The recent winter weather that buried Buffalo, NY under more than 5 feet of snow and ground life to a halt should attract the attention of US businesses leaders across the country. Although Buffalo is prone to heavy snowfalls, the long-term outlook for more frequent and severe snowstorms for business is not good. Extreme winter storms in the US have been increasing in frequency and severity over the past 30 years (graph “US winter storm loss trends, 1980-2011”: http://www.iii.org/fact-statistic/catastrophes-us), with average annual associated financial losses nearly doubling over that time.
Heavy snowfalls can halt local business activity and cause extensive physical damage. Establishments from businesses to schools and government buildings were barricaded in and could not open their doors. Driving bans were even imposed on several areas. While damage was widespread as the snow was caving in windows, doors, and roofs, some business, like Schmitt’s Collision and Glass and VSP Marketing Graphics Group, had complete cave-ins and equipment losses approaching $1 million. Even the Bills-Jets NFL game was moved to Detroit, losing the Bills both home advantage and ticket sales revenue.
An extreme snowfall can also initiate indirect economic losses and cascade into supply chain disruptions. One hour down the blocked NY State Throughway, Rochester companies have had difficulty receiving shipments from normal supply routes and have scrambled to find replacement goods with varying degrees of success. Buffalo is home to major distributors for businesses such as the area’s major supermarket chain Wegmans. The snowfall has impacted the heavily used trucking route that runs through Buffalo from areas as distant as Wisconsin. Trucking companies are also sending out refrigerated trailers earlier than normal, at an additional cost, to prevent food from freezing because of the extreme cold.
Weather forecasts predict the snowfall to be followed by warmer weather and rain, which could lead to severe flooding from snow melt. Flood warnings have been issued as light rain and temperatures in the 50s and 60s threaten to flood areas that have never been at risk of flood before. Governor Cuomo commented on the new dangers arising from the snow melt and recommended people to leave at-risk homes early:
“Err on the side of caution…Flooding, in my opinion, is worse than dealing with snow,” Cuomo said. “It’s not water. It’s a toxic brew.”
Although it seems counter-intuitive, these winter storms are not getting worse despite global warming, but rather because of it. The complexity of this result illustrates how confusing climate change signals can be and the importance of creating accurate awareness. Scientists point to a weakening of the jet stream, the Earth’s halo of fast moving air, caused by warming in the arctic outpacing that of the rest of the world. A slower jetstream tends to meander and is more easily pushed off track, bringing warm air further north and cold air further south as its normally straight flow forms waves.
Experts trace the recent jet stream wanderings to Typhoon Nuri. The typhoon pushed the jet stream off course and north with a large body of warm air as it moved into the northern Pacific. As the air current bulged northward, arctic air downstream had nowhere to go but south, pushing the jet stream ahead of it over the continental US. Events like this year’s “Arctic Blast” and last year’s famous “Polar Vortex” will be more easily triggered by climate change-weakened jet streams. This chain of events, along with a Lake Erie’s warming by long-term climatic changes, caused the flow of very cold air to pick up additional moisture and dump it on Buffalo as “lake effect” snow. Energy from Typhoon Nuri then proceeded to be carried down the jet stream to Buffalo, resulting in the warming spell that causes flooding. (See Al Jazeera’s excellent in-depth explanation of this phenomenon).
As the climate continues to change, events like these are predicted to become regular occurrences and not outlying record-setting events. Businesses need to ready themselves for a future of 6-foot snowfalls and be better prepared to act quickly.
Image: (c) Munich Re, Getty Images, and AccuWeather.com
Global shifts like population growth, natural resource constraints and extreme weather are creating new challenges for corporations with global supply chains, causing disruptions, delays and cost increases. Sustainability and risk management professionals will play a crucial role in identifying, quantifying and mitigating risks arising from hazards like coastal storms, droughts, fires and floods.
This webinar from September 2014 gives participants both a practical framework to understand the impacts of climate change on businesses and supply chains, and the tools to assess and manage supply chain climate risk. Key topics include corporate climate risk management and adaptation, modeling the supply chain, country climate risk index, and commodity exposure to climate change.
Four Twenty Seven helps investors, Fortune 500 companies and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain. Our clients rely on Four Twenty Seven’s tools and models to factor into financial and operational planning processes. Learn more about how we are helping our clients assess and adapt to climate risks.
In 2006, the British government released the world’s first and most comprehensive assessment of the economic impacts of climate change, led by economist Nicholas Stern. The Stern Review on the Economics of Climate Change was instrumental in establishing unequivocally the link between physical impacts of climate change and our economics, and helped dramatically shift the conversation on greenhouse gas mitigation.
Eight years later, the United States now has its own Stern Review. Risky Business: The Economic Risks of Climate Change in the United States provides the most comprehensive assessment of the economic risks our nation faces from the changing climate. The report focuses on the clearest and most economically significant of these risks: damage to coastal property and infrastructure from rising sea levels and increased storm surge, climate-driven changes in agricultural production and energy demand, and the impact of higher temperatures on labor productivity and public health.
