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Sea Change by Regulators Spells Climate Risk but Potential Opportunity for Businesses

With major regulators making increasingly direct and clear statements about directors’ liability relating to the management of climate change risks, the “unforeseen” excuse is no longer going to cut it. In recent months major Australian regulators the RBA, APRA and ASIC have made it clear that the implications of climate change must be effectively considered in corporate decision-making.

The risks range from the obvious, such as increased physical asset exposure to the effects of extreme weather and the impacts of rising sea levels, to the more subtle, such as increased supply chain costs should material greenhouse emissions pricing be imposed or declining demand for an organisation’s products if low-carbon substitutes become cost effective (such as is starting to occur with renewable energy generation and electric vehicles).

For food producers, potentially declining agricultural yields in one location given changing temperature and precipitation patterns could potentially be offset by switching production to other geographies, though this approach carries other risks.

As evidence of the deleterious impacts impacts of climate change; its anthropogenic origins; and the liberal economic policies that have turbo charged it in recent decades permeates ever-more into the mainstream consciousness, another business risk is that left-leaning groups will gain more political control and may institute significant regulation to arrest further environmental degradation. This could adversely impact a wide range of businesses whose externalities are not priced into their products.

Even if this doesn’t occur at a political level, there are signs that communities have had enough, with dozens of grass roots campaigns to lobby change from organisations associated with various forms of pollution. Plastic waste is perhaps the most visible currently, with communities achieving single use bag bans in many jurisdictions and some announcing the phasing out of straws and single use containers. In terms of greenhouse emissions there are multiple community protest actions against specific coal, oil and gas projects, alongside a growing call for governments to ban new coal investment while accelerating moves to curb and reduce emissions.

And even if your business appears to have nothing to do with energy, transportation or agriculture it may not be immune from climate change. Coastal tourism, alpine sports and banks with exposed loan portfolios are three such examples, not to mention infrastructure managed by local and state governments. A few years ago there was even a backlash involving a million signature petition against beloved toy maker Lego for its co-branding deal with Shell, at a time when the oil major was planning to drill in newly accessible Arctic areas.

On the other hand, for some companies and industries, climate change also presents an opportunity. Adaptation to the many effects of a changing climate and rising sea levels; the decarbonisation of energy, transportation and industry; and measures to clean up the environment are likely to create value for many innovative organisations, particularly those who can demonstrate an authentic brand story.

Talk to Adaptive Capability today to understand the risks and opportunities of climate change to your business.

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Is your business ready to adapt to climate change? 

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A 10cm increase in sea levels is all it takes to treble the risk of major coastal flooding, exposing coastal assets and infrastructure. As warming increases and rainfall patterns change, millions of hectares of fertile cropland are at risk from heat, drought or flooding.

Overwhelming evidence shows that the climate is changing and warming at an unprecedented rate. The way we consume non-renewable products and services such as petrol from fossil fuels, and our addiction to materials such as concrete is contributing to creating a climate that will, within only a few decades, significantly impact the way we live.

On whatever scale it happens there is no doubt that the changing climate will have a deep impact to business: how we work and what we can make. Making your business adaptable and knowing how to adapt in the face of a changing climate is the focus of a new book aimed at helping businesses plan ahead to capture and preserve value.

It took over 25 years and changes to refrigeration, spray can and other systems to start decreasing the size of the hole in the ozone layer after the Montreal Protocol was signed. Tackling climate change is a much more daunting challenge, affecting a vast range of products, services and touching almost every company.

So what can businesses do? Some of the impacts being predicted by scientists include disruption to global food and water supplies, collapse of ecosystems, a range of new health challenges, displacement of populations and massive urban infrastructure challenges. Miami Beach just spent $400 million raising and installing storm water pumps to protect the iconic but low-lying Alton Road.

Increased public awareness about the true cost of a high consumption lifestyle will drive a backlash.  Industries that continue to produce products and services that consume and don’t contribute to our environment will probably need to change voluntarily or have change imposed on them by government action such as limiting licenses to operate, or imposing higher operating costs.

