By Jessica Scholl, Programme Manager, IBLF
Hurricane Sandy, which struck the North East coast of the United States in late October, is estimated to have left between $30 billion (£19 billion) and $50 billion (£30 billion) of economic losses in her wake, elevating her to the lofty position of being the second costliest storm in American history.
In particular, it led to hundreds of millions of dollars in losses to the airline industry, a $10-$20 billion (£6-12 billion) cost to the insurance industry, catastrophic effects to thousands of small businesses, and significant losses for larger ones. The Great Storm of 1987 in the UK, by comparison, is estimated to have cost the insurance industry £2 billion.
For companies doing business in or with storm affected areas, it doesn’t take much to recognise the financial costs these natural disasters take. Even the Indian market is feeling Sandy’s bite, with severely subdued financial and business trading resulting in a depreciated rupee. As the second ‘once-in-a-lifetime’ storm in a decade in the US (joined by Hurricane Katrina), contention has begun to arise over that seemingly uncontroversial ‘natural’ nomenclature. Are these storms just the happenings of a temperamental and capricious Mother Nature or is there a correlation between human activity – of the carbon-emitting, environmentally reckless variety – and the frequency and strength of these storms? Is the resultant disaster natural or is damage largely contingent on the strength and wisdom of the built environment?
Luckily, much of the American media is now recognising the correlation between climate change and the increasingly volatile and violent severe weather events occurring across the US. Much attention has been giving to a recent report by Munich RE, a German reinsurance firm. The report argues North America is exposed to every type of hazardous weather peril affected by climate change—tropical cyclone, thunderstorm, winter storm, tornado, wildfire, drought, and flood—and there is nowhere in the world where the rising number of natural catastrophes is more evident.
Recognising a definitive link between climate change and weather events, we now must enter into the ‘now what’ conversation. Herein lies the ‘mitigation versus adaptation’ debate. Do we, collectively as politicians, businesses, and individuals, take drastic measures to dramatically reduce the carbon emitting activity affecting climate change, i.e. ‘mitigation’? Or, do we focus efforts on adapting to a changing natural environment, i.e. ‘adaptation’?
In 2009, a paper published by Proceedings of the National Academy of Science (USA) concluded that carbon-induced climate change is largely irreversible in the short term; it would take 1,000 years after emissions stopped for atmospheric temperatures to return to pre-change levels. However futile this might sound, it is not meant to support abandoning mitigation efforts. Instead, it may suggest that the business community should begin to supplement these efforts with a greater focus on adapting to this new environment. Hence we arrive at the second question initially posed: Is the disaster that results from a climate change induced storm actually ‘natural’ or is the level of disaster contingent on our preparedness? The disproportionate level of devastation caused by similar size storms in infrastructure-weak, developing countries versus developed countries suggests the latter.
What does adaptation look like? The need to strengthen infrastructures and secure one’s business against climate change and violent storms conjures images of fortification. But, to think in this way would deny businesses a vital opportunity to capitalise on the other component of adaption: innovation. To profit in a changing natural environment, businesses have to seek new ways of doing things; they need to innovate. Those that do will not only become more resilient to climate-induce storm surges, but will find competitive advantage in new or more efficient process, opportunities, or products.
How do businesses adapt? Changing the way a business operates is never easy. Adaptation will inevitably involve venturing into unknown territories and exploring new ways of working. Large industries will most likely need to collaborate with governments to redesign infrastructures (e.g. decentralising energy grids to avoid the vulnerability of one centralised power source). Indeed, the Private Sector Initiative (PSI) of the Cancun Adaptation Framework seeks to catalyse involvement of the private sector in the National Adaptation Plans for Action adopted by the governments of Least Developed Countries (LDCs) at the 2011 UNFCCC Durban Conference. Cross-sector engagement of this scale is bound to be fraught with difficulties. Unique skills will be needed to ensure the theoretical benefits of combining public and private sector strengths manifest and are not stifled by the practical realities of conflicting cultures and priorities.
On a smaller scale, cross-sector or business-to-business collaboration may be needed to understand the potential impacts of climate change on business and to pursue the innovation needed to thrive amidst this changing reality. The Business Innovation Facility, a DFID sponsored initiative to support the development of inclusive business models, offers practical support and a community of cross-sector practitioners for businesses seeking innovative ways to address climate change.
It is clear; we are to expect more unpredictable and severe weather events. Also uncontroversial, these events will cost businesses significantly. So, the question now arises: to invest now, innovate and potentially discover vast new opportunities, or wait and pay for it later?
For more information read IBLF’s report ‘The Business of Climate Change Adaptation’ (PDF).