When it comes to climate change, companies and investors alike tend to focus on reducing greenhouse gas emissions. But businesses increasingly face physical risks from global warming as well.
“It’s not just companies with oil rigs and smoke stacks,” says Rebecca Henson, senior sustainability analyst with Calvert Investments. “It’s any business with operations.” The risks range from floods damaging facilities to droughts threatening the availability of raw materials, although experts shy away from attributing specific weather events to global warming.
Consider this: In part because of extreme weather events, economic and insurance losses set records last year, with more than $148 billion in overall losses, according to Ceres, a nonprofit that works with businesses on sustainability issues. Such losses are a matter of particular concern now that the Securities and Exchange Commission requires companies to disclose their risks from climate change.
The answer for companies is to find ways to protect their assets against such risks. Businesses tend to face industry-specific threats, so their approaches often differ. Here’s a look at what companies in three sectors are doing.
For food and beverage manufacturers, perhaps the biggest issue relates to the unpredictability of the water supply. A severe drought could deplete the available supply. In other instances, the quality of water might be affected.
Greg Koch, managing director of global water stewardship for Coca Cola Co., points to 2009, when historic flooding in the Southeast U.S. knocked out Nashville’s municipal water treatment center. “Our plant was shut down for two weeks,” says Koch, pictured at right.
About five years ago, the Atlanta-based company launched a major effort to address these threats. In 2008, working with its almost 300 bottlers, which manage about 900 plants, Coca-Cola mandated that each facility form cross-functional teams to put together water protection plans addressing specific problems in their area. And in 2004, it launched an effort with its bottlers to develop a new “water stewardship strategy.”
One part of the strategy focuses on plant performance, mandating that all water be cleaned, even when not required by law, to protect against poor quality, and that facilities boost efficiency by 20% by this year. Other parts include studying watershed vulnerability and coming up with protection plans, particularly in developing nations.
There are a myriad of risks to power companies, ranging from a stepped up need for electricity during heat waves to damage to generation, transmission and distribution facilities as a result of storm surges and flooding. For that reason, “we’re taking a robust look at all of our assets,” says Walter Fromm, a manager at U.K.-based National Grid, which operates in the Northeastern U.S. and the U.K. Fromm is based in Waltham, Mass.
After historic flooding in New England in 2010, the company launched an in-depth study of electric substations in Rhode Island to assess their risks from flooding, especially in a so-called 100-year flood plain. Now, the company is considering taking steps such as relocating substations from low-lying areas to higher ground and placing others on stilts, says Fromm, pictured at right.
The company also tested its liquefied natural gas facilities for their ability to withstand coastal storm surges or high winds; when necessary, it retrofitted those plants, as well. And it started a “water intrusion” program to replace underground pipes deemed unable to withstand flooding. Similar work has been done in other parts of New England and in the U.K.
Separately, National Grid mandated two years ago that all new projects be submitted to a senior level committee for review—and that they include plans for how to include ways to adapt to climate change.
Insurers and reinsurers pay for the losses experienced by the businesses and organizations they cover. Perhaps the enterprises with the most at stake are reinsurers and, not surprisingly, they’re the players that have been most active in addressing risks, according to Ceres.
“These climate shocks are fundamentally disturbing the business of our end clients, whether they’re corporations, insurance companies or governments,” says Nikhil da Victoria Lobo, senior vice president of global partnerships of Zurich-based Swiss Re, pictured at right.
Over the past five years, Swiss Re has stepped up its work with municipalities and corporations, advising them on how to map out their risks and analyze the costs and benefits of various strategies. Example: examining the pros and cons of building a high seawall in an area deemed prone to excessive flooding. If the risk can’t be reduced sufficiently, the next step would be to investigate buying weather-indexed insurance that helps protect against losses. In addition, Swiss Re is doing everything from selling catastrophe bonds to offering new types of weather insurance to farmers in Ethiopia.