But what needs to change and how does a business innovate? The knowledge of knowing what is coming allows us to adapt and change before it’s too late.

Navigating the Adaptive Economy – Managing Business Risk and Opportunity in a Changing Climate provides business and leaders with diagnostic tools, cases studies and others’ experience in facing the difficult challenge of thinking ahead and changing the way they do business.

Written by David McEwen, a Director at strategic consultancy Adaptive Capability the book is the output from years of experience in helping business leaders understand what a changing climate might mean for their business and the services they provide. Packed with tools, data and case studies, it inspires businesses to plan for the consequences of climate change ahead of time so they remain productive.

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Ratified Paris, Now What?

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Now that major economies have begun to ratify the Paris Climate Accord, countries need to deliver on their pledges. But how? And what will this mean for businesses?

In part one of this article we identified that businesses would inevitably bear the brunt of country-level reductions to greenhouse gas emissions. In this blog we drill into what businesses should do to prepare.

While governments are initially targeting the low hanging fruit of the few dozen or hundred companies that produce the bulk of their counties’ emissions (think coal fired power stations and steel makers, for example), even this may affect many organisations’ cost bases as input prices for power and other affected items rise, unless you’ve already insulated your company by purchasing renewable energy.

Regulated efficiency initiatives to reduce energy consumption and emissions are also gaining pace, benefitting firms whose buildings, manufacturing processes and products are already highly efficient. Innovation in energy and emissions efficiency will become a key point of difference for makers of a wide range of products and services.

Emerging categories such as electric cars (charged from renewable sources) and autonomous vehicles (which eventually could reduce the total number of vehicles and radically reduce congestion inefficiencies, as well as being programmed to drive as efficiently as possible) take efficiency initiatives into the realm of disruptive technologies. Companies will need to think years and sometimes decades ahead when designing product innovations to ensure they are not left behind by technological upstarts.

Eventually, regulations will extend to a broader range of GHG-producing compounds, including the fluorinated gases used in TV screens and the HFCs that have replaced CFCs as a refrigerant and propellent in spray cans. This will spark innovation in the design of products or processes that currently rely on such compounds, as well as services or products to ensure that their use is tightly controlled and doesn’t lead to them escaping into the atmosphere, either during or following the product’s lifecycle.

While the Australian government is currently clinging to its Direct Action, “pay the polluter to pollute less” policy, inevitably that will need to give way to a “polluter pays” mechanism.

Meanwhile, governments will push the burden of achieving GHG targets onto future administrations, which will compound the level of rapid transformation that businesses will be forced to deliver as the Paris commitment deadline approaches. And there is a clear expectation from the United Nations that many countries’ commitments will need to be strengthened in coming years in order to limit warming to the agreed target of 1.5 to 2 degrees Celsius.

Companies that take the lead today will be well positioned when this crunch comes.

Call Adaptive Capability today to develop the strategy for your business.

 

Image Credit: blindholm / BigStock

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Ratified Paris, Now What?

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Recently ratified by major emitters such as China, India the U.S. and Europe, signatories to the Paris Climate Accord now need to deliver on their pledges. But how? And what will this mean for businesses?

The climate deal struck last year in Paris will take effect from 4 November 2016. The commitment requires countries to reduce their aggregate greenhouse gas (GHG) emissions – including carbon dioxide, methane and other gases that trap heat in the atmosphere – which are produced through the burning of fossil fuels and/or other industrial processes or land use change.

So far so good, but how will they deliver on their promises?

Given that businesses and the products they produce are accountable for a lion’s share of emissions, they will inevitably be expected to shoulder a lot of the burden of GHG emissions reduction.

Businesses cause GHG emissions through their use of electricity that is generated at coal, oil or gas power plants; from their vehicles and other transportation; the buildings they occupy; various manufacturing processes; their use of steel, cement and other compounds (that emit GHG’s in their production and/or use); and in their development and use of land.

The products businesses produce can, in turn, result in the production of GHG emissions while in use: car makers are an obvious example, but so are the manufacturers of air conditioners, TVs and thousands of other consumer products that rely on GHG-producing sources of energy or which are made with compounds and chemicals that can leach GHG’s into the atmosphere either during production, in use or after disposal.

