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#SydneyStorm a wake up for a global city

#SydneyStorm a wake up for a global cityWhat are the implications of a new climate normal? Sydney, Australia has just been pounded by what has been hailed by some as the storm of the century. Three days of heavy rain and sometimes cyclonic strength winds, produced by a low pressure system off the East coast of the continent, has caused damage and disruption over a 300km section of coastline centred on the global city. Coming in mid April it was unseasonably early for this type of event. With the full damage bill still to be counted and hundreds of thousands of homes and businesses still without power, the insurance industry is already bearing the brunt with tens of thousands of claims amounting to hundreds of millions of dollars. While the level of damage is small compared to some recent weather related catastrophes, it nevertheless provides a salutary reminder of the types of events, which globally are expected to become both more frequent and more intense over the coming decades*, as shown in the illustrative figure below: Physical effects of climate change There are several initial take-aways from the recent storm when considering the business impacts of future events:

  1. Coastal property is exposed. A government wave buoy off Sydney recorded the largest off-shore wave in the area since such record-keeping began, at 14.9 metres. The winds whipped up a storm surge, which encroached to near record levels in some areas, coming within metres of homes. The level of beach and dune erosion increases the risk of property damage from the next storm. Increasingly, councils and insurers will be forced to reassess the risks of further coastal development, putting values at risk.
  2. At some point governments may also take action on flood plain exposures. Properties on flood plains were literally swept away causing tragic loss of life, with images reminiscent of the Lockyer Valley tragedy in 2011.  In that case the community chose to rebuild on higher ground. As the Brisbane floods showed, however, thousands of homes and businesses are built on exposed land, significantly increasing damage and disruption levels.
  3. Major cities are far from immune. Considerable surface-flooding was experienced in several parts of Sydney, with road closures and dozens of vehicle rescues. Ageing storm water infrastructure needs to be expanded significantly to cope with extreme precipitation events, a process municipalities such as Chicago, Illinois and Miami Beach, Florida have already commenced following major or repeated inundations.
  4. Disaster response, hazard reduction and recovery is a growing business opportunity. For example, disaster warning aggregator, Aeeris (AER.AX) floated on the Australian Exchange in late 2014. While its debut has been modest it is a sign of growing innovation and demand in the sector.
  5. More storms equals lower business productivity. For example, to ease the stress on the transport system the state Premier urged employers to show flexibility and allow employees to stagger their commutes or go home early. Multi-day electricity supply disruptions are also taking their toll on businesses.

Global environmental shifts are disrupting business-as-usual, with a range of direct and indirect impacts. Talk to Adaptive Capability today to find out how to manage these risks and identify value creation opportunities for your business.

*Note: it is not yet clear whether the particular East Coast Low conditions responsible for this week’s storm will in future lead to an increase in the frequency or severity of such events. Future climate predictions exhibit a high degree of regional variation and further research is required. This link provides further discussion of some of the forecasting challenges.

Image credit: Prudkov/ShutterStock

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Healthcare to feel the Heat

Healthcare to Feel the HeatWith growing evidence that our climate is changing, we predict the key health challenges arising from a warmer climate:

