Companies begin to see necessity and profits in adapting to climate change

A company in Ghana sells weather forecasting text messages to farmers. A Colorado-based environmental consulting firm specializing in hydrologic forecasting helps countries from Bangladesh to Romania identify and map flood hazards. And in the United Kingdom, the makers of a popular fruit juice are developing new strains of black currants to keep local farmers in business as milder winters shrink harvests.

From real estate to reinsurance, the private sector is beginning to take unusual new steps to protect communities -- and itself -- from the impacts of climate change.

In what was once the domain of governments, nonprofits and occasionally the charity wing of a major corporation, businesses are increasingly eager to shield their assets as well as the countries in which they work from the risks of rising temperatures, analysts say. Known in climate policy parlance as "adaptation," the field is seeing an uptick of interest from CEOs who find they can build resilience to climate change in a way that also generates profit.

"For a long time, the private sector was missing in action in the space of adaptation," said Juan José Daboub, CEO of the Global Adaptation Institute (GAIN), who was tapped yesterday to chair the Global Agenda Council on Climate Change of the World Economic Forum. His organization pioneered an index last year aimed at helping the private sector rank its investments in adaptation by measuring countries' vulnerabilities as well as their ability to improve resilience.

"People have started to realize there are water shortages and droughts, and energy is not being efficiently used and is being wasted. Not only are their businesses in jeopardy, but there is a business opportunity to provide solutions to these problems," Daboub said. "The interest is growing as the urgency to adapt is becoming more evident."

Adaptation itself is a relatively young field. For years, environmental groups resisted focusing on helping communities cope with climate change, for fear it would distract from the challenge of reducing the man-made greenhouse gas emissions that scientists say are to blame for large-scale changes in the Earth's climate systems.

By 2007, though, experts acknowledged that the impacts of climate change were already being felt. The poorest countries, which rely more heavily on farming, fishing and other natural resources, are hit the hardest and are most in need of measures to protect their populations from harm.

A public or a private problem?


To that end, nations agreed two years ago through the U.N. climate negotiations to launch the Green Climate Fund to raise billions of dollars for adaptation measures as well as clean energy development and protecting tropical forests. With that, experts say, began the sometimes controversial and still-nascent discussion over what role businesses should play in adaptation.

"There had been this view of adaptation being very much a government- or public-sector-led activity, which I think is a mistake," said Michael Mullan, an economist and adaptation expert with the Organisation for Economic Co-operation and Development. "A country's success at adaptation is going to be crucially linked to what the private sector does."

Indeed, conventional climate policy wisdom has dictated that protecting populations from flooding and cyclones, the changing patterns of malaria, shrinking crop yields and other problems is the government's responsibility. Moreover, while the making and selling of wind turbines, solar panels and other tools of reducing emissions is clearly a money-making venture, few have seen profit potential in adaptation measures like planting mangroves or developing small-scale irrigation systems.

Yet increasingly, leaders are trying to bring business to the table on adaptation. Earlier this year, the U.N. climate change secretariat launched the Private Sector Initiative, aimed at catalyzing the involvement of companies. The initiative's database now includes 80 case studies of business adaptation projects. Together, groups are working to help businesses understand risks to their supply chains, what benefits companies might reap by assisting communities and how public policy could capitalize on private-sector work. Slowly but surely, experts said, executives are starting to view adaptation as a business venture.

"I think we're just now at the tip of the iceberg in terms of companies saying, 'Hey, this is not just a CSR [corporate social responsibility] issue. We need to be taking this seriously throughout our operations," said Heather Coleman, a senior climate change policy adviser at Oxfam America. She argued that while the overarching responsibility for climate adaptation will rest with governments, it's critical to also give businesses the tools to help bolster the communities in which they operate.

You can lose by standing still

A study that Oxfam, along with seven companies, released yesterday sets out for the first time guidelines for companies interested in understanding coming climate risks. The report notes that last year alone, businesses suffered more than $60 billion worth of weather-related insured losses globally. The drought in Texas cost the agricultural sector an estimated $7.6 billion, while the 2010 heat wave in Russia led to $15 billion in losses from related wildfires.

Louisiana-based Entergy Corp. was spurred into action by Hurricane Katrina and its lesser-known sister, Hurricane Rita. Together, the two cost the electric utility company nearly $2 billion in losses and prompted senior managers to start preparing for potential future climate impacts. The company relocated important business centers and put together a business continuity group to look at the implications of climate change in the context of other business threats. One study of the Gulf Coast's vulnerabilities found that, on average, the 70 miles of coastline faces annual losses of $14 billion from wind and storm damage.

