RC

Resilience to Climate Change in Globally Interdependent Business

Businesses will be stronger and more resilient by adapting to climate change risks.

The Problem: Climate change poses complex adaptation challenges for business not only because of uncertainty associated with the timing and magnitude of projected changes but also due to the interconnectedness between risks and impacts in the modern globalized economy.

The Solution: Drawing on practical experience from forward-thinking WBCSD member companies as well as existing published literature on climate change, the solution aims to help companies understand climate risk and build resilience. By focusing initially on one or more supply chains to serve as case studies, it will be possible to consider linkages and interdependencies among companies, sectors and countries. This will provide the foundation for a holistic and cross-sectoral approach to building resilience in the global business community.

The Business Case

  • It improves risk management. Long-term climate changes will be systemic, influencing many parts of environmental, business and societal systems with a wide web of connected impacts that could bring risks (and potentially opportunities) of different scale. When risk interconnections are “unpacked,” it becomes evident that there is more at stake than just what is obvious. Like the complex system that creates the risk, modern business is globalized, interconnected and interdependent, both vertically (throughout the value chain) and horizontally (companies within the same sector). This can further influence and complicate profiling business risk for a company.

  • An example. The 2011 floods in Thailand caused a number of computer hard disk (HD) drive manufacturers to shut down. Aside from HD manufacturers that were directly impacted by flooding, the domino effect of this incident resulted in a global shortage of HD drives impacting the sector’s customers: computer manufacturer Hewlett Packard lost approximately US$ 2 billion, NEC cut 10,000 jobs worldwide amid fears its platform business was hit by the flooding, consumers spent $5 to $10 more for each hard drive and ultimately for each computer they purchased.

Timeline

Now - Year 1

  • Months 1-2: Confirm the scope and boundaries of the analysis to be undertaken in terms of geography and select the supply chain(s) to be examined (potentially starting with just one illustrative supply chain).

  • Months 3-5: Conduct a review of existing literature and approaches to climate change adaptation/resilience in business, specifically those relevant to critical infrastructure and global supply chains, to identify useful sources and also gaps in existing knowledge and understanding.

  • Months 6-8: Apply “what if” climate risk scenarios (guided by existing published literature, such as that referenced in IPCC AR5), hold cross-sectoral workshops to stress test (i.e., understand the increased vulnerability/impact), identify hot spots at the interface between companies, sectors and countries where holistic multi-stakeholder collaboration is essential in order to reach effective solutions and identify potential solutions and adaptation measures.

  • Months 9-10: Communicate findings on impacts/risks and potential resilience/adaptation measures to wider group of interested businesses and stakeholders. Solicit feedback.

  • Months 11-12: Compile project report and plan next steps.

Years 2-6

With enough support, over the longer term:

  • Extend the analysis to other supply chains/value chains.

  • Link to wider stakeholders and other relevant adaptation initiatives to share knowledge and leverage the outputs from the project.

  • Draw on the pilot-scale work to develop adaptation guidance/toolkits for business based on emerging findings from the work.

Enablers

Partnerships. Holistic multi-stakeholder collaboration.

Policy. Adoption of regulations to make climate resilience a priority for critical public infrastructure.

Awareness, capacity building, education.

  • Improving common understanding of potential climate risks.

  • Sharing of best practices.

Data and Technology

  • Improving data availability on climate change at local level.

  • Developing tools for assessment and risk management.

Barriers

  • Lack of common understanding of potential risks. The current state of awareness, understanding and management of these risks within business is at an early stage.

  • Lack of data availability. Scenarios require regional climate modeling data as adaptation requirements are likely to be locally specific. Companies need to become more familiar in use of the data sets that are available.

  • Lack of tools to effectively assess and manage risk. Currently there is a lack of effective assessment tools and standards that can be applied across sectors and/or supply chains.

Relevant priority areas