  • Heat related illnesses and mortality from exposure to extreme temperatures. This will particularly impact on people who work outdoors or in non-air conditioned environments, plus infants, older people, the ill and obsese, who are more susceptible to heat stress and dehydration. Heatwaves are already a leading cause of death compared to other types of natural disasters (particularly in developed nations where preparedness levels for violent storms and earthquakes generally lead to significantly fewer fatalities than those affecting developing nations). For example, excess mortality of up to 70,000 people was associated with the severe European heatwave of 2003. More broadly, higher temperatures may also provide excuses for some people to exercise less, potentially increasing rates of health conditions associated with a more sedentary lifestyle.
  • Water supply contamination during extreme precipitation and flood events.  Flooding in Brisbane in 2011 led to the temporary closure of one of the main water treatment plants as the incoming water was too muddy to be treated. On that occasion water supply interruptions were avoided on that occasion by re-routing supply from other treatment plants and implementing demand reduction strategies. However, there are likely to be increasing situations where extreme weather jeopardises fresh water supplies or people are otherwise forced to drink untreated water, potentially leading to a range of illnesses.
  • Exposure to flood waters and the after-effect of floods. It is not uncommon in many areas for sewage systems to overflow during significant flooding, raising infection rates. Receding flood-waters can become breeding grounds for mosquitos and other potentially harmful insects. Mould in buildings resulting from exposure to flood waters can in turn cause a variety of health conditions. And of course the murky and often fast moving water presents public safety issues for people unfortunate or unwary enough to find themselves trapped or engulfed.
  • A rise in the frequency and/or intensity of extreme weather events may also result in greater injuries / illnesses and demand for emergency services.
  • The spread of tropical, insect-borne diseases to areas in higher altitudes and higher latitudes as it becomes warmer.  Insect carriers of such diseases thrive in the tropics because it is warm overnight and all year round, meaning no die off in cooler months as is common in temperate climates. Meteorologists are already observing milder winters and warmer nights in many areas as the atmosphere retains more heat.
  • Additional health risks arise from the greater expected incidence of bush fires (not to mention an increase in lightning strikes). For example, during the summer of 2010 an estimated 55,000 people died in Russia from a combination of a severe heat wave and respiratory illnesses exacerbated by a resultant series of major bush fires.

Given these challenges, risks abound in the healthcare and public safety arena, but so do opportunities. Throw in our ageing and growing population plus the increase in non-communicable diseases and it seems that growth in demand for healthcare services is assured, though affordability may be a key consideration given reduced public sector capacity.

Key opportunities to reduce these impacts include:

  • Prevention:
    • training and education of at risk groups;
    • risk assessments;
    • preventative pharmaceuticals and related interventions;
    • water purification;
    • waste water infrastructure;
    • specialist clothing;
    • air filtration and cooling systems;
    • personal and networked health monitoring technologies;
    • other hazard reduction.
  • Relief:
    • increasing demand for existing and new drugs and forms of treatment for conditions related to heat, water contamination and tropical diseases and other exposures.
  • Health Infrastructure:
    • increasing demand for health professionals and emergency workers;
    • associated infrastructure, hospital beds;
    • education;
    • hospitals located in regions exposed to extreme weather will need to be made more resilient.
  • Sustainability:
    • sustainable medical procurement;
    • medical waste recycling;
    • energy and water efficiency improvements in medical practice;
    • other technologies and innovations to reduce environmental impact of healthcare.

On the flip side, there are a number of significant health benefits associated with a switch from fossil fuel dominated energy systems to renewables, principally a likely reduction in a range of respiratory illnesses given reduced particulate matter pollution. Given a warming climate, less severe winters in some regions may also reduce cold-related morbidity.

Adaptive Capability assists businesses in and servicing the healthcare sector to assess the risks and opportunities arising from climate change and environmental issues. We help our clients position their businesses to capture sustainable growth over the medium to long term. Our unique diagnostic tool, the AdaptiveCMM, baselines your organisation’s capabilities and delivers a roadmap of initiatives to control risks and identify new or enhanced revenue streams.

Talk to Adaptive Capability today to future proof your business.

Image credit: Rob Bayer/ShutterStock

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An Intergenerational Moment

An Intergenerational Moment
The Australian Government’s latest Intergenerational Report was released last week but misses an opportunity to start a key conversation. Looking 40 years into the future – what used to be two generations but is now closer to one given that the average age of parents having their first child birth is now over 30 – it is updated every five years or so.

In this case the report predicts the Australian population will have grown to around 40 million (from just under 24) – not unlikely given the current net growth of 1 person every 90 seconds or so. The average person will be older, with relatively fewer of working age and many people living longer into retirement. We’ll need a lot more healthcare and pension costs will soar, which will need to be funded from a relatively smaller tax base due to the reduced overall labour participation rate.

