Is Climate Change The Biggest Long-Term Management Problem Facing Business?

Two recent communications from respected global organizations have underscored the long-term impacts of climate change – and the potential vast effects on business.

Communiques from the World Bank and the United Nations both highlighted the complex, long-lasting and extraordinarily costly nature of the problem.

Noting that  ”weather-related losses and damage” have quadrupled from $50 billion a year in the 1980s to around $200 billion a year in the last decade, the World Bank commented:  “In corporate boardrooms and the offices of CEOs, climate change is a real and present danger.  It threatens to disrupt the water supplies and supply chains of companies as diverse as Coca-Cola KO +1.17% and ExxonMobil.  Rising sea levels and more intense storms put their infrastructure at risk, and the costs will only get worse.”

Photo: Wikipedia

Unpredictable, extreme weather poses risks to vital aspects of business  – including natural resources, agriculture, operational infrastructure, supply chains and insurance risk management,  among many others.  While some companies are responding with climate resilience initiatives, they are in the minority.  “CEOs know this (the risks of climate change),” noted World Bank President Jim Yong Kim.  “They also know there is opportunity in how they respond.  But while there are stand-out leaders, many others are holding back until they have more certainty about what governments will do.”

The United Nations recently finalized its summary of last fall’s detailed report from the U.N.’s Intergovernmental Panel on Climate Change. “Global warming is unequivocal, human influence has been the dominant cause since the mid-20th century,” the summary states.   The report describes human causality for climate change asextremely likely, which they define as “a 95 to 100 percent probability that humankind, and not naturally occurring phenomena” are responsible for climate change.  Accordingly, they expect such changes to be long-lasting, a reality that businesses (along with everyone else) will be dealing with for the foreseeable future.

The U.N. report was authored and edited by hundreds of scientists from all over the world, including the U.S., UK, Germany, China, Russia, India, Canada, France, Italy, Norway, Switzerland, New Zealand, Turkey, etc., etc.

For Chief Risk Officers everywhere, it’s hard to imagine a single issue with broader, more far-reaching management implications.  It’s not just utilities (who bear the highly visible brunt of power outages during severe storms), but companies as diverse as Starbucks and Levi Strauss, for example, who are dependent on water supplies and predictable weather conditions for cultivating coffee beans and cotton for apparel products.

Both Starbucks and Levi Strauss (as the attached article describes) have  been active in climate resilience efforts.

Still, as anyone who has worked in the corporate world knows, collaboration among large numbers of individuals can be exceedingly difficult, even when they are all working in the same organization and would seem to have strong common interests.   Thus, when it comes to addressing a vast, diffuse issue like climate change, collaboration is far more difficult: Inaction is easy when consequences are out of sight, in the future, beyond the horizon.  And the issue has become further complicated by becoming something of a “political football.”   But rain isn’t political, nor is temperature, flooding, drought, wildfires, and extreme weather events of all types.

“We have seen great climate leadership from countries and companies,” said World Bank President Kim, “but emissions are still rising…This is the year to take action on climate change. There are no excuses.”

If I were a betting man, I’d pin my hopes on companies’ chief risk officers, whose financial self-interest is aligned with helping organizations accurately assess future risks and take preparatory actions.   My guess is many chief risk officers have climate change squarely in their sights.  Organizations like Business for Innovative Climate  & Energy Policy can be a helpful source of information for companies wanting to become more involved with the issue.

If I were a betting man, I’d read the recent U.N. report and hope it’s completely wrong.  But at 5 percent or less, I don’t like the odds.

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Victor is the author of The Type B Manager, to be published this August by Prentice Hall Press.