BUSINESS:

Small-business owners see extreme weather as tightrope without net

For the second time in a week, the effects of climate change on business performance took center stage as another report painted a grim picture of how small companies are faring against what many people believe is an era of increasingly extreme weather events fueled by an unstable climate.

The report, from the Small Business Majority and the American Sustainable Business Council, argues that small businesses are "uniquely vulnerable" to extreme weather events because they lack the financial resources, organizational structures and geographic diversity that large companies have and that make them more resilient to the debilitating effects of climate change.

The groups also found that because small businesses face unique risks from climate change, "collective actions taken by the small business community could have an enormous impact on insulating the U.S. economy from climate risk."

"In recent years, the financial repercussions of weather variability and extremes have significantly impacted the U.S. economy by affecting both supply and demand for the products and services of almost every industry. For small businesses, the imperative for action is particularly acute," said Lea Reynolds, a senior policy analyst for M.J. Bradley and Associates and co-author of the 22-page report.

The small-business report comes one week after the release of a more sweeping analysis by the Center for Climate and Energy Solutions. It examined the variety of climate change threats faced by global business and provided a blueprint for businesses to better prepare for the negative effects of climate change and to mitigate against weather events like extreme storms, floods, droughts, fires and shifts in coastal landscapes (ClimateWire, July 17).

Yesterday's report drew similar findings but noted that the risks of climate change to small business are even higher because extreme weather events can destroy, rather than simply disrupt, business operations, especially for firms that operate in a specific geographic area where a debilitating weather event occurs.

30% of Sandy's wounds were lethal

According to the Small Business Administration, up to 90 percent of small businesses get the majority of their business from within 2 miles of their front doors. "This makes small businesses more vulnerable to loss compared to larger companies that have backup resources at alternate facilities or branch locations," the report states.

"As a result, small businesses will be more heavily impacted by technological or telecommunications failures, the absence of employees, power failures, supply chain interruptions, and rising insurance costs,' it adds.

According to the report, "the median cost of downtime from a small business affected by an extreme weather event is $3,000 per day," and a full 25 percent of small and midsized businesses that experience a major disaster do not reopen because the financial losses are so great. "A single building or factory could represent most of the book value of a small business," the report states.

And in the case of last year's Superstorm Sandy, which devastated portions of New York, New Jersey and surrounding states, the business failure rates are even higher. Estimates are that as many as 30 percent of the 60,000 to 100,000 businesses affected by Sandy failed "as a direct result of the storm," according to the report.

Those losses become even more acutely felt when one considers that small businesses employ an estimated 60 million people, or nearly half of the U.S. workforce.

Rhett Buttle, vice president of external affairs for Small Business Majority, said storms like Sandy -- along with other extreme weather such as the 2012 Midwest drought, perennial wildfires in the West and flooding triggered by mega-thunderstorm cells that drop as much as 10 inches of rain at once -- have given rise to a new awareness about the relationship between climate stability and business security.

57% of owners see an urgent problem

"More and more entrepreneurs are seeing real-life impacts to their businesses and their bottom lines from climate change and the extreme weather events it creates, and they want something done to help curb those effects," Buttle said.

According to a June poll by SBM, one-third of small-business owners report they have been personally affected by extreme weather, and 57 percent believe extreme weather events are an urgent problem.

A cross-section of those firms is represented in the report as case study subjects: They include a Boston hotel management firm; a Charleston, S.C., retailer; a Nebraska landscape architect; and a California ranching family.

Tedd Saunders, chief sustainability officer for the Saunders Hotel Group, which owns and operates six hotels in coastal regions of Massachusetts, Connecticut and Virginia, said the tourism and hotel industry has spent considerable time and resources working on ways to reduce its carbon footprint, such as energy efficiency and endorsing sustainable business practices.

But, he said, the industry has not spent sufficient time working on strategies to adapt to the realities of climate-fueled extreme weather, which often translate into canceled reservations, power outages, spoiled food and furloughed employees.

With adaptation out of reach, intuition rules

"As a small business, we don't have the internal expertise or the dollars to spend to look at these risks," he said. As such, businesses like his have to use a more "intuitive process" that doesn't always lead to the best results.

"We're trying to do as much as we can, but we feel like we're up against a Goliath in terms of climate [change] and all of the associated risks of that," Saunders added. "So we're trying to feel our way along and make good decisions."

In addition to the variety of voluntary strategies small business can use to adapt to climate risk -- such as crafting risk management plans and engaging proactively with local authorities and customers in advance of weather emergencies -- the report also advocates for stronger climate policies and programs at the state and federal level.

Richard Eidlin, co-founder and director of public policy and business engagement at the American Sustainable Business Council, said such policies might include a national renewable energy portfolio standard or greater federal incentives for energy efficiency such as those provided under legislation co-sponsored by Sens. Rob Portman (R-Ohio) and Jeanne Shaheen (D-N.H.).

"One conclusion we draw from this work is that in many ways this is not a partisan issue," Eidlin said. "We see it as an encouraging sign that politicians of all political persuasions can get together and work toward finding positive outcomes here."