Tag Archives: climate change

Hurricane Sandy and Climate Change – tempest in a teacup or a wake-up call for business?


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).

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Sustainability fundamental to long-term business performance

Guest Blog: Barend van Bergen, Head of KPMG’s Global Center of Excellence for Climate Change & Sustainability

Almost four years ago, while being seconded from KPMG to the WBCSD, I was involved in a series of workshops aimed at involving the capital markets in sustainability. Reflecting  now on the lively conversations  that took place, I genuinely believe we have made some progress.

Although I never predicted events would unfold as they have, I was convinced that it was in the interest of capital markets to embrace non-financial information within their investment decisions / company evaluations. Recent events such as the economic crisis, political instability of oil-producing regions, scarcity of natural resources and environmental disasters have forced financial institutions and mainstream investors to rethink the material impact Environmental, Social and Governance (ESG) factors have on long-term business performance.

When speaking to members of the investment community, they inform me that a company’s management of ESG factors is seen as a proxy for risk management, management quality, business reputation, and fundamental to long-term performance.

What’s driving increasing investor interest?

Since the financial crisis we have witnessed the rapid growth and expansion of a number of investor-backed initiatives, most notably the UN PRI which has gone from 50 signatories in 2006 to over 800 in 2010, with assets of over US$22 trillion. Likewise adoption to the Equator Principles has also risen from 16 signatories (2003) to 68 (2010).

What these trends suggest is that the market is recognizing the value and importance of ESG factors. The corollary, of course, is that market recognition creates further interest from mainstream investors – who are responding to the changing risk-appetites of their institutional clients (e.g. pension funds).

Furthermore, the public reaction to the financial crisis and the Gulf disaster, together with the rapid emergence of whistle-blowing and social media sites such as WikiLeaks & Twitter are evolving the scope of enterprise-risk management systems and corporate reporting for leading companies.

What companies can do

I would suggest that companies become more proactive (and effective) in communicating ESG factors to mainstream investors. Companies can reduce this risk by taking the lead and incorporating ESG factors at investor meetings, quarterly earnings or roadshows. There are three actions companies can take to improve this process:

- Foster Internal Collaboration – by aligning Investor Relations & Sustainability departments
– Integrate ESG – by demonstrating how ESG performance will impact long-term success
– Speak their language – by framing ESG materiality in terms of business risks and opportunities

Looking ahead

Moving forward, I expect that once market imperfections are corrected via regulation and when natural resources become more volatile, ESG will translate further – perhaps to the point where investors begin evaluating ESG performance like they do management quality or market risk.

Businesses need to be ready for this and start articulating on how ESG factors translate into business risks and opportunities. Companies who have strong data on ESG factors are more responsive to stakeholders and can react quicker to change, which will ultimately help drive long-term business performance.

Watch an IBLF Expert Insight video with Barend (below)



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Filed under Climate Change, ESG Investing, Sustainability

We need a green ‘innovation revolution’ for business to be truly sustainable

By Stephen Farrant and Shivvy Jervis, IBLF

It’s a straightforward premise really – in the longer run, all business has to be environmentally sustainable or the laws of science will take over.

We believe there is a clear and compelling business case for energy-intensive businesses to put environmental responsibility and resource efficiency on their core agenda now. And with the operating environment for business set to face some unprecedented challenges around growth over the coming decades, we cannot assume that ‘business as usual’ is going to get us there. Improving resource efficiency – including switching to cleaner energy sources – will help not merely to reduce operational costs, but to increase competitiveness and sustainability in the medium term.

The scarcity of fossil fuels – oil, gas and coal – in particular, is a very real threat to economic prosperity and logic dictates that the goal of de-carbonising industry has to move up the list of global business priorities. An extensive UK Energy Research Institute report concludes that a peak in oil production is very likely before 2020, and as Jeremy Leggett (convenor of the UK Industry Taskforce on Energy Security) says: “We are asleep at the wheel, choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse.”

Now let’s take the international hotel industry for example. Resource hungry, energy intensive and – in line with the rest of the travel and tourism industry – traditionally based on volume growth, the sector spends over a whopping £1bn per year on energy and produces 3.5m tonnes of carbon emissions annually in the UK alone (source: Carbon Trust).

For the hospitality sector to truly thrive, IBLF’s International Tourism Partnership, which works with leading global hotel chains on the sustainability agenda, believes that continually highlighting best practice in environmental and social responsibility, together with pressing the case for further change are crucial to the industry’s long-term success.

The good news however is that more and more, these issues are being embedded into the Board agendas of many leading companies. And the focus is absolutely on innovation, rather than merely offsetting.

From a fundamental re-think in building design to the use of natural insulation, solar power, ground source heat pumps and mechanical ventilation, the scope for improving environmental impact is massive. Diversifying into alternative energy sources and bringing renewables or clean energy into the mix is also a vital part of the solution. It is particularly relevant that global investment in clean energy was up by 30 per cent year-on-year in 2010 (Bloomberg New Energy Finance). And as this starts to drive more scale, the price should fall – making it more financially persuasive.

However, irrespective of sector or size, many of the measures that are either being planned or are already in place from business, point to incremental change over a number of years. Examples of large-scale ‘disruptive innovation’ that re-define the basic business model (built on assumptions of continual volume growth) are harder to find.

But it is market forces and competition that will really drive the development of energy efficient products and start to push the step change that we need. Also customers (especially at the corporate level) are significantly more aware of green issues and are increasingly looking to make purchasing decisions that carry the lightest possible environmental impact. The Co-Operative Bank’s latest Ethical Consumerism report (2010) shows that spending on eco-travel and transport has grown by 23% in the last two years, from £2.2bn to £2.7bn.

Not only consumers, but investors are also putting pressure on companies to cut energy consumption. In April this year, 34 established companies with some US$7.6 trillion in combined assets teamed up with the Carbon Disclosure Project (CDP) to launch an appeal to the world’s largest businesses to implement reductions in greenhouse gas emissions.

Changes in legislation are playing a strong part too. The UK’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, introduced in April 2010 and phased in over three years, is a compulsory scheme aimed at large public and private sector organisations and, critically for industry sectors such as the hotel business, make the franchisor responsible for reporting all activities undertaken under their brand, even those of their franchisees.

However, an ‘innovation revolution’ across big business calls for moving the best-in-class to the mainstream, and accelerating company action on energy consumption. And all environmental costs need to be fully internalised into the decision-making processes of multinational companies.

Will there be clear winners? The potent combination of surging investor interest, tightening legislation and burgeoning customer demand means that companies that have their systems geared up now, stand to gain true competitive advantage as we move to a more responsible and sustainable future.

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Filed under Climate Change, CSR, Environment, Leadership, Sustainability, Tourism