The lesson for businesses is clear: plan for a much lower emissions future and develop a clear roadmap for achieving it. Changing the light bulbs is no longer going to cut it, and a whole of business approach is required including changes to the organisation’s product and service portfolio.

Call Adaptive Capability today to develop the strategy for your business.

 

Image Credit: Nicola Renna / BigStock

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To disrupt an industry, don’t mess with human nature

Climate change, barometer indicating global change

This article first appeared in The Fifth Estate.

It’s a decade or two from now. You’re the sole passenger in an Autonomous Vehicle. Coming around a blind corner, the car is confronted with several pedestrians blocking the narrow road. Far faster than a human driver, the computer determines its only options are to hit the pedestrians or crash the car into a wall. Both options will likely result in casualties – it’s the pedestrians or you. How would you want the the car to act?

A study recently published in the journal Science surveyed people’s attitudes with this scenario in mind. Unsurprisingly, the authors found that a majority believed AVs should be programmed to take a utilitarian approach to such decision-making, taking the option that would result in the least number of casualties. Paradoxically, but unsurprisingly, many of those same respondents declared they would be less likely to buy a car programmed that way for fear that it might be less beneficial to their own welfare.

Utilitarianism – the greatest good for the greatest number – is a fine concept that feels morally right to most people. Unfortunately it breaks down in practice with the people who find themselves part of the minority who are adversely affected by an event or change. Think of those who object to proposed public housing when it’s in their neighbourhood.

The study’s authors conclude that utilitarian programming of AVs is likely to reduce sales and therefore slow adoption of a technology that will ultimately save thousands of lives currently lost due to driver human error. Not to mention the myriad other potential benefits of AVs, a few of which I have previously chronicled.

This finding is symptomatic of many new technologies and process innovations that could help society make great strides in areas like energy efficiency or public safety, but somehow miss their full potential. The root cause of their failure often lies in failing to understand human nature.

Take occupancy sensors for zoned lighting control in office buildings. Only illuminate areas that are in use and you can bank significant electricity savings while reducing carbon emissions. Sounds like a no brainer. Yet I’ve seen plenty of places where this technology has been installed but has since been turned off at the occupants’ request.

“The floor doesn’t feel right when the lights aren’t all on,” is one comment I’ve heard.

“If the lights aren’t on in the adjacent meeting room then I don’t get enough light at my desk.”

“I get distracted when I see lights going on and off out of the corner of my eye.”

And at night, when such a system could be most beneficial, it turns out the remaining handful of occupants are freaked out by the idea of being in a small pool of light surrounded by darkness.

“What if someone creeps up on me – how will I know,” they say, ignoring the fact that unless any intruder is extremely stealthy and slow-moving they’ll give away their location when the lights come on in their area!

It’s UB-NIMBY-ism!

One can see this phenomenon as another example of UB-NIMBY-ism: “utilitarianism, but not in my back yard.”

Which brings us to policies to combat climate change by reducing anthropological greenhouse gas emissions – an example of UB-NIMBY-ism on a global scale. The majority who acknowledge the science understand that the way to solve the problem is to reduce global emissions. Quickly. To something very close to zero.

Yet while a few in the affluent West have adopted the frugal lifestyles associated with minimising one’s carbon footprint, the vast majority have done very little (apart from perhaps being a little more vigilant about turning the lights off and maybe wearing a sweater rather than turning the heater on).

And at the end of the day, even if everybody adopted the most energy efficient practices and technologies overnight, it would still not knock emissions down to anywhere near the required level.

Because those sorts of changes tackle the demand side of the equation. In this case what’s needed are measures to tackle the supply side. Measures that can only be enacted by governments, like punitive carbon taxes, revoking fossil fuel extraction permits and mothballing coal-fired power plants (and on the more positive side, kickstarting investment in large scale renewable energy and grid storage).

