Climate Change Adaptation Archives

10 August 2022 By David McEwen

The Biggest Part of Achieving Net Zero Could be the Hardest

What is a company’s largest source of greenhouse emissions? For most businesses, the answer lies in their value chains. Or rather, the tangled net that is their value mesh.

Scoping the Problem

When you think about sources of a company’s greenhouse gas (GHG) emissions, the first thing that might come to mind is emissions associated with its facilities: its factories, warehouses, and offices. If the company is in the transport sector (e.g. a courier company or an airline), you might think about the emissions from its vehicles. If so, you’re thinking about the company’s scope 1 and 2 emissions.

Country level GHG measurement standards were defined by the UN’s Framework Convention on Climate Change, which stipulates which types of gases need to be measured and the Global Warming Potential (GWP) of each. The GWP assesses how powerful the warming impact of a unit of a given gas is over a specified period of time. For example, a kilogram of methane released into the atmosphere has over 80 times the warming impact of a kilogram of carbon dioxide over a 20-year period. Some refrigerant gases have GWPs in the tens of thousands.

As an aside, most GHGs persist in the atmosphere for many centuries or millennia, so cumulative emissions count: if we achieved zero emissions globally tomorrow, the climate would just stop getting hotter. It wouldn’t revert to where it was, say, 100 years ago, unless we achieved negative emissions and actually reduced the concentration of GHGs in the atmosphere.

In turn, corporate GHG measurement standards are defined by the GHG Protocol Initiative, which was established by the World Resources Institute and World Business Council for Sustainable Development. The Protocol established three “scopes” of emissions:

1. Direct emissions associated with facilities and vehicles directly controlled by the company. Typically associated with the combustion of fossil fuels (such as natural gas, oil and its derivatives petrol and diesel) or releases of GHGs related to various chemical or biological processes, such as cement production or fertiliser use. Leaks of GHGs such as methane (natural gas) and refrigerant gases from equipment or pipelines owned by the company are also counted – these are known as “fugitive” emissions.

2. Purchased energy in the form of electricity, steam, heating or cooling that is used by the company. A company measuring its emissions needs to understand the “emissions intensity” of the energy sources it purchases. This is assessed in terms of how many kilograms of GHGs (typically normalised as “kg CO₂-equivalent”, where the warming impact of the various GHGs is baselined to the equivalent impact of a kg of carbon dioxide) are used to produce a particular unit of energy. For example, in a power grid dominated by bituminous coal electricity generation, a MWh of electricity might produce around 800kg of emissions.

3. All other emissions associated with what the company does.Scope 3 is where it gets complicated. Because you’re needing to measure the full upstream and downstream value chain of the company. Effectively, its sphere of influence: what emissions would not be produced if that company did not exist (regardless of whether competitor firms simply sold more in that case). And when you set out to do that, you quickly realise that the term “value chain” is altogether too linear. It’s really a “value mesh”.

The Value Mesh Challenge

A manufacturing client I work with purchases over 1,000 items that go into its products, from hundreds of suppliers located around the globe. In all cases, those suppliers themselves source inputs from other companies, who in turn source inputs from other companies, and so on back to the raw materials providers. In addition to emissions directly associated with producing the input, each of those suppliers has emissions associated with their facilities, electricity, employee commuting, business travel, waste, transportation of products, and many more. It’s easy to see how the upstream value chain is more of a tangled net.

And it’s by far my client’s largest source of emissions. These upstream sources are known as “embodied emissions”. Though it’s very difficult to measure the entirety with any accuracy, given a lack of well-regulated emissions data for many companies; and a purchaser typically having limited influence over their suppliers (unless they happen to be a giant in their sector, like Coles or Woolworths are in Australian FMCG).

Indeed, contractually it may be almost impossible to get information about a supplier’s ownsuppliers, let alone untangling any further up the mesh. As such, measurement of upstream value chain emissions typically relies on proxy metrics, using datasets that associate an emissions factor to dollars spent on different types of supplies.