Meanwhile, by 2055, atmospheric carbon dioxide concentrations are expected to be anywhere between 480 and 580 parts per million, up from around 400 today (a 20-45% increase) and from about 320 when formal records began around 60 years ago. Average global temperatures, in turn, are likely to rise by a further 1-1.5 degrees C over current levels. Mean sea level rise is likely to be between 5 and 30cm. In these projections, the lower level of each range assumes deep cuts are made urgently to global greenhouse gas emissions.* To borrow a cricketing term, the “required run rate” involves cuts of around 6% per year, versus actual performance last year of an estimated increase of about 2.5%**

While it does contain a brief section on climate change, the 2015 Intergenerational Report is largely silent on the effects of these impacts of climate change on Australia’s future population and economy. In terms of its use as a facilitator of hard conversations between governments and the people, it fails to ask critical questions such as:

How will we keep our elderly (and outdoor workers such as farmers and construction personnel) safe from searing heat waves, which are expected to increase in intensity and frequency and exacerbate our health spending crisis?

How will we ensure fresh water security for a population base nearly 70% greater than today’s, particularly with rainfall patterns becoming more erratic?

How will we maintain a productive agricultural sector to feed Australians (and our export partners) with alternately parched, drenched and warmer farmlands?

And how will we deal with exposed coastal property and critical infrastructure such as ports, key airports and roads from storm surges that will be significantly heightened by rising seas and cyclonic winds?

If our tax base is already weakened by changing demographics and private insurance may become unaffordable, how will we afford the level of investment necessary to adapt to climate change and the likelihood of more frequent and costly natural disasters?

Within these questions, however, lies significant opportunity for a range of industries to position both existing and new products and services to the next generation of government, consumer and private sector buyers.

Talk to Adaptive Capability today about safeguarding and enhancing your business’ future.

 

*Source: United Nations Intergovernmental Panel on Climate Change Assessment Report 5, released 2014; ranges are approximate and have been estimated from graphs appearing in the report.
**Source: CO2 Now

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What’s your ESG Rating?

What's your ESG Rating?

A new breed of sustainability analysts is increasingly driving institutional investor decision-making. Find out more.

As a company director or senior executive you keep an eye on your company’s credit rating and – if you’re a listed entity – your investor relations team will track what market analysts are writing about your stock. But have you checked your ESG Rating lately?

Environmental Social Governance (ESG) is the umbrella under which a growing number of specialist analysts and index providers are tracking aspects of company performance other than its financial results.

In recent years buy side analysts such as Sustainalytics have emerged providing reports or rankings about companies’ ESG performance to fund managers and other major investors. New indices and tools have been developed by the likes of MSCI to help investors understand and manage the ESG risks inherent in their portfolios. And not for profits like the global Carbon Disclosure Project have been directly collecting environmental data from companies and cities to inform the investment community.

The growing influence of such data was highlighted late 2014 when the Australian National University’s endowment fund controversially announced it was dumping a number of fossil-fuel exposed stocks on the basis of analysis from Canberra-based CAER. It is not alone, with a global divestment movement spearheaded by environmental groups and aided by organisations such as the Asset Owners Disclosure Project convincing a growing number of institutional and individual investors to sell down their holdings in the fossil fuel industry and take business away from banks that continue to fund it.

Company directors and executives should ensure they understand what is being said about their organisations by the various ESG analysts and that the information being presented to investors is accurate, rather than simply scraped from public domain sources as is often the case. Otherwise they may unwittingly lose shareholder value if investors make divestment decisions on the basis of incomplete or misrepresentative data.

Talk to Adaptive Capability today about safeguarding your business’ future.

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Your Brand May be at Risk – Just Ask Lego

Lego Bricks
Environmental group Greenpeace hit a raw nerve in mid 2014 with its viral video targeting Lego’s cobrand deal with oil giant Shell. Racking over six million views and converting a substantial percentage to signatures on its on line petition, the video created guilt by association. It used Lego bricks and figures to create a vision of the Arctic wilderness being plundered by Shell in the pursuit of petro-dollars against the melancholy strains of the usually up beat “Everything is Awesome” song from the recent Lego Movie.