And at government level UB-NIMBY-ism is seen in world leaders’ calls for urgent action at forums such as the Paris COP talks last year, followed by limited concrete policy announcements upon returning home. Because in the absence of collective agreements to adopt supply-side measures, unilateral action could harm their economies, shifting mining royalties offshore and lining some other country’s pockets instead, without achieving any any environmental benefit.

It’s a thorny issue, and despite the apparent success of Paris the world still seems to be waiting for a compelling tipping point; a burning platform that forces voters and politicians out of their apathy and lethargy and provokes real action on that global scale. Unfortunately climate change is not the type of issue that creates the necessary sense of urgency. Even a warming-fuelled super-storm causing major damage to one of the world’s great cities is relatively quickly forgotten amongst the many issues that seem more pressing to politicians and their constituents.

And so we are forced to celebrate incremental successes: a new milestone for renewables generation here; a slow decline on coal-fired power plants there. All too little, too late.

As such, society will need to adapt to the new climate it has brought upon itself, necessitating many innovative products and services to deal with issues of urban and coastal infrastructure, healthcare, disaster management, food production, water supply and so on. Let’s hope that the urgent adaptation challenges we will face and the funds that will be needed to implement them do not fall victim to UB-NIMBY-ism. Reviewing the rhetoric on coastal protection in the wake of this month’s East Coast storm, however, that seems unlikely.

 

Image Credit: Ronald Hudson / BigStock

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It’s time to talk resilience

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This article first appeared in The Fifth Estate.

With the recent baton change in Canberra there’s a fresh opportunity to change the dialogue about climate change. 

While Prime Minister Turnbull has publicly affirmed his commitment to the Coalition’s established policies (the increasingly expensive Emissions Reduction Fund and relatively unambitious mitigation targets tabled ahead of this year’s UN climate talks in Paris), there’s a critical policy area that is currently receiving little attention: adaptation to the impacts of a changing climate.

While it may still be politically challenging to talk about climate change in Australia, there is a word, which fairly neatly encapsulates a response to the adaptation challenges we face: resilience.

Australia needs to develop a national resilience strategy

It’s important to recognise that adaptation and resilience are not strictly environmental concerns. They are far more broad-ranging, and cannot be managed with silo thinking by just one ministry or body.

An effective national resilience strategy would need to take a holistic approach to the challenge and develop policies to protect Australia’s assets (both natural and built), jobs and people while creating new opportunities for managed prosperity. In so doing it would recognise that effective adaptation starts with mitigation: a contribution to limiting the extent of climate change is still critically important.

The NRS would seek to align outcomes and contribute to strategy and policy setting within existing government departments and agencies ranging from Agriculture to the Attorney General’s Office, Industry, Health, Education, Employment, Infrastructure, Environment, Immigration, Trade and Defence. Its development would involve close liaison with states and territories. A potential mandate for an NRS would include:

  • Ensuring the stability and security of our:
    • Food and agricultural industries, considering likely impacts to local and global agricultural productivity (including climate, weather, water, pollinator and invasive pest impacts) and developing programs to ensure any short to medium-term regional benefits of a changing climate can be exploited, while capitalising on export opportunities and reducing reliance on imports for key crops
    • Fresh water supplies, covering irrigation, environmental and urban flows
    • Energy supply and distribution including infrastructure protection, fuel switching and exploring clean energy export opportunities
    • Transport networks, again covering infrastructure vulnerabilities and reduced carbon intensity
    • Cities, building on the work of municipal adaptation strategies that have already been developed in Australia and abroad
    • Natural environment and ecosystems (including interdependencies upon which agriculture and urban environments rely)
  • Encouraging industry transformation or transition to substitutes (for example through the provision of incentives or removal of subsidies) for other high emissions industries, such as concrete and steel, which are estimated to contribute (including associated energy emissions) around five per cent of global emissions each.
  • Boosting our health sector to better cope with heat wave emergencies, other weather related disasters and challenges such as the spread of insect borne diseases. An emphasis on prevention of potential health issues from such emergencies would also flow into related areas such as building design and biohazard reduction.
  • Guiding the transition or transformation of exposed industries such as the billions of tourism dollars reliant on the integrity of the Great Barrier Reef, the Snowy Mountains’ snow, our glorious beaches and other natural assets. Some work in this direction has already been started by Austrade’s Tourism Industry Resilience Working Group.
  • Policies for coastal exposed and flood prone infrastructure and property, including:
  • Harmonisation of state and local government policies to provide planning certainty to property owners and businesses
  • A clear framework to help guide local decisions around the level of sea level rise (or other exposure) at which “protect and defend” strategies would give way to “abandon and retreat”, and how such approaches would be funded as they pertain to property or infrastructure of private, local, state or national significance; and
  • A hazard assessment tool, coupled with development guidelines for new structures and alterations to existing buildings. This approach might be modelled on the concepts of the various bushfire threat levels and associated construction requirements.
  • The federal government may also be able to facilitate (with the states) the development of a legal framework that will help councils implement changes to local planning instruments while minimising the risk of costly legal action from disgruntled property owners who would oppose such changes due to their impact on values.
  • Strategic hazard reduction and emergency preparedness / coordination (for example covering extreme weather risk such as bushfire and flooding) and again harmonising planning considerations for future development. This would build on the work of the ANZEMC.
  • Development of national and regional population strategies.
  • Formulation of policy relating to climate migrants and their resettlement.
  • International aid, development assistance, defence and related programs to help vulnerable countries improve their own resilience.
  • Education, research and skills development, to ensure the country has the right capabilities to support the types of initiatives outlined above.
  • Systems to measure progress towards achievement of the strategy’s objectives.

By inference the strategy would also consider the means by which the country can achieve and ideally exceed its greenhouse emissions abatement targets.

Why this should be an urgent priority

We’re already starting to experience climate change and its manifold effects. Businesses that are canaries in the coal mine are to be found in sectors such as agriculture, insurance and emergency management. To the trend watchers in such fields it is increasingly clear that the climate is changing, and that the effects are likely to be generally negative and far reaching.

A changing climate (and the inference of human causes) may affect businesses and communities in several key ways:

  1. Increasing risk through the direct and secondary impacts of warming, extreme weather and rising sea levels. This will flow through to increased costs of insurance, asset protection and repair. Urban businesses and those dependent on coastal infrastructure or suppliers are not immune.
  2. Farmers, vintners, tourism operators, water utilities and others who depend on the continuing provenance of a natural asset such as a rice field, river, coral reef, snowfield or beach are increasingly exposed.
  3. The potential impost of carbon taxes/pricing, international trade sanctions and/or societal backlash on carbon-emissions intensive businesses. Even relatively environmentally benign industries may be affected by increasing costs if their supply chain includes emissions intensive processing or transportation.
  4. Some industries will actually benefit by providing goods and services that will be more sought after as climate change progresses. Coastal protection and storm water infrastructure are two amongst many examples.

In time the effects of climate change will dominate global and national economies. Countries that have realised and planned effectively for the challenge will thrive, perhaps like the Netherlands, which commits a material proportion of its GDP to an ambitious 200-year plan to defend its low lying nation against sea level rise and river flooding.

Even so it will be a fraught journey, with certain industries and low lying communities eventually needing to be abandoned. A country that plans ahead will reduce the chances of its citizens becoming climate or economic migrants, or of plunging its people into civil or regional conflict over increasingly scarce water and food resources in the second half of this century.

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An unexpected windfall

Cable Recycling 230467069For most people, recycling is something we typically take for granted. But with increasingly sophisticated waste processing facilities, there are opportunities for organisations to capture residual value from old assets and avoid unnecessary costs simply through small changes to their contractual processes.

Take an office refurbishment, for example. When a company has been in its premises for 10 years or more, it is not uncommon to embark upon a significant refurbishment. Often this involves stripping out (demolishing) the old fit-out, a process that produces significant waste.

Many companies will simply engage a construction contractor to undertake the works. That contractor will then appoint the various trades to undertake both the strip out and the construction of the new fit-out. Whoever winds up with the job of removing the old environment may find themselves with a gold mine of opportunity, ranging from good quality furnishings in reasonable condition that can be on-sold; through to carpet tiles, copper cabling, air conditioning units, other metals, glazing and in some cases even plasterboard (drywall) and structural concrete.