This simplification may mask wide variation between the relative emissions intensity of different companies producing the same supplies. For example, if one aluminium smelter uses renewable electricity while another uses coal, their emissions intensity for a kg of aluminium would be chalk and cheese.

When Downstream Counts More

On the other hand, for some industries, including fossil fuel energy supply and automotive manufacturing, the largest source of their scope 3 emissions is the downstream value chain, particularly customers’ use of their products. In this case, it is relatively easy to see that a company that exclusively produces electric vehicles rather than petrol/diesel should have lower scope 3 emissions (knowing that charging the vehicles’ battery from grid power largely sourced from coal generation is typically less emissions intensive per kilometre travelled than even an efficient internal combustion engine).

In terms of an electric vehicle manufacturers’ overall emissions, the embodied emissions of the materials used to make the battery and electric motors need to be compared with the equivalent emissions for a petrol/diesel vehicle’s engine, starter motor, radiator, gearbox, fuel tank, battery, etc. Typically, an EV is somewhat heavier than an otherwise equivalent internal combustion model, but only by about 10%. Nevertheless, all of these factors, along with the end-of-life arrangements – such as the recyclability of the vehicle’s parts – need to be taken into account in assessing the manufacturers’ total emissions.

A franchise business model might also have large downstream scope 3 emissions, since franchisees’ operations and supplies count as part of its sphere of influence, even if the master franchisor has a relatively small direct footprint.

Investment Emissions

Another potentially large source of a company’s scope three emissions, and one that is seldom considered, is its investments. Where are its free cashflow and reserves invested? If they’re in deposit accounts of banks that lend to emissions intensive industries (such as fossil fuel firms), or in equities or bonds issued by emissions intensive firms, then that could be material (in which case it should require disclosure). Financial services firms have come under intense scrutiny over the last decade given their facilitation of high emitting activities, and companies with large cast reserves are starting to be examined by various think tanks and activist groups.

If You Have Value Chain Influence, Use It Wisely

Purchasing power is a function of how much a company buys as a proportion of the total market for the particular good or service. As mentioned earlier, the supermarket giants in Australia control a significant proportion of the total spend on entire product lines and industries. Companies with high purchasing power are in the position to transform industries towards low emissions intensity. Or to force a switch to low emissions substitutes.

But your company needn’t be a behemoth to have positive influence. Simply modifying your standard RFP (request for proposal) procurement clauses to make a supplier’s commitment to sourcing its electricity from renewable sources a desirable (or even mandatory) requirement can make a difference. If nothing else, it will make that supplier think about it.

In addition to renewable electricity, some key questions to ask major suppliers could include:

Outline [supplier’s] plan to achieve net zero GHG emissions including the target date and emissions reduction achievements to date.
Has the net zero plan been endorsed by the board and publicised? Is it aligned with other strategic plans? Is executive remuneration tied to the achievement of the plan? To what extent has funding been committed to implement the plan?
Is the plan endorsed by the Science Based Targets Initiative?
What proportion of the planned move to net zero is accomplished by genuine emissions reduction vs use of purchased carbon offset credits?
Explain the extent to which scope 3 value chain emissions are included in the net zero target. How they have been measured or estimated? What upstream/downstream emissions sources are excluded?
Have your major suppliers made net zero commitments at least equivalent to yours?

These types of queries will provide a useful reference to baseline and track upstream value chain progress over time. Including contractual clauses requiring updates and evidence of key suppliers’ emissions reduction achievements is also useful.

Measuring and driving down value chain emissions is a critical step towards delivering net zero emissions. But it requires effort and tenacity.

David McEwen is a Director at Adaptive Capability, providing TCFD-aligned climate risk, and net-zero emissions (NZE) strategy, program and project management. He works with businesspeople, designers and engineers to deliver impactful change, and has delivered dozens of property-related projects. His book, Navigating the Adaptive Economy, was released in 2016.