In October, Lego announced that it would not be renewing its contract with Shell, which involved the toy maker selling a range of brick kits in Shell retail outlets featuring Shell branded petrol tanker trucks and stations.

Already the Internet is full of protesters’ distortions of the major oil companies’ logos. But this is a new development, where the activists are making it difficult for what we call “emissions neutral” companies like Lego to form bilateral business partnerships with fossil fuel firms.

This is an example of what we term a “Quadrant 3” risk associated with climate change, where negative reputational impact makes a certain course of business increasingly untenable.

A sustained attack on reputation can have a dramatic impact on revenue: just look at the fate of Malaysia Airlines, which suffered two devastating accidents in quick succession and has required government assistance to survive.

Many risks associated with climate change – like damage to property from extreme weather events – can be mitigated to an extent. More distant challenges like the decline of winter sports or coral coast tourism in some countries can be planned for and managed over a long time frame, though declining asset values will affect exit prices. Reputational risk, on the other hand, can and is striking companies with less warning and can have devastating consequences.

Our advice is to look carefully at your environmental impact sensitivity. Even if your business has a neutral footprint, can the same be said of your suppliers, the use of your products and services, or the businesses you finance, insure or partner with?

Talk to Adaptive Capability today about safeguarding your business’ future.

Image credit: Stefano Tinti

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Reining in Runaway Software Inefficiency

Data Centre

Many organisations are investing in making their Internet and IT infrastructure more energy efficient. But in the search for sustainability, a hardware and data centre-centric approach may be missing the point.

Recently, Adaptive Capability was asked to comment on an Australian government initiative to improve the energy efficiency of data centres.  The discussion report proposes a number of sensible suggestions including applying energy efficiency ratings and/or minimum standards to data centre facilities and the IT equipment they house.  However, we wondered if these approaches obscured a much broader opportunity for transforming the IT industry to a more sustainable footing.

What we’re seeing in the data centre space is a run away freight train of more and more processing power and storage globally, supporting all the amazing web apps that people suddenly cannot live without, coupled with corporates collecting vast amounts of “big data” to try to get new insights about their customers and products.

Fundamentally, energy demand in data centres is a behavioural problem linked to our use of technology.  While we’re not going to be able to change that very easily, buying more energy efficient servers or improving the Power Usage Effectiveness (PUE) of our data centres seems to to be like putting a band aid on a cancer victim. We think, however, that without trying to tackle the apps/big data juggernaut, there is something that governments could do that might have a more sustained impact

As a long term representative of a technical working group for the Australian government’s NABERS (National Australian Built Environment Rating System) we note that the data centre rating tool released in 2013 made significant compromises in attempting to come up with a measure of the efficiency of “useful computing output”.  Measuring hardware efficiency improvements in metrics such as megaflops or disk I/O (input/output) per Watt (W) is relatively easy but the working group didn’t manage to figure out a way to build a viable, assessable metric that would serve as a proxy for, for example, “emails delivered per W” or, more usefully, “tax returns processed per W” or “Facebook posts per W”.

That’s where we think a lot more work is required: tackling the efficiency of computer software itself (as well as the way people use it).

The inefficiency of software is, we believe, directly linked to the continued realisation of Moore’s Law, which has effectively led to a doubling of compute power (typically for about the same or lower cost) every couple of years for the last 50 years.  This has created a software development culture that encourages “bloat-ware”: there is no need for coders to cut resource efficient code because a faster computer or device with more RAM (Random Access Memory) and storage is released every few months. Meanwhile there’s money to be made in adding new features (whether they’re needed or not) and churning out new versions of ever more resource hungry software every couple of years.

Inefficient code (and lazy operating systems that allow a build up of “system detritus” and memory leakage) benefits the hardware suppliers since it creates an impetus for people to upgrade their devices on a regular basis, cementing a mutually-beneficial relationship between the hardware and software worlds.

Many organisations typically figure on replacing compute equipment within three years (and many people replace their mobile devices more frequently in line with two year phone plans), creating a mountain of eWaste with huge ecological impacts in terms of embodied energy, CO2e emissions and resource depletion.  Whereas you’ll typically get at least 50 years of economic value out of a building, meaning the embodied energy is usually significantly lower than the energy in use, in the case of computing hardware the equation is probably a lot closer to parity or worse and the lifecycle operating energy costs of a server typically exceed the purchase price.