By diverting these waste streams away from landfill, an immediate saving can be made by avoiding tip fees (which vary, but are generally in the hundreds of A$ per tonne in Australia).

Secondly, waste transportation and handling costs can be avoided if the recoverable value is sufficient for it to be profitable for a recycler to collect the waste material from a building site.

Thirdly, net of transportation and processing, some materials have a sufficiently high recoverable value that they can yield a profit, that may be split between the recycler and the strip out contractor.

Most organisations undertaking an office renovation (and even a number of construction contractors) are not well versed in the relative recyclable value of different items and materials. Furthermore, the scope of what can be profitably recycled is expanding every year. As such, the recoverable value opportunity often sits with the organisations that are at the bottom of the contracting food chain. Or worse, items with high recyclable content or resale value wind up in landfill.

As an asset owner, i.e. a company that is about to undertake a refurbishment, or a landlord whose tenant has agreed to a negotiated make good settlement at the conclusion of their lease (and therefore has walked away from their fitout), there is an opportunity to carve out some of that recoverable value by engaging directly with a specialist recycling company (or several recyclers, each specialising in separate materials).

While it involves a little more coordination, and a slight change to the typical contractual structure (which should be negotiated in advance), savvy asset owners can:

  1. Avoid unnecessary landfill fees;
  2. Yield a handy financial contribution (it’s a rare but welcome change to be sending invoices rather than receiving them as the client of a fit-out project!); while
  3. Improving the sustainability outcomes of their project.

Thinking outside of the square can result in innovative disruption to normal asset lifecycles. Talk to Adaptive Capability today about this and other ways benefit your business.

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Legal innovators profit from changing climate

JusticeThe legal fraternity is often good at spotting opportunity. So it comes as no surprise that innovative practices are developing practice specialities around carbon markets and climate change, appealing both to major greenhouse gas emitters and the parties that are affected by their emissions.

According to DLA Piper, for example, climate legal risk accompanies a decision that is either affected by climate change, or a decision that will affect climate change.

We’ve identified a number of opportunities for legal services in this area and predict there are plenty of fees to be made over the next couple of decades. For example:

  • Helping corporates around compliance with carbon mitigation legislation such as emissions reduction and trading schemes (as such policies are applied in different jurisdictions) and carbon footprint reporting obligations.
  • Supporting insurers and other aggrieved parties launching legal actions against governments (or corporates) for failing to adapt their infrastructure to deal with extreme weather events that are becoming more frequent/severe as a result of climate change. An early example was a suit by a U.S. Insurer against Cook County municipalities for failing to take action that would have reduced flooding around Chicago in April 2013 (later retracted, but an interesting PR exercise none the less).
  • Plaintiff and defendant representation as individuals and companies face property devaluation or other costs due to governments’ actions or inaction around preparing for sea level rise. There are potentially good fees from well heeled coastal property owners attacking new development restrictions aimed at reducing the risk of property damage from coastal inundation as well as from local governments attempting to defend such regulations.
  • A nascent class action market against persistent GHG emitters, particularly those found to have actively funded the climate denial campaign or hindered the enactment of sensible legislation to avert CC. Low lying island states whose very sovereignty is at risk from rising sea levels are one such example. One group has recently won a court action against the Netherlands Government for its failure to do enough in terms of emissions reduction.
  • Actions by investors against companies (particularly in the resources sector) in the event that valuations fall due to legislation aimed at limiting their ability to exploit fossil fuel reserves. A similar risk may apply to credit ratings agencies whose assessments fail to take account of the possibility of stranded assets.

Talk to Adaptive Capability to find out how your business may be affected by climate risks and where the opportunities lie.

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How resilient is your supply chain?

How resilient is your supply chain?With supply chains increasingly complex and global, it’s difficult to manage the risks effectively.