9 June 2021 By David McEwen

Climate of Care. A New Risk for Corporate Australia

In a landmark judgement, Australian Federal Court Justice Mordecai Bromberg recently established that the Commonwealth Government has a duty of care to protect Australian children from future harms related to climate change.

Accepting evidence that was uncontested by the legal team representing the Minister for the Environment, Bromberg agreed that a particular coal expansion project (the subject of an injunction sought by a group of teenage applicants) would incrementally contribute to future climate harms if approved. While stopping short of granting the injunction to prevent the Minister from approving the mine, the judge was very clear that such a decision would be open to judicial review given the facts established in the case.

Corporate Australia Take Notice

By extension, this principle could now be applied to any corporate action or inaction that causes an increase in the greenhouse gas emissions that are heating the planet at an unprecedented rate. Activists are lining up and crowd funding to apply this principle, along with principles established by favourable litigation offshore. And they’re no longer your stereotypical activists either: respected groups such as doctors, parents, farmers, engineers, lawyers, athletes and many other professional groups are engaged in a global version of “whack a mole”, fighting emissions intensive projects and exploring litigation to bring governments and corporates to account to achieve the objectives of the Paris Climate Agreement.

On the same day as the Bromberg judgement, for example, a court in The Hague ordered Royal Dutch Shell to slash its emissions by 45% by 2030 (off 2019 levels). Not just its direct scope 1 and 2 emissions, but also the scope 3 emissions associated with its supply chain and, most significantly, customers’ end use of its products.

The 45% ruling reflects the global average emissions cuts needed by 2030 to maintain a chance of limiting global heating to the safe(-ish) level of 1.5^oC: for developed countries such as Australia the target is significantly higher. For example, updating the Climate Change Authority’s 2014 methodology (which recommended reductions of 40% to 60% by 2030), researchers found earlier this year that – due to minimal emissions reductions in the intervening years, and the cumulative impact of greenhouse gases in the atmosphere – Australia’s 2030 target has increased to 74% off the 2005 baseline.

As such, climate litigation must now be considered a significant corporate risk. While both the aforementioned cases are subject to appeal, the global mood is clearly shifting. Companies that are not seen to be making serious and genuine efforts to cut their emissions, across their entire value chains, are at risk of actions that could scuttle expansion plans; render parts of their business unviable; and sink asset valuations. Governments may be compelled to refuse project approvals that were until recently seen as legitimate and societally beneficial.

It’s not just fossil fuel firms that are under the microscope. Major energy users such as airlines and logistics firms; big organisations with massive supply chains such as supermarket and FMCG giants (whose size means they have the influence to transform industries); producers of emissions intensive building products and the construction giants who use them; and “big meat” agribusinesses, are just a few sectors that will increasingly feel the heat for their actions or inactions.

Next Steps for Boards

The implications for boards?

Identify, assess and evaluate your physical and transitional climate risks.
Understand the emissions intensity of your supply chain, assets, processes, products and services.
Adopt Science Based emissions reduction Targets (SBT) that go beyond greenwash to encompass upstream and downstream scope 3 emissions, and establish delivery accountabilities.
Accept that purchased offsets are a complement – not a substitute – for genuine, near term emissions reduction.
Appreciate that achieving genuine emissions reduction may require transforming your business model or product range.

Above all, embrace climate change as an opportunity, rather than a threat. Accept that the business environment is changing, it’s gathering pace, and it’s already unstoppable. Treat climate change as a disruptor, much like digital has been for the past two decades. Avoid having a Kodak moment: neither size nor venerable history will protect your organisation from the shift to a net zero emissions economy.

18 November 2020 By David McEwen

Climate Litigation – An Expanding Risk for Business

With compelling evidence that even 1.5 degrees of global warming will mean suffering for millions, climate activism is heading to the courtroom.