If we are serious about tackling ICT energy efficiency we need to start with the software industry.  Universities should be teaching resource-efficient software development.  There should be measures to encourage applications and operating systems that run comfortably on older hardware. Major software and hardware companies (which are typically US based, so international cooperation would be required) could be investigated to see whether there is any evidence of anti-consumer collusion in perpetuating the Moore’s Law-driven spiral of software upgrade necessitating hardware upgrade. Leaders in sustainable computing (i.e. maximising the longevity and efficient use of compute resources) should be identified and celebrated.

Consumer education is also important to help people understand how their use of technology is leading to inefficiency. Something analogous to the former Australian Labour Government’s “black balloons” campaign but associated with the energy costs of each photo they upload to Facebook; each Google search; even the extra bytes of storage associated with their email signature file and the near ubiquitous “Please consider the environment before printing this message” sign off.

We recommend the objective of government policy in this area should be, on the one hand, to minimise the amount of hardware and associated infrastructure required to perform a particular function, but also, critically, to prolong the economic life of that investment in hardware and infrastructure.

Talk to Adaptive Capability today about ways to safe guard your organisation’s future.

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Climate change: the hefty price of business as usual

Confrontation

The debate is heating up, and yet Australia’s political leaders seem to be missing the real cost of climate change – a former Goldman Sachs heavyweight sheds insight into which parts of the economy will be hit by inaction the hardest.

Where do our major parties really stand?

The political world has become a bit topsy turvy lately. Countries like Canada, previously respected for their environmental leadership, have become international pariahs for promoting exploitation of their tar sands deposits.

And in Australia, as more than one commentator has observed, it’s become impossible to tell up from down as politicians backflip on major reforms.

The Liberals are dumping a free market solution for greenhouse emissions reduction (the carbon tax was legislated to transition to an Emissions Trading Scheme after the initial fixed price period); Labour is opposing a big government solution (the Coalition’s Direct Action scheme); and ironically the Greens are against a rise in the fuel excise tax (which might have sent a pricing signal discouraging the use of high emitting private vehicles).

What’s the cost of discord?

Just as Australia winds back its carbon scheme, a chorus of influential conservatives is dispelling arguments that reducing greenhouse emissions is taxing on the economy.

Hank Paulsen is a commentator to watch. He served as the US Treasury Secretary during the Bush administration and before that, was the head of one of the world’s most successful investment banks – Goldman Sachs. Having recently published a call to action on climate change in the New York Times, he’s teamed up with Republican former mayor of New York Michael Bloomberg and others to produce a report called Risky Business.

Risky Business focuses on the economic impacts of climate change in the US over the remainder of the century and identifies the worrying financial impacts of sticking to a business as usual scenario.

Here’s a quick summary of the Risky Business forecast:

  • Property damage from coastal inundation in the hundreds of billions of dollars
  • Decreased labour productivity for outdoor work due to the rise in extremely hot and/or humid days
  • Ballooning energy costs (partly due to soaring demand for air conditioning)
  • Stretched healthcare systems
  • Increased heat-related mortality
  • Reduced agricultural productivity

Acting now may leave Australia in a better financial position

 In fact, not only does a business as usual scenario turn out to have significant costs; a new economic study commissioned by the United Nations has found that a high emissions reduction scenario could transform major economies to zero net greenhouse emissions as soon as 2050 while still maintaining comfortable rates of growth. Australian National University economist Dr Frank Jotzo, a lead author of the forthcoming report, has noted (Sydney Morning Herald 9/7/14) findings that an annual Australian GDP growth rate of around 2.4% could be maintained while making massive emissions reductions to energy, agriculture and other sectors.

And this is where the rhetoric about the economy paying the price of slashing carbon emissions starts to sound more than a little hollow.

