Companies take a closer look at investing in climate change resilience -- report

For thousands of U.S. businesses that survived the Great Recession, 2012 was supposed to be a recovery year -- when customers started spending again, balance sheets shifted from red to black, and profitability became more than a wistful idea.

But while economic conditions brightened last year, nature conspired to disrupt business and commerce in ways never before seen.

While much of the West and Mississippi River Valley broiled under fire and drought, the Eastern Seaboard and Great Lakes endured relentless wind and rain, punctuated by a rare mid-Atlantic derecho and three debilitating tropical systems: Tropical Storm Debby, Hurricane Isaac and the unforgettable Superstorm Sandy. Tornadoes came early and often across the South, Great Plains and even Hawaii, while Alaska emerged from its coldest, snowiest winter on record.

The physical damage -- to offices and commercial buildings, industrial plants, communications networks, utility grids, streets and highways, sewer systems, and other business infrastructure -- rose into the tens of billions of dollars, not to mention the billions more in lost sales, productivity and wages that keep the economy humming.

While many businesses muddled through, hoping for better conditions in 2013, others saw the year as a benchmark against which to build a new, better and more resilient future as climate change ushers in new extremes and associated business disruptions, according to a comprehensive new report from the Center for Climate and Energy Solutions.

The report, titled "Weathering the Storm: Building Business Resilience to Climate Change," is being released this morning to an audience of business executives, policymakers, nonprofit leaders, agency officials and journalists in Washington, D.C.

Leaders of the independent nonprofit, the successor to the Pew Center on Global Climate Change, say the 94-page report should offer a blueprint for businesses to better prepare themselves and their customers for a future where the everyday thrum of commerce will be met by the periodic drubbing of wind, waves, floods, fires, droughts, heat waves and other extremes of nature.

"Companies know how to navigate a changing business environment. Now they face a changing physical environment, as climate change leads to more extreme heat, drought and flooding," C2ES President Eileen Claussen said in a statement announcing the group's findings.

"Many companies are asking whether they've entered a 'new normal,'" she added. "They need help assessing and managing these rising risks to the bottom line."


Growing awareness among big companies

Beyond helping companies understand the effects that a warming atmosphere has on business and identifying strategies for coping, the C2ES report also "provides a detailed snapshot of the state of resilience planning among a cross-section of global companies," according to the organization.

For example, C2ES found that 90 percent of companies included in Standard & Poor's Global 100 Index identify extreme weather and climate change as risks, and most have experienced climate impacts already or they expect to within the next decade, according to the report.

Among the top concerns identified by the S&P 100 firms were damage to physical facilities; loss or disruption of water, power supplies or both; the disruption of supply and distribution chains; and generally rising costs to operate in a more volatile environment with greater frequency and intensity of severe weather.

Yet while most of the companies evaluated for the report said they were aware of these risks, relatively few are investing money or other resources to shore up infrastructure or otherwise protect their businesses from potential climate disruptions.

Meg Crawford, a C2ES analyst and co-author of the report, said in an interview that many business leaders view climate change as among a variety of issues to be handled by "centralized risk assessment departments" whose main purpose is to minimize or mitigate negative effects from expected and unforeseen events.

Traditionally, such departments have struggled to make a distinction between an unforeseen weather emergency -- such as a summer thunderstorm that results in a temporary electrical outage -- and what many see as a more profound shift in the climate, one characterized by more frequent extreme weather events and a heightened intensity and duration of such events.

An issue that no longer seems marginal

At the same time, corporate decisionmaking is often ruled by profit principles. Spending money on measures that guard against climate impacts, for which the return on investment is either intangible or far out in the future, is often viewed as a low priority or even wasteful by financial managers.

"Unfortunately for a lot of companies, these types of issues only become relevant after they've experienced an [extreme weather] event firsthand, one that results in a facility being destroyed or having to be closed for a long time," Crawford said.

For a growing number of companies that now face annual threats from weather events, Crawford said, "They're starting to look at their continuity plans, their emergency plans, their capital investment plans, and they're starting to ask if the standards and contingencies they have in place are effective anymore."

One such firm is National Grid, a supplier of gas and electricity for roughly 7 million people in Massachusetts, Rhode Island, and upstate and western New York. The company -- which appears as a case study in C2ES's report along with five other firms representing a diverse cross-section of the U.S. and global economy -- also manages the power grid of Long Island, N.Y., under a contract with the Long Island Power Authority.

Fred Kuebler, a National Grid spokesman, said the firm began taking steps to assess and respond to climate risk 10 years ago, when winds from Hurricane Isabel swept across New York, causing an estimated $90 million in damage.

Since then, it has maintained its electricity and gas delivery systems through extreme summer heat and winter cold, multiple ice storms, record blizzards, Superstorm Sandy, and most recently the February 2013 nor'easter that brought 25 inches of snow and hurricane-force winds to Massachusetts.

Bets on resilience pay off

"From a utility perspective, we have recognized the importance of investing in resiliency initiatives so we can better respond and recover from these major storm events," Kuebler said, adding that other business sectors with large regional customer bases would benefit from similar planning.

More than develop contingency plans, Kuebler said National Grid will spend $10 billion over the next five years to shore up its existing grid and upgrade infrastructure, including things like removing vegetation from power line rights of way, waterproofing electricity substations, and replacing old and vulnerable electricity conduits and gas lines.

"These kinds of things don't get fixed overnight," he said. "But we believe over time our customers will benefit from making these systems more resilient to these kinds of extreme storms."

The C2ES report, while targeted to U.S. businesses and policymakers, draws on the lessons and experience of global firms in a variety of sectors, including Bayer AG of Germany and Rio Tinto PLC, a multinational mining firm with offices in the United Kingdom and Australia.

These firms, too, are wrestling with challenges brought on by weather fueled by climate extremes.

Rio Tinto, for example, suffered work stoppages and production drop-offs last year when cyclones damaged facilities and infrastructure supporting its coal, iron ore, bauxite and uranium operations in Western Australia, Queensland and the Northern Territory, according to the report.

Since 2002, the company has engaged in a variety of climate change mitigation activities, including issuing guidance "to describe how managers can apply the company-wide risk analysis framework to energy and climate change risks."

Click here to read the report.

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