"The bottom line is, we felt it was really important to reach out and work with our communities and build more resilience," said Jeff Williams, director of climate consulting for Entergy Corp. Increasingly, he said, other companies are coming to similar conclusions as they assess their ability to preserve their assets and continue providing services.

But, Williams added, businesses still need to be educated on how to approach thinking about risk management in the face of climate change. "All too often, we use the uncertainty of climate change to ask ourselves, 'Is it happening or isn't it?' I think the uncertainty isn't that. It's how big the impact is going to be."

Ian Noble, chief scientist with GAIN and the former lead climate change specialist at the World Bank, was asked to speak at a U.N. climate conference side event on the role of the private sector in adaptation. Speaking at the GAIN conference a few days earlier, he noted that of the eight speakers, including himself, "not one of them was from the private sector, which I think is indicative of the problem."

"The private sector wants to know, where do we get advice and guidance on how to address climate risk and develop projects or models?" he said.

Awakening in the insurance industry

The reinsurance industry is one sector that has been making business decisions in adaptation for some time.

Mark Way, head of sustainable development with Swiss Re, said the company has been working on adaptation since 2007, focusing on insurance policies to manage the consequences of severe weather. The company put together a team to study how to work with governments to deal with new climate risks to understand emergency liquidity in different countries.

"How can we improve access to insurance in part of the world that has little or no insurance and through that build resiliency?" Way said. "How do we use insurance as a climate adaptation tool?" Asking those questions led the company into a number of projects like one in which it teamed up with Oxfam to integrate insurance mechanisms in development projects in Ethiopia.

But Way stressed that SwissRe's involvement in adaptation is not purely altruistic. And, he added, over the years, he has seen a growing number of companies start to understand that their bottom line is intimately connected with the climate. Last year's flooding in Thailand alone resulted in a $30 billion economic loss, costing the insurance industry about $12 billion and affecting more than 4 million properties, he noted.

"What is changing for sure is that the private sector is getting the message that they are vulnerable to severe weather impacts. People see their supply chains are vulnerable to climate impacts. I've spoken to a number of corporates about this recently, and they see this as something that's in their interest to address this."

Yet a slice of the environmental movement is skeptical and resistant to the private sector's involvement in adaptation precisely because such efforts mix altruism with a healthy dose of commercial interest. Many activists argue that adaptation is a matter of compensation: Poor countries are suffering because of the emissions spewed by wealthy nations -- and those governments must pay up, not allow companies to pick up the tabs.

Janet Redman, co-director of the Sustainable Energy and Economy Network, said she is concerned that businesses will merely pay for projects in their own financial interest instead of those that governments prioritize as critical. She and others also objected to making money off of countries' vulnerabilities.

Green groups remain suspicious

"The private sector should certainly be concerned about adaptation, but I don't think that the private sector is the most appropriate way for financing to be mobilized," she said. When it comes to things like infrastructure, land-use planning and designing of food systems that communities will need, she said, "I don't think these are appropriate places for the private sector to be thinking about profit motive, which is the definition of the private sector."

It's the kind of thinking Gary Lawrence, vice president and chief sustainability officer with AECOM, said he's been battling. Lawrence, a senior adviser to former President Clinton's Council on Sustainable Development and a U.S. negotiator to the United Nations' second conference on human settlements, said he thinks the business and environmental communities are still learning how to relate.

"I think we have just never figured out how to have a conversation about how the business community wants to solve these problems and recognizes that our futures are tied to solving these problems, but given our nature, we have to make money at it," Lawrence said. He recalled speaking last year to the U.N. General Assembly on disaster resilience -- the only person invited to do so from the business community -- and acknowledged that the desire for profits certainly holds dangers.

"I wouldn't suggest that they not take great care, but being paralyzed from action because of suspicion is not going to get us anywhere," he said. "Government doesn't have any money of its own. It has the money it extracts from the institutions that create wealth. If we're going to really have the resources necessary to focus on both mitigation and adaptation and risk reduction, then we're going to have to have some wealth creation associated with it, and it doesn't have to be at the expense of anyone else."

Lawrence said he sees opportunities in particular for businesses in moving key infrastructure out of coastal zones, building structures for urban agriculture, and getting food production closer to wastewater locations and to consumers. That's an area he said AECOM is working in, trying to figure out how to align the business to help regions where traditional food sources may soon no longer be available.

Daboub argued that in the absence of an international climate treaty -- and with little hope that any agreement will materialize until the next decade -- it becomes all the more important for businesses, environmental groups and policymakers to focus on ground-level changes to make countries more resilient to climate change.

"We can no longer wait for a bureaucrat in a dark room somewhere in Belgium or the U.K. or Washington to decide for us. We have to start making practical and pragmatic decisions," he said.

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