Of course studies and predictions come and go and political will is a huge obstacle to be overcome in many countries. However, with notable conservatives questioning the viability of business as usual and growing evidence that the move to a low emissions scenario may not be as economically difficult as it has been portrayed, the mood is beginning to shift.

This shift presents both risks and opportunities for many organisations. To find out how, talk to Adaptive Capability about safe guarding your organisation’s future.

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Grim times ahead for Australia’s largest industry

Coal Loader

Business has been booming in the mining sector – until now. Here’s why investing in all the wrong places is setting Australia on the economic back foot.

Australia’s economy has effectively ridden through the last six years of economic uncertainty on the back of the mining boom. But as the world moves towards cleaner energy sources, remaining ‘open for business’ as the world’s quarry is putting Australia on an unsustainable path at odds with the evolving demands of many developed and developing economies.

The fast facts

  • Mining is Australia’s largest industry by revenue – combining direct mining activities and the associated mining services industry, the sector accounts for nearly 20 per cent of Australia’s $1.5 trillion GDP.
  • Australia’s growth is too dependent on mining – the Australian Bureau of Statistics notes that 80 per cent of GDP growth in the March 2014 quarter was contributed by an 8.6 per cent surge in mining output, though this was in part due to a relatively benign storm season.
  • The sector is almost half dirty energy – Fossil fuel extraction accounts for around 45 per cent of the mining industry’s output, the remainder being comprised of iron ore, other metals and minerals. The majority of coal, oil and gas output is shipped abroad, accounting for about 20 per cent of Australia’s exports.
  • Mining creates fewer jobs than you think – while it’s one of the nation’s most lucrative industries, the fossil fuel mining sector only employs about 80,000 people, well under 1 per cent of the Australian labour force. Which perhaps is just as well.

Yes, there will continue to be a market for fossil fuels decades to come. But despite massive expansion of coal-based power generation in China and India, there are signs that the growth spurt is coming to an end and demand may quickly waver.

Busting some renewable energy misconceptions

Historically renewable energy sources have been significantly more costly to operate – but there have been a number of game changing developments in clean energy sources around the world that Australia will move too late to cash in on when demand for fossil fuels dries up.

Building a new wind farm recently reached life cycle cost parity with a coal fired power plant of equivalent output, and large-scale solar technology is expected to become just as cost effective in the next couple of years.

There is huge investment in battery storage technologies, meaning it will be increasingly feasible for wind and solar plants to continue supplying the grid when winds are light or the sun isn’t shining.

And growth in renewable energy investment continues to accelerate even as the world’s appetite for coal is waning, driven by the early warning signs of climate change.

A recent report from the Association for Sustainable and Responsible Investment in Asia predicts that Chinese thermal coal demand could peak by 2020 and then start to decline. Despite building hundreds of new coal fired power plants in the last decade, China is one of the world’s biggest investors in renewable energy and its people, who currently suffer from chronic air pollution, are clamoring for a move towards cleaner energy and industry.

Australia is set for a hard landing

Meanwhile, Australia is still investing massively in the very things its largest trading partner is actively seeking to rid itself of: fossil fuel extraction and the associated infrastructure, including the controversial expansion of the Abbot Point coal terminal in the middle of the world heritage-listed Great Barrier Reef. These are investments with a multi-decade economic life.

Australia’s government seems intent on ignoring the warning signs – both economic, social and climatic – and continuing to support a toxic and archaic industry. The recent Federal Budget affirmed that it is simultaneously hell bent on destroying Australia’s renewables sector, right at a time when investment and incentives should be switched out of fossil fuels and into clean energy.

Loss of the fossil fuel mining sector would be a drop in the ocean in terms of job losses though more significant in terms of company tax receipts. But rather than plan proactively for this inevitable and essential transition, Australia seems intent on setting itself up for a very hard landing.

Whether directly, indirectly or passively through misdirected government action, all sectors face a level of risk from climate change and other global environmental issues.

Talk to Adaptive Capability today about safe guarding your business’ future.

