Category: Corporate Governance

Introduction: Companies Begin Adapting to Climate Change

Increasingly severe and frequent extreme weather events and chronic stresses are threatening urban communities and economic stability globally. In September 2019, during Typhoon Faxai almost a million people lost power throughout Tokyo and commuter trains were canceled. Evacuations were ordered, disrupting both residential life and business operations. Sony stopped operations at a PlayStation 4 console manufacturing site due to power outages, a Nissan production facility was partly flooded, and 10 shipping containers tipped over at Tokyo Port. In the United States, Hurricane Dorian led to the closure of ports spanning from Miami to Georgetown, with implications for local and global trade and the businesses downstream in the supply chain.

Businesses are increasingly aware that climate change hazards pose financial risks through operational disruptions and repair costs. Some corporations are beginning to implement resilience measures, investing in forward-looking climate risk assessments, considering flood resilience measures for their facilities, and improving their water efficiency. However, asset-level preparedness is only the beginning of essential climate resilience measures that businesses must take. Economic resilience is integrally connected to community resilience because corporations rely on functional transportation, power, and water infrastructure for their operations and depend on the city residents that make up their employee and client bases.

Economic Resilience & Community Resilience: Two Pieces of the Same Puzzle

Economic resilience is critical to community resilience, while business continuity is also dependent on resilient communities and infrastructure. Local businesses underpin local economies, which are key to maintaining stability within a city. As credit rating agencies increasingly integrate physical climate risks into their municipal bond ratings, cities’ preparedness for climate impacts will shape their access to capital. Economic stability is a key element in credit rating agencies’ methodologies for determining municipal credit ratings. Thus, the resilience of local business and economic activities to climate impacts will be a key feature of assessments of city climate resilience.

Likewise, local businesses contribute directly to community resilience. Job opportunities attract new residents to cities and a growing population means a growing tax base, with more financial resources to invest in adaptation. When local businesses recover quickly after extreme events, residents retain their jobs and are more likely to stay in the area, both sustaining the tax base and maintaining social capital—an important element of urban resilience. When businesses are resilient to extreme events they can also offer emergency support, including turning their facilities into shelters, offering food, and donating rescue and first aid equipment, as seen after Hurricane Harvey hit Houston in 2017.

However, it is not a one-way relationship. If a catastrophic hurricane or wildfire destroys homes, displaces residents, and disrupts transportation infrastructure in a city, even climate-proofed corporate facilities will not be able to operate effectively. If employees cannot get to work safely or if they are displaced from the area, business operations may be disrupted. Likewise, if goods cannot be transported to and from a manufacturing facility or storage center, disruptions can ripple through supply chains with wide economic impacts. During Japan’s deadly rainfall in July 2018, Mazda Motor Corporation’s headquarters incurred no major damage. However, operations were halted for days because over 100 employees had flooded homes and many faced challenges traveling to work.

Innovation: Partnering Across Sectors for Shared Resilience

Since the resilience of businesses and cities is inextricably connected, the most effective resilience-building will involve collaborating towards shared resilience. Private and public sector stakeholders often use different terms, have different operating and planning processes, and are unaccustomed to collaborating with counterparts from the public or private sector. The development of a model for private-public partnerships that leverages respective strengths and advances shared climate resilience priorities, is a needed innovation.

Businesses and governments must work to establish trust and create a shared language around climate risks, establishing a foundation for successful collaboration on proactive adaptation and resilience planning as well as disaster response. Each can engage by identifying and contributing their strengths to shared efforts. Businesses can provide resources for the adaptation planning process and implementation, including technical expertise, staff time, and financial resources. For example, Facebook contributed over $200,000 to the development of the San Francisquito Creek Joint Powers Authority’s strategy for sea level rise resilience along the San Francisco Bay, which had implications for its Menlo Park campus. These local vulnerability assessments or adaptation plans can inform businesses’ own resilience-building efforts, while climate risk assessments completed for corporate risk management initiatives can also inform regional resilience planning. Information-sharing goes both ways.

Corporations rely on community adaptation to build resilient regional infrastructure and minimize the impacts of extreme events on their assets. Private-public partnerships can be an important mechanism for building support for these initiatives. For example, the Bay Area business community was influential in passing Measure AA, the regional parcel tax to restore the San Francisco Bay and improve resilience to flooding.

Private-public partnerships can also identify opportunities to increase regional preparedness for extreme events. For example, Airbnb works with San Francisco’s Hub for Emergency Preparedness and Portland, Oregon, to enable hosts to offer their homes for free and for other residents to open their homes to disaster victims in areas affected by an extreme event. This system allowed Airbnb to provide lodging to residents in the wake of Hurricanes Harvey, Maria and Irma in 2017, potentially reducing emigration and increasing the possibility of residents continuing to go to work.

As companies begin to incorporate forward-looking climate risk assessment into their processes, they are increasingly well positioned to engage with the surrounding community to support informed resilience building. Likewise, local governments can bring their understanding of climate change impacts on city infrastructure and operations to inform collaborations with the businesses in their community. Effective partnership, leveraging shared objectives and values, as well as unique capabilities, is called for now to improve economic and urban resilience in the face of changing climate conditions.

This article was originally posted by NewCities and was written with support from Yoon Kim.