A recent Hepatitis A outbreak from frozen berries labelled as Australian but sourced from China shone a spotlight on several aspects of supply chain risk, predominantly product liability. Around the same time the 2015 FM Global Resilience Index prepared by Oxford Metrica showed Australia slipping 10 places since 2014, with perceived supply chain risks increasing markedly.

Supply chains are exposed to a wide variety of risks ranging from corruption, counterfeiting and safety concerns to the ethicality, sustainability and provenance of sourced products and, critically, the resilience of both producers and the logistics methods used to move goods. Customers depending on your products want to ensure they can obtain them when required, with consistent pricing, known quality and compliance with applicable standards and laws. However, business’ efforts to make supply chains lean (efficient and cost effective) may also compromise their resilience.

With many supply chains highly complex and spanning multiple borders, the risks are growing. It’s not sufficient simply to talk to your organisation’s direct suppliers. For example, Japan’s entire automotive industry was crippled following a relatively minor 2007 earthquake in Kashiwazaki in Niigata Prefecture after a single specialised supplier that produced piston rings for every brand – some seven layers down the supply chain – was knocked out. In that classic case of concentration risk the impact was limited to about a week as the industry rallied to help this critical supplier recover their operations, but it’s not always that simple.

Information Technology giant Hewlett Packard was not immune when floods ravaged Thailand in 2011/12, knocking out key suppliers’ manufacturing facilities, causing production delays and a reported 20% spike in input costs. While most organisations’ enterprise risk assessment processes consider the impacts of a loss of a key supplier, in many cases the analysis of supply chain risks is relatively superficial. Unless an organisation has considerable buying power it may be difficult to implement cost effective risk treatment measures.

The effects of a changing global climate are beginning to exacerbate supply chain resilience risks in the following direct ways:

  • Extreme weather events are becoming more frequent and/or intense in many regions. Depending on the area this may include devastating storms, flooding rains, droughts and heat waves, the latter also triggering bush fires.
  • Many coastal areas are exposed to storm surges, the impact of which is being magnified by higher wind speeds and rising sea levels.
  • The overall warming of the atmosphere and oceans is increasing average temperatures and changing rainfall patters, affecting agricultural and forestry production.
  • Marine food supplies are also under threat as a lot of the excess carbon dioxide being emitted into the atmosphere from the burning of fossil fuels (coal, oil and gas) dissolves into sea water and forms carbonic acid, increasing acidity and threatening krill and other crustaceans at the bottom of the food chain.

Some countries are significantly more exposed to these impacts than others given their geography and economic capacity to adapt their infrastructure accordingly.

Costs may also increase if the jurisdictions within which suppliers operate impose new regulations or taxes. Carbon taxes are a current case in point, and for products that are energy intensive or whose production results in other forms of greenhouse gas emissions, their imposition could materially affect pricing. If alternate suppliers exist whose goods are not subject to such taxes, their pricing could become preferential. The same goes for water intensive industries in regions where supplies are in decline.

In another case, food suppliers already grapple with periodic droughts and storms that cause supply shortages and consequent price hikes. Retail prices for bananas, for example, have soared over 500% in the months following several recent Queensland cyclones.

And paying a closer eye to local conditions can also pay dividends for a range of businesses whose demand and product range is correlated to the weather. This includes categories such as fashion, gardening and even fast food. As local climates change this will in turn affect longer term product range and market geography decisions.

Meanwhile, responding to changing consumer sentiment regarding climate change and environmental protection, corporate, government and individual purchasers are increasingly interested in ensuring that the products they consume are sourced and produced in ways that minimise their environmental impact.

To inform purchasers and provide product differentiation, a sub-industry of so-called “eco-label” schemes has sprung up in the past decade or two. There are currently over 450 such labels covering dozens of categories and thousands of products, on top of existing labels for quality management, food nutrition, standards compliance and so on.

The problem is that the quality of such schemes varies considerably and even corporate procurement professionals are often bamboozled by the sheer range of environmental certifications. Some only cover a fairly narrow aspect of environmental impact, some may cover a particular stage of processing but not the full supply chain or lifecycle impact, some lack independent assessment or verification, while others are little more than marketing fluff. Notwithstanding that in many cases corporate purchasers don’t prioritise environmental considerations in their product evaluation process to the extent that it has a material influence on supplier decision-making.