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Climate change – your business is at more risk than you think

Snowless Ski Slope
Climate change is already threatening entire regions and industries, and some businesses have greater risk exposure than others…

When people think about the risks of climate change, most focus on damage and disruption caused by the predicted increase in the frequency and intensity of extreme weather events.

However, there’s a lot more to consider in a comprehensive assessment of climate change and other environmental risks. Take shocks to input prices as governments introduce or expand the scope of carbon pricing schemes or impose costs on other environmental externalities. Or reputational damage – potentially accompanied by class action law suits – aimed at major polluters or plunderers of the earth’s natural capital.

Dying industries

How about the failure of whole industries or a regional collapse in demand? In Australia, coral coast tourism and alpine sports are likely candidates, with ripple effects along their supply chains. 2014 has already seen record autumn temperatures, and the traditional June start to the Snowy Mountain ski season has been scuttled by above freezing temperatures and still-grassy slopes.

Moreover, as water supply shortages bite in the face of prolonged severe drought, as has been occurring in the South Western United States, the future of water intensive agriculture and industry is also under threat.

Deserted towns

A lack of water in turn precipitates climate-related migration, adversely impacting businesses with a local customer base. This has already been seen in the abandonment of small towns across Nebraska, Kansas and nearby states as the area’s lifeblood – the over-exploited Ogalalla aquifer – has begun to run dry and the land has reverted to near-desert conditions.

Is any business immune?

While organisations with few long-term assets, low capital investment and no involvement in the energy industry may consider themselves relatively immune from climate risks for the foreseeable future, our research suggests this is not always the case. Undertaking a detailed, climate focused risk assessment covering short, medium and long term time horizons is critical to understanding your organisation’s likely exposures to the wide range of direct and indirect threats.

Talk to Adaptive Capability today about safe guarding your business’ future.

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Operational resilience – what a changing climate does to your risk profile

Lighthouse Storm - croppedThe field of enterprise risk management involves identifying and classifying hazards according to their likelihood of occurrence and the level of impact to the organisation should they occur. This yields a matrix view of risks, with differing treatment or control approaches depending on which quadrant they fall into. These approaches include acceptance (of low probability, low impact risks) and controls that reduce either the likelihood of occurrence or level of impact.

Risk transfer mechanisms such as insurance have also been a mainstay of organisations’ risk mitigation strategies. Insurance coverage is often effective for risks where the main impact is financial loss and the inherent likelihood of the risk is low and unpredictable.

Meanwhile, business continuity planning has traditionally focused on lower probability / higher impact contingencies that can’t easily be treated with other mechanisms, but is always complemented by insurance.

Add climate change into the mix and the scenario changes. The scientific consensus is that our atmosphere and oceans are warming due to the sharply increasing concentration of greenhouse gases (which have increased by over 25% since consistent record keeping began a mere 50 odd years ago). A range of human activities are blamed for this incredibly sudden rise including the burning of fossil fuels (chiefly coal, oil and gas), emissions of various other greenhouse gases used in industrial and manufacturing processes, deforestation and other deleterious changes in land use.

Climatic changes are lagging the build up of GHGs but we are already starting to see noticeable increases in the frequency and severity of extreme weather events such as storms, heat waves, droughts and so on. Global mean sea levels are also on the rise, while water supplies and other critical infrastructures are looking increasingly fragile. Ocean acidification from atmospheric GHGs dissolving in sea water and a range of other impacts are adversely affecting eco systems that currently feed billions of people.

The US National Climate Assessment Report released earlier this month puts it bluntly: “Climate change, once considered an issue for a distant future, has moved firmly into the present”.

Global reinsurers’ data tells the story starkly with record numbers of disaster events and (inflation adjusted) damage bills in the last decade.

It is only a matter of time before this becomes unsustainable and the insurance industry moves to deny – or make unaffordable – cover for events that are increasingly likely and predictable as a consequence of climate change. Indeed, in many parts of the world insurance premiums have risen at well beyond the pace of inflation over the last decade.

Operational resilience and business continuity planning in a world without affordable or effective insurance cover suddenly takes on a whole new dimension of strategic importance.

Talk to Adaptive Capability today about safeguarding your business’ future.

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