Extreme Climate Change: What Does It Mean for Businesses?

It’s finally official: According to the United Nations Intergovernmental Panel on Climate Change, global warming is really happening.

A new report released by the scientific panel states that human lifestyles and commercial enterprises do affect climate change.

“Human influence on the climate system is clear. This is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system.”

Human Influence on Climate Change

The IPCC’s report is the fifth assessment to be released by the panel, and likely its most exhaustive. The actual report spans several hundred pages, but the core of its message can be found in its concise 36-page summary, which it released to the public last week.

“Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, in global mean sea level rise, and in changes in some climate extremes ... It is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century …

“Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions.”

Not taking action to limit climate change, says the IPCC, won’t just mean more intense storms during the winter, or warmer temps during the summer. Melting ice shields, acceleration of rising sea levels, further acidification of the oceans (leading to less habitable areas for marine species and less wild food stocks for humans as well as other populations) are all side affects of increased climate change, says the IPCC.

Making changes, especially at this late date, may mean significant lifestyle changes all of us. But what potential changes does it signal for businesses, and how may it affect the world’s major industries?

While the IPCC doesn’t delve into this question, some businesses have already started investigating this question.

Extreme climate change: What companies are doing to prepare

The Carbon Disclosure Project (CDP), a not-for-profit organization based in the U.K., published a report this month suggesting that 10 percent of the top 500 companies are responsible for almost three-quarters of greenhouse emissions. Not surprisingly, the report notes, most of the companies operate in the energy and utilities sectors, industries that have historically been shown as having a large impact on global carbon emissions.

CDP works with companies and governmental agencies to help identify ways that they can reduce emissions and adapt to a changing climate.

“Businesses increasingly face the dual risks of climate and policy shocks. How companies build and demonstrate their resilience to these climate risks has important implications for their reputation with their stakeholders and for the value of their businesses."

The organization reached out to the top 500 companies to gauge whether they had already started incorporating climate change concerns into their operations. More than three-quarters of the world’s top-earning companies responded. From their responses, CDP found that:

• The 50 companies that represented the world’s largest carbon emitters had actually increased their carbon emissions since 2009.

• Bottom-line costs posed the greatest incentive to companies in adapting to climate change. Reducing water usage, finding better ways to insulate and reduce heat/cooling loss in buildings, reducing the carbon footprint in their supply chain all figured into cost reductions that were direct responses to a changing and temperamental climate system.

• Many companies have been proactive in sizing up the risks of climate change, but not in identifying opportunities in climate change, such as finding ways to change customer behavior, working with other companies to affect expectations in supply chain management, identifying cap and trade schemes, etc. “This suggests that businesses may be missing some significant risks and opportunities because valuation methods are unavailable,” says CDP

Companies anticipating extreme climate changes

Interestingly, the world’s top automobile companies are in when it comes to anticipating the effects of climate change, including Volkswagen, Daimler, BMW and Honda. Other leaders include Nestlé, Samsung and Gas Natural SDG, recognized for their innovative ways of addressing both the risks and opportunities associated with climate change.

Of course, there are also those who may be able to profit from climate change worry. Monsanto and Bayer have anticipated the stress that farmers will undoubtedly feel when wondering whether their crops will be able to withstand a changing climate. The two companies have submitted patents on modified seeds that are said to be able to survive and thrive in adverse conditions.

Climate change may be coming, but so is a revolutionized business perspective. Companies like Nordic Bulk Carriers and Beluga Shipping, which is not currently operating, used to have to use the Suez Canal to ship its customers’ goods to places like Nigeria. Today, they have a much cheaper route: the Artic passages. The northern routes that had, for hundreds of years, remained evasive to explorers and caused the deaths of numerous intrepid researchers are now open for business, thanks to global warming. Nordic Bulk Carriers is able to save money and time by using this extreme northern route to and from China and the former Soviet Union – with occasional help of an ice breaker that ploughs a route by smashing up the melting artic ice. At the present time, however, it's fairly clear sailing because of the ongoing melting of the ice caps.

The next few years will likely be increasingly difficult for businesses that haven’t already considered adapting to a smaller carbon footprint, reduced overhead and lower water usage. But, as companies like Nordic, Beluga and Monsanto have demonstrated, there will be pioneers who can see opportunity where adversity threatens. That, too, says a lot about how we see the threat of extreme climate change and the need to change our ways.

Image of temperature trends from 1901 to 2012 courtesy of IPCC

Image of tend indicators of a warming world courtesy of NOAA