Climate activists are on the prowl. Armed with not for profit law firms they are becoming increasingly creative in their attacks on governments and business. During 2020 in Australia alone, there have been dozens of cases lodged, often aimed at halting or challenging government approvals of private sector projects. Indeed, Australia has one of the highest rates of climate litigation outside of the United States. [1]

As legislative compliance avenues have been exhausted, activists have increasingly moved to human rights and common law challenges. A good example of the latter is Sharma et al v. the Minister for the Environment, which invokes the Minister’s duty of care for young people to attempt to prevent approval of a thermal coal mine extension. Another is O’Donnell v. Commonwealth, which alleges that the Australian government has “…breached its duty of disclosure and misled and deceived investors in failing to disclose” climate risks related to its issuance of government bond. And one of the most famous is the Urgenda case in the Netherlands, which has forced the government to significantly up the ante on its emission reduction targets.

Of course, a growing number of fossil fuel firms have been directly sued for their projects’ environmental harm. Not for profit law firms such as the Environmental Defenders Office, Environmental Justice Australia and Equity Generation Lawyers have been busy progressing such cases. This includes a landmark case applying new Queensland Human Rights legislation, challenging the state’s Land Court to reject Clive Palmer’s proposed Waratah coal mine near the Adani Carmichael project in the Galilee Basin.

It’s not just governments facing the brunt of the law. Superannuation funds and banks have found themselves under attack for failing to consider climate risks in their investing and lending activities. Similar to the O’Donnell case, McVeigh v. Retail Employees Superannuation Trust (REST, lodged in 2018) involved a member of the fund challenging the manager on its failure to disclose or address climate risks. In early November it was settled just before court proceedings were due to commence, with REST agreeing to improve its climate risk assessment and disclosure, along with measurement of the emissions intensity of its portfolio and a realignment to achieve carbon neutrality for the fund by 2050. While not creating a legal precedent, the settlement nevertheless sends a clear signal to the influential sector, which controls substantial holdings in all listed companies and can exert its influence to pressure carbon polluting companies to clean up their acts and transition to clean energy alternatives.

And a number of progressive governments have themselves got in on the act, with jurisdictions such as the state of New York suing fossil fuel firms (in this case Exxon Mobil Corporation) for their complicity in misleading their investors with regard to the deleterious impacts of their products on the global climate. Thus far such cases have failed to stick in court.
Conversely, local governments have come under attack from residents when they have attempted to amend development plans to limit coastal developments subject to erosion due to sea level rise. While it’s a natural response from a well heeled owner of waterfront property wanting to avoid value loss or have their , a number of back downs have eroded local governments’ authority to assert prudent controls. In turn this raises risk for purchasers of vulnerable property, while insurance affordability is progressively reduced. As long ago as 2011 the Australian Local Government Association commissioned a report to help councils prepare for this risk.

What has been less common in Australia — thus far — is the practice of companies suing governments (or other companies) on climate grounds. 2014 marked one of the first such examples: filed as a show case and later withdrawn, perhaps as a warning shot above the bows. In it, the Illinois Farmers Insurance Company challenged Cook County (covering greater Chicago) over its failure to implement effective stormwater management capacity in light of increasing extreme inundation events as a result of climate change, which was leading to increased payouts by the insurance company.

The insurance industry has a great deal to lose from climate change as acute physical climate risks in the form of extreme weather events become more intense and/or frequent over time. It is perhaps surprising that insurers have not been more active in pursuing stronger government action on emissions reduction. And the impacts cascade: as insurers retreat from coverage in vulnerable areas (initially by raising premiums), the proportion of under- and un-insured assets increases. Vulnerable property values decrease, resulting in losses for owners when selling. Banks face default risk in the case of asset damage to uninsured properties. Some of the burden passes to government social services, as mortgage holders are forced from their homes.

