In the Arena is a broadcast and online series that interviews alumni of the Goldman School of Public Policy at UC Berkeley who have embraced careers in policy innovation and social entrepreneurship. Four Twenty Seven Founder and CEO Emilie Mazzacurati, an alumna of the school (MPP ’07), talked with host and fellow alumnus Jonathan Stein (MPP/JD ’13) about how Four Twenty Seven fulfills its mission to build climate resilience through social innovation by working closely with corporations and investors on climate risk and adaptation. Watch Emilie and Jonathan discuss climate data, social innovation and integrating climate risk to protect local communities on In The Arena — Finding Climate Solutions:
SustainabilityDefined is the podcast that seeks to define sustainability, one concept (and bad joke) at a time. Hosted by Jay Siegel and Scott Breen. Each episode focuses on a single topic that helps push sustainability forward. They explain each topic with the help of an experienced pro.
CEO Emilie Mazzacurati joins the show for Episode 14 to discuss supply chain risk, leading with the dire news that the world may run out of coffee and chocolate by 2050! How is that possible, you ask? Emilie helps Jay, Scott, and their listeners understand why supply chains are so critical to delivering the goods we love, and how understanding the effects of climate change could help us avert a world without coffee and chocolate. Click the audio player above to listen in!
Climate change presents real challenges and costs for business operations. Both large and small organizations are susceptible to liability costs and direct disruption of their operations from extreme weather, rising global temperatures, and the climate change.
Solutions do exist to help monetize and prioritize adaptation and resilience strategies that can protect the bottom line.
Nik spoke at the 2015 Industrial Environmental Association about how Four Twenty Seven is working to help business and industry understand the costs of exposure to a changing climate.
The University of Notre Dame Global Adaptation Index (ND-GAIN) is delving into new territory by partnering with the Kresge Foundation to create a new index measuring US cities’ climate change vulnerability and adaptation progress. Five indicators will be identified by resilience experts to determine the most important identifiers of a city’s ability to continue functioning during and bounce back after environmental catastrophe. Five urban areas will undergo pilot assessments, scoring, and ranking before the system expands across the US.
ND-GAIN’s existing global adaptation index takes over 50 variables into account to rank over 175 countries according to climate change vulnerability and readiness. Indicators include access to water, infrastructure development, climate exposure, governance, and the economy.
The ND-GAIN Index has been instrumental in providing a comparable global measure of climate risk. The index is free and open-source and has been applied to such evaluation as analyzing climate change risk to businesses and supply chains. As risk becomes more apparent and companies encounter more and more supply chain stoppages due to extreme weather, companies may begin to move operations to countries that rank higher in climate change readiness. The CDP reported in 2013 that 77% of S&P 500 corporations reported risks from climate change. That number was up from 61% the year before and is likely to continue increasing. Risk managers of major global corporations are already taking climate change vulnerabilities into account when making critical business decisions.
Cities are bound to be at the forefront of climate change adaptation for a number of reasons. Decades of urbanization currently has 54% of people living in cities globally, with this concentration even further exaggerated in the US at 80.7%. Cities also generated 85% of the US GDP in 2010. This concentration of population and wealth represents greater vulnerability to climate change as more lives and economic value are clustered in such a small area. The denser the center of activity, the more damage a single storm can cause. Hurricane Sandy alone is estimated to have caused as much as $30 billion in losses to businesses from damages and lost revenue.
Another reason cities have led the charge on adaptation action has been necessity. Until very recently, lack of initiative and a unified adaptation plan from the federal government has made US cities unusually vulnerable to climate change. However, the long-term impact of President Obama’s 2013 “Executive Order on Preparing the United States for the Impacts of Climate Change” and the recent launch by the White House of the “Climate Toolkit” paves the way for greater support from the Federal government to local communities across the country.
As businesses increasingly take climate change as a serious consideration in core business decisions, ND-GAIN’s new city-focused index may become a yardstick dictating future business strategy. Just as the index may expose a city’s vulnerability and risk as a site for new business development, it will also promote cities with effective adaptation strategies. The most vigilant cities will be repaid with private investment. When cities compete to be the safest and most prepared in the face of climate change, residents, businesses, everybody wins.
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.
Short Term Costs in the Billions
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.
Long-Term Impacts Significant Threat to Property and Lives
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.
Reducing emissions – and more
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.
Managing climate risks: what does it mean for businesses?
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
Historically, sustainability reporting has been largely about the firm’s impact on society and the environment. Is the firm using up a lot of resources? Polluting? How does it impact local communities’ lives and livelihoods? How does it treat its employees? And so much more. Recently though, stakeholders have also been asking for disclosure on risks and opportunities related to climate change. Are the firm’s operations at risk for a Category 5 hurricane? Will its supply chain be impacted by more frequent floods in Bangladesh? How will the firm procure water or agricultural goods in a dryer world? How will it pay for shipping in a world with high carbon prices?
It could be argued that including climate change impacts into sustainability reports turns sustainability reporting on its head: when a firm reports on the impact climate change may have on its operations, supply chain or business model, it is really reporting on the impact of the environment on the firm, not the other way round. So, should climate risks be included in sustainability reports?
This blog post was originally published on Triple Pundit – read the full article.
When it comes to sustainability reporting and disclosure, most investor engagement focuses on S&P 500 – large, publicly-traded companies. Yet this leaves out thousands of privately held firms that make up a large part of our economy. Environmental Defense Fund (EDF)’s Green Returns program engages with private equity firms and portfolio companies to identify opportunities to reduce environmental impacts.
Read the full text for this article from Emilie Mazzacurati on our partner blog Triple Pundit.
Photo credit: epsos.de