Let’s start with some of the short-term impacts – in climate-speak, short term is anytime between tomorrow and the next 15 years. The East Coast and the Gulf of Mexico will likely see an increase in the annual cost of coastal storms and hurricanes of $7.3 billion, bringing the total annual price tag to $35 billion on average. The agricultural sector in the Midwest and South may see decline in yields of more than 10% over the next 5 to 25 years if they don’t ‘adapt’ their crops and cultivation methods to the new climatic environment. Increases in temperature, heat waves and humidity will drive up demand for energy, calling for the equivalent of 200 new power plants across the country, which could cost up to $12 billion a year.
As if this weren’t enough, the long-term projections present an even direr outlook. In the Northeast, the projected costs of sea level rise are estimated at $9 billion in property loss each year, directly affecting 88 percent of the region’s population. In the Midwest, extreme heat is expected to last an additional two months by the end of the century, resulting in a 73 percent loss in crop yields. In the Southeast, extreme heat is expected to last an additional four months by the end of the century, placing significant pressure on labor productivity, electricity costs and capacity, and could lead to 11,000 to 36,000 additional deaths each year in the region.
The report also makes the important connection between financial capital and human capital, providing estimates on the changing patterns of labor productivity and human health as a result of climate change. To quantify the potential impacts on human health, the report utilizes the Humid Heat Stroke Index, or HHS, to measure the combined stress of heat and humidity on the human body. Findings show that in the Midwest HHS will reach dangerous levels at least two days in each year by the end of the century and by as much as 20 days each year by 2200, during which time it would be impossible to remain outdoors without putting one’s life at risk.
This chart, from the report, offers a striking display of how average summer temperatures could increase if we don’t curb GHG emissions (click to enlarge).
Similar if not more severe temperature predictions are reserved for the South and Southwest where labor productivity could drop by 3.2 percent in key sectors like mining, agriculture, construction, utilities, transportation, and manufacturing. With a focus on average and extreme temperature increases, the report alludes to the challenges of switching from natural gas and oil-driven heating to electricity powered cooling. With the exception of the Northwest, electricity demand and costs across the US are expected to rise between 2 and 7 percent by mid-century. In somewhat uncertain terms, the report refers to greater pressure on the electrical grid system, along with local hospitals, banks, and insurance companies.
An immediate and obvious conclusion from the report is the need to ramp up our greenhouse gas (GHG) mitigation efforts. The authors’ report administer a healthy dose of the precautionary principle, urging leaders in business, investment, and the public sector to consider the potential material risks of climate change at the regional and national level. Acknowledging the urgency behind climate change and the ever-increasing rate of range, these sectors are urged to reallocate capital to strategic mitigation investments in the short-term.
In the absence of aggressive adaptation measures, the Intergovernmental Panel on Climate Change reports that the threshold for keeping planetary warming at a tolerable level could be as little as 15 years. The Risky Business report effectively conveys this message in business terms and presents the material risks of climate change by highlighting the severe impacts on the US economy and our collective inability to ameliorate such risks in the near future.
Another important take-away is the need to start adapting to climate change – and fast! Even in the most optimistic scenario where the planet successfully contained GHG emissions, we are still bound to experience significant impacts from GHG already accumulated in the atmosphere. But while we have a pretty good sense of how to reduce our GHG emissions – the main hurdle is political, adaptation is a different story altogether.
It’s one thing to be convinced we need to adapt, it’s another to understand and be able to quantify the many ways climate change may impact a business’s value chain. Climate change can impact businesses in their supply chain, their operations, their manufacturing or production processes, and their distribution network. It can affect the infrastructure businesses need to operate, shift consumer preferences or make products obsolete. The impacts of climate change can be gradual or abrupt, hit tomorrow or in 30 years.
Businesses may at times forget how they depend on ecosystem services, even if they’re not sectors directly dependent on natural resources like agriculture or mining. At the end of the day, businesses (and the humans that run them) all depend on food, fresh water, fiber, fuels, and other biochemical products that nature provides. Certainly, not all sectors are born equal from that standpoint – but the most sophisticated tech products still need water and energy to be manufactured, and minerals to be processed.
The chart below, drawn from the Millennium Ecosystem Assessment Synthesis Report, illustrates the many ways ecosystems support human and economic activities.
And finally, not all companies are equipped to respond and rebound from this kind of disruptions. Any modern computers and servers and A/C and telecoms – all of which can be subject to disruption due to extreme weather events and costs increases over time. But some companies have business continuity plans and backup generators, and others may be put out of business by an extended power outage.
These differences can be analyzed, measured, and addressed. At Four Twenty Seven, we’ve developed a methodology to quantify the relative sensitivity of businesses to climate change that captures both their reliance on natural systems (ecological dependencies) and their exposure to weather variability, both in their operations and in their supply chain. We also have tools to assess an organization’s ability to respond to predictable and unpredictable changes.
This diagram illustrates how ecological dependency can vary by sector, hence creating different climate risk profiles for different companies (Source: Four Twenty Seven, Inc.).
There’s no silver bullet to climate adaptation. But there are practical tools and steps a business can take to understand its exposure to risk, estimate potential costs and develop effective adaptation measures. The Risky Business provides an important economic context for the nation – now it’s time for businesses to start looking at climate risks in their own operations, and focus on building resilience.
By Emilie Mazzacurati and Nik Steinberg