Supply Chain Risk Heat Map

At Adaptive Capability we specialise in helping businesses manage risks and capture opportunities arising from the manifold emerging impacts of a changing climate and other macro-environmental issues. Our risk assessment process helps our clients assess multiple levels of risk and opportunity across existing suppliers or as part of selection processes. Benefits include:

  • improved supply chain resilience;
  • reduced cost variability;
  • better control of reputational risk;
  • a more sustainable supply chain; and
  • increased market attractiveness of your products or services.

Talk to Adaptive Capability to enhance and safeguard your business.

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Autonomous Vehicles – how a technology disruptor could be good for people and planet

Autonomous Vehicles - how a technology disruptor could be good for people and planetWhy is technology giant Google developing self-driving cars?

For several years, Google has been testing a fleet of autonomous (self-driving) cars. If this seems like a radical departure from their core business of Internet search and advertising, you might be underestimating the depth of their vision. Ultimately, a future of self-driving vehicles could be transformative, benefitting people and planet in a host of ways, though to the detriment of a number of existing industries.

In this first blog in a series on AV’s we look at some of the direct benefits: safety and efficiency.

Safety

Where human drivers are often inaccurate, inconsistent and somewhat irrational, a car with a computer behind the wheel is the opposite. As such, the only accident Google’s fleet of autonomous cars has notched up in nearly a million miles of driving was caused by the driver of another vehicle.

Bristling with sensors that enable the computer to analyse what’s happening around it in three dimensions and 360 degrees, a self-driving car is applying much more rigorous analysis to its driving decisions than a human driver ever could. It never takes its “eyes” off the road to change the radio station, shout at the kids in the back seat or furtively check a text message on its phone, meaning no concentration lapses. So they’re pretty safe (unless the computer ever crashes).

Fewer accidents would ease the stress on emergency services and hospitals, although government revenues would dip to the extent that there would be fewer speeding and DUI fines issued. Of course, fewer tickets means less cases to be contested, freeing up the courts for more serious infringements. It would also mean the end of arguments about who is going to be the designated (non drinking) driver. And clearly, both the smash repair and taxi industries could be adversely affected.

Efficiency

Where human drivers often rev their engines, accelerate and brake heavily, frequently exceed the most efficient speed given the aerodynamics of their vehicle and generally drive unevenly, a computer can be programmed to optimise fuel efficiency. So that’s an initial tick for the environment.

Network the car to traffic control systems and real time traffic data (such as Google already collects from users of its phones and Maps app), and the computer can now optimise your route to avoid traffic congestion, saving both time and fuel.

And things get really interesting when you start to get a sizeable number of autonomous vehicles on the roads. If they can sense and talk to each other, then road congestion would really ease up – they’d be able to negotiate lane merges and intersections more smoothly; pull away from traffic lights in unison and so on. In turn, traffic control systems could take data from cars and use it to synchronise traffic light sequences in real time along major routes. Following distances could be reduced between autonomous vehicles, since each car in a contiguous convoy would know the intentions of the others: only the lead AV would need to maintain a traditional safe distance to the human-driven vehicle in front.

These innovations could significantly increase the capacity of existing roads and again reduce journey times and fuel or energy wastage. And on roads away from high pedestrian or cyclist zones, speed limits for AV’s could potentially be increased.

Benefits multiplying

In this post we’ve only scratched the surface of the profound impacts broad adoption of AV’s could have. In the next instalment of this series we’ll look at potential impacts to the way we design cities plus how the effects might be felt in other parts of the transportation sector.

But back to the question of where it fits into Google’s strategy?

Well, one reason is that if you no longer need to devote your attention to driving, it could be pretty boring being chauffeured by your car to your destination. And to Google that means idle eyeballs looking for content and therefore potentially being exposed to ads. AV’s are likely to feature sophisticated entertainment, app and browsing options.

 

Talk to Adaptive Capability today about what the future means for your business.

Image credit: Liushengfilm/ShutterStock

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