As the extent of business and individual losses due to climate inaction becomes more apparent, there is likely to be a boom in climate litigation. To the extent that your business is not seen to be taking genuine action to reduce emissions in line with science based plans aligned with the IPCC’s 1.5 degree target, it could be vulnerable. While governments and major emitters associated with the fossil fuel industry will remain the major targets (and are fertile territory given evidence of their long term knowledge and suppression of information about the risks of climate change), other sectors are not immune. Airlines, shipping, steel, cement, petrochemical derivatives and meat based agriculture are amongst industries that could have actions brought against them, particularly as science-aligned emissions reduction targets are legislated by states and countries.

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

[1] Columbia University’s climate litigation database http://climatecasechart.com/ tracks cases globally.
[2] https://equitygenerationlawyers.com/wp/wp-content/uploads/2020/11/Statement-from-Rest-2-November-2020.pdf
[3] https://www.environment.gov.au/system/files/resources/d9b2f9cf-d7ab-4fa0-ab0e-483036079dc7/files/alga-report.pdf

18 June 2020 By David McEwen

Show your stripes

This isn’t art, it’s data. Each vertical line is a year. Blues are years that were cooler than the average between 1971 and 2000; red is hotter. The darker the colour the further from the mean. The hottest 10 years since records began in the late 1800s have all been in the last 20 years. 2020 has a good chance of setting a new record.

It’s not sunspots or volcanos or the earth’s rotation or whatever else you might want to believe because you watched some denialist crap on YouTube: it’s us. Mainly our use of coal, oil and gas, cement, land clearing and agriculture.

As it gets hotter, the weather becomes more tempestuous, crop harvests and fresh water supplies become less reliable, the seas rise and become more acidic, and ecosystems on which our lives depend collapse. This is all accelerating now.

How to Fix It

We can fix it, given government will to make systemic changes to our economic system. The good news is that the technology is available today, and is already (or soon will be) cheaper than the old ways that have created the problems. There are multi trillion dollaropportunities for business, millions of jobs, and clean air and water to look forward to. Here’s how:

1. A moratorium on new fossil fuel extraction. Any new investment in coal, oil or gas is utterly incompatible with where we need to be. Existing plants will need to be wound down as quickly as later steps can be scaled up.

2. Rapidly scale up renewables and storage. Australia is currently at 21% (of the current grid). We need to get to at least 700%. We have more than enough land, sun, wind and know how; and wind/solar with storage are now cheaper than fossil or nuclear alternatives – we just need the right policy and regulatory settings from government.

3. Use the excess renewable power to electrify everything that can be including transportation, gas use in buildings and industrial processes.

4. Use the rest of the excess to produce green hydrogen, which can be used for heavy transport (including ships and maybe aircraft), to make steel (instead of coking coal), fertiliser, and for other industrial processes that can’t be electrified. There’s also a huge emerging export opportunity to ship clean hydrogen instead of coal and LNG, and even to send power to Indonesia, Singapore and beyond via submarine cables from the NT.

5. Replace cement, plastic and other products with emerging clean alternatives.

6. Adopt regenerative agriculture to trap carbon in soils, improving productivity and water retention and reducing the need for artificial fertilisers. Reduce the livestock herd and introduce feed systems to reduce their methane emissions.

7. Trap and store methane from landfills and wherever else emissions can’t be eliminated. Trapped greenhouse gases can be used as a feedstock for plastics, jet fuel and other chemical uses.

8. Rewild – return land to nature.

To maintain any semblance of a safe climate the world needs to halve greenhouse emissions by 2030 and get to net zero no later than 2050. As a rich nation with almost the highest per capita emissions in the world, and amazing assets to decarbonise, Australia owes it to the world to punch above our weight.

But there are powerful vested interests distorting and diluting this message and fighting to preserve the status quo. The fossil fuel industry has captured Australian politicians (from both major parties) and key media organisations. They are using their super-profits to buy their longevity, while knowingly hastening the end of a habitable planet.

What can you do?

