Climate Change and Business?
In addition to increasing temperatures and rising sea levels, global climate change represents a complex exercise for the great majority of businesses, which must frame the meaning, the costs, and the business and investment opportunities associated with this ongoing phenomenon.
For a large number of companies, action on climate change is embedded in some version of a “sustainability” or “green business” program aimed at improving environmental and business performance. These initiatives are typically focused on mitigation, or the reduction of greenhouse-gas emissions, rather than on building climate resilience in the face of risks such as cyclonic winds, heat waves, flooding and storm surge, and drought. The most effective of these sustainability programs, by whatever name, manage to reduce emissions and lower the environmental footprint of companies and their supply chains, by using renewable energies such as solar and wind power, improved energy and water efficiency, recycling, and reducing waste of all types. Companies that use these programs are viewed as responsible environmental stewards, and at the same time, reap the benefits of process efficiency and lowering their costs, as illustrated in the 2013 book, Eco-Business: A Big-Brand Takeover of Sustainability.
From Sustainability to Climate Resilience
The drive for sustainability will continue to generate opportunities in renewable energy, energy-efficient technologies, and other products that help lower emissions and waste. But the market potential in climate resilience is far larger.
After all, climate risks pose an increasing threat to business continuity, private and public property, supply chains, human health, and critical infrastructure. As I noted in a previous post, these risks drive the demand for a wide and growing range of products and services that help buyers better manage their vulnerability to climate risks: from climate-resistant seeds, to financial and insurance products that encourage resilience. In effect, the private sector is already in the business of climate resilience—although companies do not account for this business using climate-related terminology.
A First Inquiry into the Market for Climate Resilience
A new study attempts to shed some light on the growing market opportunity posed by climate resilience. The inquiry, by the Global Climate Adaptation Partnership in the United Kingdom and Grupo Laera in Colombia, will assess the markets for climate-resilience solutions in two sectors, agriculture and transportation, in three emerging markets: Colombia, South Africa, and the Philippines. These solutions are in the form of many types of products and services that help buyer better manage their exposure to climate risks, and they also include emerging investment models and public-private partnerships that help to reduce climate vulnerability.
The agricultural sector is recognized everywhere as the most vulnerable to climate risks. This pioneering study, expected to be completed in 2017, will examine the market for climate-resilient solutions in high-value agricultural commodity chains, including coffee, cacao, wine, rice, and maize. These commodities are important to the exports of each country, and generate the demand for climate-resilient solutions in local economies. These solutions include water-efficient technologies, drought-resistant seeds, applied climate and weather analytics, and new types of financial and insurance contracts.
In the case of transportation, the public and private sectors are closely related and the industry is likely to incur very high costs to achieve climate resilience. However, with trillions of dollars set to be spent on infrastructure worldwide in the next 10 years, there is a clear opportunity for resilience investments in the short term that save money during the lifetimes of the projects. Roads are the backbone of all agricultural supply chains, and crucial for many other sectors, such as tourism. Coastal infrastructure, including ports, adds a long-term dimension to the new study, with the prospect of stranded assets affecting company balance sheets and risk ratings. Both roads and ports are crucial for national and international trade, and their need for long-term, large up-front cost investments sometimes is met by public-private partnerships.
Lessons derived from this new study can applied to other sectors and geographies and make an important contribution to a rapidly growing market that remains largely hidden in plain sight.
This study will join a growing list of inquiries into private challenges and opportunities in climate resilience. For example, the recent report “Bridging the Adaptation Gap,” by the Global Adaptation and Resilience Investment roundtable, highlights the major challenges facing private-sector investment in climate-resilience projects, and outlines a menu of actions for facilitating the flow of private capital toward the global need for greater resilience.