Climate change: The adaptation evolution imperative
Net Zero and long-term mitigation strategies are stepping up the corporate agenda, as discussed in Sancroft’s 2021 insight, but limiting global warming to 1.5°C, or even 2°C, by 2050 is not the end of a changing climate. The 2022 UN report highlights that if we reach this limit, we have still locked in 30 years of rising temperatures.
With the UK experiencing its first 40°C day last year, an outcome which as recently as 2020 scientists predicted had a low likelihood of occurring, businesses that fail to account for changing climate risks are rapidly missing the window for adaptation and will be forced into reaction by circumstance. Optimistically there has been a widespread shift in the attitudes of small and medium-sized organisations, recognising importance of sustainability and are moving towards action.
In March, the UK Climate Change Committee (CCC) reviewed the UK Government’s second National Adaptation Program (NAP2) and found it ineffective, stating that credible planning for key climate risks was only found in five of forty-five adaptation outcomes. Of the 45, none showed sufficient evidence of pace to meet the challenge, the situation summarised as having ‘a striking lack of climate preparation’. The CCC’s independent study is already estimating that total adaptation investment needs could exceed £10 billion per year this decade, all risks considered.
However, since the release of NAP3 in July, the program has been criticised for its lack of urgency. With no vision set for a well-adapted UK, and no sector targets to provide the scale of change, businesses should not wait on the UK government to provide the legislative instruments or guidance for their own adaptation strategies.
Building your adaptation roadmap
Similarly, to the CCC recommendations made for a National Adaptation Program, business and industry should come together to structure their approaches to climate resilience, to enable the adaptation step-change required.
1. Map your risks
Businesses have begun by improving their approach to assessing risk and improving the quality of risk reporting, however, they have often focused on the costs and risks of decarbonising with mitigation in mind over the physical risks that require adaptation. Whilst robust scenario analysis is becoming more common for large institutions, enabling them to identify physical and transitional adaptation risks across different time horizons, SMEs which comprise 99% of UK businesses, are falling behind.
For SMEs with limited resources, apply the 80/20 rule to adaptation planning. Consider the core business, reflecting on risks in relation to: operating model, site locations, critical infrastructure (internal or third party), technology, internal policies, and existing sustainability strategies. When mapping risks go beyond immediate ownership and consider your supply chain vulnerability, how resilient you are to shocks and what alternatives are available.
2. Understand your position in your sector
The adaptive capabilities of your sector should be considered, and partnerships across industry may provide insight and best practice. If your business is tied to a location and dependent on a predictable climate, such as a winery, your long-term adaptation plan may require consideration of the growing region to account for water scarcity, increased heat waves and the potential for wildfires, which could wipe out your crop.
3. Create value through planning
Businesses need to consider how purchases today may lock in future risks. Adaptation investment is a crucial activity to build resilience in the company’s operations, supply chain and customer base. Reconsidering investment in assets where the value will not be realised long term, either due to the transition (policies/demand/technology), or physical changes is essential. Ultimately organisations should direct funds into the priority risks identified at the mapping stage, and consider transition opportunities the business can capitalise on.
4. Monitor and ratchet
Much like the ratchet mechanism introduced in the Paris Agreement, climate change and its negative environmental impacts will not occur in a linear trajectory. Business risk mapping and adaptation planning should be reviewed regularly to identify where projections are changing, where risks have increased, or where adaptation strategies are falling short.
Example sectors & adaptation starters
Real Estate
Current regulation focuses on new-build homes in the UK, however as 80% of the buildings that exist now will exist in 2050, these policies continue to fall short where adaptation is required. To reduce worker productivity losses expected from increased heat in the UK, and attract tenants, businesses should consider investment in retrofits for housing and commercial premises.
Agriculture & Viticulture
There is limited understanding of the effects of extreme heat for agriculture and food security to date, however reduced produce and increasing prices in supermarkets have wide social and economic implications. Some businesses have made longer-term investments to shift site locations, such as Champagne houses purchasing vineyards in England as the climate in Europe becomes unsuitable for particular grape varieties.
Transport and logistics
The transport and logistics sector is particularly vulnerable to risks, from storms, rising sea levels, temperature changes and transition costs. Adaptation planning for both chronic changes and sudden shocks or disruption, such as the 2022 fires on the rail network is critical. On the opportunity side, Ryder has identified risk as a business opportunity, and supports nationwide relief efforts through adapting logistics for disaster relief.
How can companies address climate change adaptation?
With government policy still insufficient, businesses that wait for legislation or policy to adapt, risk being caught off guard in the transition. In particular, SMEs with fewer resources, must start with adaptation planning now to ensure viability in the coming decades. Businesses should act to:
- Review risk: physical and transitionary, considering specific business, sector and location characteristics.
- Build a vision: set out what a well climate-adapted business looks like, set targets and monitor progress.
- Review, adjust, adapt: Climate impacts will not be linear, adaptation is an ongoing activity, as science and policy adjust, so should your planning.
An interconnected world and an ever-lengthening supply chain means contingency planning and collaborating with suppliers builds the security of your business. To see more about Sancroft’s services in supply chains, check out the M&S case study. If you would like to understand more about the adaptation imperative for your business, get in touch with georgia.scott@sancroft.com or jade.ansted@sancroft.com.