Educate yourself. Start with the IPCC’s 2018 report about the difference between 1.5 and 2 degrees of warming. Read science written by scientists; avoid opinion pieces written by people with vested interests. Understand who funds what you read and watch, and question their motives. Join a group such as Australian Parents for Climate Actionto learn more and connect with the growing community of concerned people.
Engage with your MPs and Senators. Write to them, call them, meet with them. Let them know you expect to see decisive and meaningful emissions reduction to secure your vote.
Engage with your community. Encourage your family, friends and colleagues to become more aware and politically engaged.
Use your money wisely. Switch your super to a fund that does not invest in industries that contribute to climate change (it will probably generate a better return than your old fund – being sustainable pays). Bank with an institution that doesn’t lend to the fossil fuel sector. Switch to a power company that only uses renewable power. Replace ageing gas appliances with efficient electric alternatives. Insulate and draught-proof your home. Put solar on your roof and make your next car electric. You’ll save money and feel great.
Eat less meat and dairy. Even if you’re a committed carnivore, try out the growing range of meat and dairy substitutes. Some are almost indistinguishable from the real thing and prices are falling. If you have the means, plant a veggie garden and compost.
Travel less and think about your choices. Less flying and car use; more terrestrial mass transit, cycling and walking. Value time in nature.
Switch your media to sources that clearly communicate the gravity of the climate crisis.
Buy less stuff. Recognise that your self worth is not bound up in what you have, but about who you are and the actions you take. When you need stuff, think second hand. Repair, gift, or sell what you don’t need.

Please, for your children’s or grand children’s sake; your nieces, nephews or just your friends’ children; we must convince our governments to truly act in the best interests of the voters they were elected to serve.

#ShowYourStripes graphic by Ed Hawkins

8 October 2019 By David McEwen

Investment and Abandonment – Cycles of Climate Adaptation

Despite multiplying public pressure, global action to reduce greenhouse gas emissions is currently falling substantially short of the levels necessary to avoid dangerous climate change. How will we adapt?

stormy beach — Photo by Joanna Kosinska on Unsplash

Most people broadly understand climate scientists’ predictions that, as global average temperatures continue to warm, the consequences will include extreme weather of increasing frequency and/or intensity; rising sea levels due to ice melt; consequential loss of biodiversity; and a range of other implications. But relatively few have thought about what that means to the way we live, and what we might need to do to adapt.

Anathema to Imperative

I started researching my book, Navigating the Adaptive Economy, in 2013. In those days, even after the failure of COP15 in Copenhagen to reach agreement on emissions reduction in 2009, it was still almost anathema to talk about adaptation: we were going to beat climate change and therefore adaptation wouldn’t be required. Mentioning it felt like a sign of defeat.

Only six years later and despite the landmark Paris Agreement of 2015, global emissions are still rising[1]. According to the IPCC[2] we stand at a cross roads. Without an emphatic change of political direction in the next 12 months, there is very little chance of maintaining a safe climate during the remainder of this century. As such, talk on adaptation now takes centre stage.

An example: the recently released report from the Global Commission on Adaptation[3], which tries to talk up public and private sector investment in adaptive measures by painting a picture of positive returns on investment in early warning systems, resilient infrastructure and water supplies, agricultural productivity, and natural coastal defences. Most of the benefits involve future cost avoidance – adaptation as a form of insurance, though in this case for an outcome that will almost certainly happen, rather than one with a relatively low likelihood of occurrence.

The next few decades will be marked by cycles of “fight” adaptation to sea level rise, followed by an eventual, belated realisation that abandonment and retreat is the only sensible long term course of action.

However, there’s a big challenge with adaptation: matching planning time scales with expectations of climatic change.

