Climate Change Adaptation Investments are Good for Business

By Natalie Tang

Shared-value investments can increase much-needed climate change resiliency in the most vulnerable countries, according to top thought leaders from public and private sectors who met to discuss opportunities for innovation and resiliency at Notre Dame Adaptation Index’s (ND-GAIN) Annual Meeting held December 12, 2013 in Washington D.C.

The ND-GAIN Index annually ranks more than 175 countries based on their vulnerability to climate change and their readiness to adapt to natural disasters exacerbated by shifting weather patterns.  Their mission is to enhance the world’s understanding of the importance of adaptation and facilitate private and public investments in vulnerable communities.

According to this year’s data, which was released at the annual meeting, “it will take more than 100 years for the poorest countries to reach the readiness levels that the richest countries have already attained” stated Associate Professor Jessica Hellmann, who leads Norte Dame University’s climate adaptation program.  Hellmann posited that while countries are becoming more resilient, adaptation is not happening fast enough, in part due to a lack of investment.

Kenneth Hersh, CEO of NGP Energy Capital Management and an Advisory Board Member of ND-GAIN went on to clarify, “Public funds, will not cover the entire cost of adaption to the extent needed.” As a way to bridge the gap, Hersh proffered that “the public sector can provide the commitment and the frameworks to mobilize and enable the private sector to invest where they are wanted, needed, and can make a return on investment.”

The ND-GAIN index is an open source, navigation tool to compare overall vulnerabilities of different countries and also specific metrics, such as infrastructure, health, or water, to get a better understanding of risks and opportunities as they relate to individual businesses. Despite the potential to prevent investments in already marginalized countries, Hersh hopes the information will instead open dialogue with governments and lead to partnerships to push for increased adaption strategies that will serve the needs of both parties.

During a panel discussion focusing on supply chain costs and opportunities, speakers equated climate change adaptation with the more business familiar terminology of risk mitigation.  “If you, as a supplier, are not addressing these risks within your supply chain, not just in your tier ones but into the other tiers of your supply chain, those risks are costs and you are paying for those risks right now,” warned Nancy Gillis, a Senior Manager at Ernst &Young.

A disruption at a single link in the supply chain, from weather or geopolitical reasons, can severely impact production, as was the case for hard drive disks after the 2011 floods in Thailand.  Companies who are currently taking into account climate change impacts have a better understanding of their risks and how to manage them, the panelists agreed. These risks include not just direct asset damage from natural disasters but also impairment to surrounding transportation infrastructure, availability of raw materials, water supply security, and conditions that may affect an area’s labor supply.

For example, during a panel on innovations in food security, Perry Yeatman, former Senior President in Corporate & Government Affairs at Kraft Foods shared how risk mitigation strategies are helping secure agricultural commodities critical to their business. Ghana and Côte d’Ivoire, who produce over half of the world’s cocoa supply, both are considered highly vulnerable to climate change according to the ND-GAIN Index and are suffering from a rural migration of labor forces looking for a better quality of life. Mondelēz International, one of the largest buyers of cocoa, plans to invest $400 million over 10 years to improving cocoa farming techniques and local communities in these countries in order to increase the future viability of the cocoa market.

The investments in infrastructure, education, health and eco-system management will make these regions less vulnerable to increased rainfall, landslides, and droughts that are predicted to occur while also making community conditions attractive for the next generation of cocoa farmers.  This investment is a prime example of how private sector commitment to climate change adaptation can provide both healthy financial returns for businesses and benefit host countries and communities.

“It’s good business,” claims Hersh, “for companies to prioritize secure infrastructure, safe water, and good nutrition in the countries where they operate, not just for the protection for their capital investments but for the safety and health of their workers.” Private sector investment in climate change adaptation can be a win-win situation, creating strong business investments and resilient communities.

 

Natalie Tang is a free-lance consultant and analyst focused on sustainability, climate change, renewable energy, and urban policy issues. She received her MPA in Energy and Environment Policy from Columbia University School of International and Public Affairs.