The Intergovernmental Panel on Climate Change (IPCC)’s latest report is clear and damning in its conclusion: “it is unequivocal and indisputable that humans are warming the planet”. Figure 1 from the IPCC report illustrates the increasing temperature extremes, whilst devastating wildfires, severe flooding and extreme heat serve as tangible confirmation that the climate crisis is here.
Synthesis of assessment of observed change in hot extremes since the 1950s and confidence in human contribution to the observed changes in the world’s regions. (Image credit: Figure SPM.3a from AR6 WGI Summary of Policymakers, courtesy IPCC.)
The exact consequences of these changes are notoriously difficult to predict, and scientists have already acknowledged that the effects of climate change may be happening faster than originally projected. However, even if the exact outcomes are unknown there is a growing recognition that locked-in global-scale warming will translate into complex and destructive local and regional impacts.
Because we are already committed to some level of climate change, responding involves a two-pronged approach:
- Mitigation: reducing emissions and stabilizing the levels of greenhouse gases in the atmosphere
- Adaptation: adapting to the unavoidable climate change which is already in the pipeline
The IPCC report was published during a period in which net-zero targets have taken centre stage with governments, investors and customers applying increasing pressure on organisations to accelerate their decarbonisation strategies. However, there is such a focus on the long-term mitigation that companies are not acknowledging the short-term adaptation requirements which are needed given the locked-in physical impacts of climate change which are already being felt.
Accounting for and adapting to the reality of a changing climate is growing in urgency. The Taskforce on Climate-related Financial Disclosures (TCFD) spearheaded this with requirements that companies measure and report on the financial impacts of climate change under future scenarios. Resilience to the damage of climate change is one of the goals of COP26 later this year. Adaptation communications will be produced, detailing what actions countries are taking to adapt to the impacts of climate change.
These adaptations will need to address the risks of locked-in climate change to businesses. According to the latest UK Climate Change Risk Assessment published by the Climate Change Committee there are six key risk areas:
- Flooding and coastal change risks to communities, businesses and infrastructure.
- Risks to health, well-being and productivity from higher temperatures.
- Risks of water deficits in public water supply, and for agriculture, energy generation and industry, with impacts on freshwater ecology.
- Risks to natural capital, including soils, coastal, marine and freshwater ecosystems, and biodiversity.
- Risks from climate-related impacts on domestic and international food production and trade.
- New and emerging pests and diseases, and non-native species, affecting people, plants and animals.
Given the disruption which businesses have already felt over the last 16 months, it is somewhat surprising that a recent report from McKinsey identifies under-preparedness as a key characteristic of the socioeconomic impacts of physical climate risks. It is noted that adaptation is likely to entail rising costs and tough choices that may include whether to invest in new technologies or relocate people and assets. However, it should be considered that given the level of awareness we now have around the likelihood of climate change impacts, inaction is not an option.
Legislation, such as risk disclosure requirements based on TCFD, is now in place to kickstart the review of locked-in climate risks and the consequence on the corporate bottom line. This is a crucial activity which requires comprehensive understanding of the company’s operations, supply chains and customer base to ensure the risks of climate change are accounted for and considered. Ultimately this is to re-connect adaptation and mitigation strategies to ensure an effective two-pronged response to climate change.
So how can companies address climate change adaptation?
- Protect value by securing assets, operations, and suppliers.
- Invest in vulnerable communities as these will be the ones disproportionately affected.
- Create value by understanding and addressing new customer needs.
Sancroft has spent over 20 years ensuring organisations understand their climate risks and working with them to develop actionable strategies. If you would like to know more, please contact Judy Kuszewski at Judy.Kuszewski@sancroft.com or Charlotte Matthews at Charlotte.Matthews@sancroft.com.