yet checked it out, spend some time online with the United Nations Framework Convention on Climate Change’s Adaptation Private Sector Initiative. Most of the material deals with agriculture in emerging economies, and at least a dozen situations posted there deserve a look. The website comprises a treasure trove of case studies from a wide range of regions and sectors. Of course, many relate to agriculture, a UN focus. But you will find other items of interest as well.  I particularly enjoyed:

Tomorrow’s railway and climate adaptation

Hurricane Katrina: A climate wake-up call

Adaptation and the legal sector

If any of them inspire you to write a guest blog, let me know!

Climate Adaptation – Corporate Learning from Past Disasters

  I advised a group of thought leaders recently at a workshop on Climate Adaptation:  Building a Community of Practitioners, funded by the Kresge and Johnson Foundations.  It proved to be a great opportunity to consider climate adaptation with a group of seasoned professionals who have helped their communities thrive after weather disasters.  As with any good workshop, I left with more questions than answers.  Today, though, let me share some key takeaways:

1. Climate (extreme weather) events have a disproportionate impact on companies.  When floodwaters entered the Des Moines (Iowa) Water Works, the damage cost the government $14 million to repair. Overall, flood damages to that city’s businesses were estimated at between $300 - $400 million. Source: Project Impact (Clinton administration NOAA program)

2. Corporations that often benefit from a changed climate (Wal-Mart saw an uptick in business from Hurricane Katrina, Target Corp. in Florida for annual hurricane protection and Siemens for power generators) are good places to identify climate adaptation leaders who understand the risks, prevention strategies and opportunities.  Sometimes, corporate engagement in disaster scenarios has occurred initially through Chambers of Commerce.

3. Corporations already engaged in significant climate adaptations (Chiquita Banana finding alternate supplies for their delta-produced bananas) also offer lessons in business continuity planning, risk management, and community engagement.  And private sector tourism entities may also prove to be low hanging fruit for climate adaptation engagement.

4. The broader climate adaptation community needs corporations for a variety of reasons but, primarily because corporations have powerful influence over elected officials (and elected officials are key to resource allocation, research and executive-level promotion). The President’s Council on Environmental Quality (CEQ) (conference participant), charged with enforcing the president’s executive order to all federal departments to prepare and execute climate adaptation plans, may not translate its work to compel the private sector for awhile.

5. Speaking of the CEQ, private institutions have lots to learn from governmental institutions about what climate adaptation is and how to create an institutional commitment to climate adaptation (this how piece may be the bigger surprise for corporations).

6. Companies prepared for a climate-related event can use the event to make major changes (instituting telecommuting policy, diversifying supplier chain to other countries and decreasing office space: employee ratios), to enhance their reputation through community engagement.  (Big  Box retailers identified as cooling centers during heat events; hardware stores offering reduced-price disaster-recovery goods and installation advice; C-suite advisors helping small businesses to develop recovery plans).

7. We have an opportunity to translate science into action for corporations. Focusing on hazards occurring now may be helpful since evidence is crucial for engagement.  Corporate risk management and business continuity planning managers may be our best areas of entry.

Introducing Climate Adaptation Exchange!

Climate Adaptation Exchange is for people who understand climate change is already happening. It’s for those interested in what this means for the corporate sector and those considering what we can do to adapt to alterations in supply chains, buildings, infrastructure, markets and employees.

As noted in “Adapting to the Impacts of Climate Change – America’s Climate Choices – 2010,” “Adaptation is an adjustment in natural or human systems to a new or changing environment that exploits beneficial opportunities or moderates negative ones.” This definition provides the first two of the three reasons I’m writing Climate Adaptation Exchange:

1. It will help companies exploit new business opportunities. 2. It will help companies to avoid negative impact. 3. It will help companies contribute to more resilient communities, so that climate threats will minimally damage social well-being, the economy and the environment.

Companies should engage in climate adaptation not only because money can be made, but because: 1. We’re missing out: if the corporate sector does not begin to engage, it risks being shut out of the climate-adaptation policy decisions emanating from federal, state and local governments. 2. We’re futurists: one big challenge with applying climate-adaptation thinking to any problem is that it’s based on a future we cannot predict. It’s no longer safe to assume the next 20 years are going to look like the past 20. Corporations get that. We’re good at creating opportunities for uncertain futures. 3. Our stakeholders are affected: whether you’re a B2B OR B2C firm, our stakeholders feel the impact of climate change, which will continue to influence their behavior and needs. We need to be ready to serve them - our bottom line depends on taking leadership here.

My blog will discuss questions such as: • What are “no regrets” corporate-climate adaptations? • How can we reap collateral benefits from climate mitigation to enhance climate adaptation? • How can we integrate climate scenarios into existing decision processes, including risk management, business continuity planning and new market realization? • What lessons can we glean from disaster mitigation for climate adaptation? • Can we turn climate-related crisis into opportunity? • What are the basic steps to executing climate-adaptation plans? • In the event of a climate-related crisis that affects your business, who serves as your spokesperson? • What are examples of leading-edge corporate climate adaptation?

Ultimately, I hope this blog helps you to ask and ponder the climate-adaptation question of your work and your teams. How will climate change impact this decision, and what should we do to adapt to exploit business opportunities, decrease risk and contribute to the community?