Rising Seas: Rising Challenges

Take sea level rise (SLR). Five years ago Miami Beach, Florida spent US$500 million raising roads and seawalls at Sunset Harbour about 75cm and installing 80 pumps to avoid so-called “sunny day flooding”, when king tides back flow through storm water drains and flood the streets[4]. That’s a temporary, localised solution at best, for a coastline exposed to some of the highest rates of SLR in the world (currently just under 1cm per year; due to currents and local coast and seabed conditions rates of SLR vary considerably). The city has recently committed a further half billion dollars to raise additional vulnerable streets and is considering a plan to convert a golf course to wetlands to assist with storm-water drainage[5]. As a wealthy municipality it can currently afford this sort of expenditure, but for how long?

Locally, 55 coastal communities in West Australia alone are at risk of property and infrastructure damage from coastal erosion[6], with storm surges being amplified by Australia’s more modest sea level rise of just over 2mm per year over the past half century (but accelerating)[7]. What to do?

A difficult task for local and state government planners is deciding what level of SLR to assume over an infrastructure planning horizon of 50-100 years. Future climate projections are tricky for two main reasons: one is, we don’t know what humanity is going to do about emissions reductions; the second is that it’s difficult to predict at what point we might trigger natural positive feedbacks that amplify warming and/or the rate of SLR. Based on various assumptions about emissions and the response of the climate system, average SLR by 2100 could be anywhere from less than 50cm to potentially over 2 metres – a massive variation[8].

And it’s more complex, because a lot of potential coastal property damage is in conjunction with storm surges. The intensity and direction of the storms is affected by other climate change assumptions about ocean warming and atmospheric moisture retention; SLR then becomes a multiplier in terms of how much damage and how often.

Fight or Flight Cycles

At the current stage in our evolution, humanity’s fight vs flight response seems to tend towards the former. So for a number of decades to come it feels likely that in many locations we will choose to attempt to defend coastal cities and homes from encroaching seas, through a combination of “planning denial” and infrastructure defence.

Logically, governments would draw new “high water” lines on maps (based on whatever assumptions have been made about likely SLR encroachment over a given planning horizon) and limit development on the seaward side. In practice, a growing number of municipalities have attempted this and have in turn faced litigation by angry ratepayers whose properties fall on the wrong side of those lines, and are fearful about the impact to their asset values[9].

Miami Beach and Sydney Australia’s Collaroy Beach, which in the wake of a 2016 storm that saw an in ground swimming pool washed onto the substantially eroded beach, have taken the opposite route, investing in expensive protective infrastructure[10]. Elsewhere, beach “renourishment” and artificial reefs are being constructed to reduce coastal erosion.

Given events to date we predict the next few decades will be marked by cycles of “fight” adaptation, followed by an eventual, belated realisation that abandonment and retreat is the only sensible long term course of action. In this coming period there will be multi-billion dollar opportunities (trillions in aggregate) for infrastructure engineers and construction companies, funded by increasingly cash strapped municipalities and their alarmed ratepayers. And, as with drought assistance in Australia, state and federal governments will be forced to kick the tin.

At some point in the latter part of the century, unless by some miracle emissions are under control and planetary scale carbon sinks have turned net zero into net negative emissions, the coastal defence projects will be abandoned, prompting a new wave of infrastructure spend to move entire cities inland to territory deemed safe enough for the next hundred years or so. Exactly how that wave will be funded remains to be seen.

And it might not be the last. SLR doesn’t conveniently stop in the year 2100[11], though that is the current time limit of the most widely-reported projections. We may already have set in motion many centuries of ice melt, ultimately causing many metres of rise and eventually submerging hundreds of large coastal cities.

Of course, that’s just adaptation of coastal urban infrastructure to the effects of SLR. Fresh water and food production, public health and disaster preparedness are just some of the other areas that will face disruptive adaptation cycles. Smart companies will benefit by aligning their product/service portfolios.

17 April 2019 By David McEwen

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.

11 November 2016 By David McEwen

Is your business ready to adapt to climate change?

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.

1 July 2015 By David McEwen

Legal innovators profit from changing climate

The 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.

12 May 2015 By David McEwen

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.

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.

30 April 2015 By David McEwen

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

Why 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