Recent extreme weather might have left us cold, wet and windswept. But companies that react quickly could avoid catching a serious commercial chill. Is it time for Plan B? Jon Herbert examines the options.
The news is grim. Several new reports worry that the world is now on track for a 6°C temperature rise by the end of the century.
Will it hit my company? Yes it will. Can we fight back? Yes, but the clock is ticking. In terms of risk and continuity planning, Plan B should really become an extension of Plan A.
Globalisation has done more than simply help to increase greenhouse gas emissions. Some 85% of companies now depend on complex international supply chains that are particularly vulnerable to climatic disruption.
Accordingly, circa 83% of S&P 500 companies have already integrated climate change into their business risk profile. Yet ideas for countering this new risk efficiently are still in their infancy. Facilities managers face the challenge of making their businesses more resilient to the misfortunes of unprecedented bad weather. This is so important that resilience can become a competitive edge.
Resilience means that when things go wrong, a company has in place plans for continuing to source raw materials, maintain production and deliver services essential for customers further up the supply chain to do the same.
If this seems remote or theoretical, Hurricane Sandy, the Philippines typhoon and recent remorseless wet weather in the UK could be a permanent taster of what is to come if the latest climate change predictions prove correct.
Early estimates suggest that Hurricane Sandy cost the USA $45 billion not just in storm damage but also as lost industrial production. Business closures and output falls will continue to hit customers and consumers for months to come, as well as profit margins in recession.
Worse still, it is calculated that of £190 billion lost globally to natural disasters in 2011, only 33% was covered by insurance. And with insurance potentially more costly and harder to find in the future, it may be time to upgrade Plan A to include Plan B.
Risks and responsibilities
A PricewaterhouseCoopers (PwC) report, Risk Ready: New Approaches to Environmental and Social Change, is stark about the challenge now facing small and large businesses. It says that the pace of change seems to be increasing with businesses looking for clearer early warning signs.
Organisations need to know if supplies will be disrupted, transport routes compromised by floods and unseasonably wintery weather, despatch schedules disrupted and whether customer needs could gradually evolve. Will your core market be fatally compromised?
At the same time, people expect more from companies, as Starbucks recently discovered in the wake accusations of tax evasion. Stakeholders, including the paying public, know that they can use social media, data analytics and open data platforms to examine businesses. This may be coincidental but it puts yet more strain on companies and facilities managers.
Another implication of having larger, more complex, international supply chains linked by fast transport links and digital communication is greater pressure on companies to demonstrate that they are monitoring their own suppliers for responsible business practice. As examples, some 78% of Asian-Pacific supplies face increasing water scarcity, with sustainable implications for UK importers in the form of “embedded” or “virtual” water. Meanwhile, in North America, some 40% of utility company CEOs predict that power blackouts will increase up until 2030.
Building business resilience
As a result, company bosses are beginning to move on beyond short-term tactical steps that meet daily problems to the more strategic idea of building business resilience. Resilience means understanding how much risk lies outside and beyond a company’s control and what can be done to continue providing competitive business value.
The concept is to look for weaknesses not only in a company’s own networks but also in a broader transportation, utilities, health and vulnerable natural ecosystems context. It means not just planning two or three years ahead but into the strategic future.
Can you spot where supply and demand behaviour is likely to change? Could specific materials gradually move into short supply and are there substitutes? Can new technology provide answers?
Buffers and adaption
PwC’s idea of resilience involves two useful concepts. The first is “buffers”. Buffers are designed to create short-term breathing space that allows shocks to be absorbed until normal business conditions return.
For example, climatic events might suddenly cut off your raw material supplies, or at least boost prices. Can you stockpile, shift resources or reschedule production? In areas of the world where power shortages are likely — and the UK is predicted to have possible periodic blackouts as early as 2015 — companies have been encouraged to move production times to periods of the day when power demand is lower.
The second idea is adaptive capacity. This is long-term resilience. The aim is gradually changing your company’s ability to cope with permanent changes.
Government, local authorities and utility companies are already adapting on a national, regional, city or neighbourhood scale. Inventive businesses can tie into these initiatives. Waste-handling is an obvious example. The corollary is that your business can help local services to cope better.
Responsibility really is a policy issue for every organisation, though inevitably much of the weight will fall on the shoulders of facilities managers.
The other side of the coin is being able to deal with climate change while ensuring continuing value. Businesses still need to remain competitive. Buffers and adaption will almost inevitably make trading more difficult initially, unless they actually provide better solutions than were previously in place.
It may mean trying to ensure that suppliers further down the supply chain also have good practical notions of buffers and adaption without adversely affecting the costs and quality you receive. This is a tough one, with the advantage of helping to make the world in general more energy and carbon-efficient.
An alternative is to cut out parts of the chain where you have little control and cannot estimate local conditions. The ultimate response might be to change your own product line or delivered services.
A useful tool for company planners is long-range scientific models. It is good to be aware of predicted sea level rises and areas prone to severe flooding. This could affect decision-making on where to build new facilities, or indeed whether to stay put or move.
While risk models are uncertain, advances in site-specific data now mean that hazard risk models can give meaningful information down to areas as small as 25km2. The last piece of advice is to keep resilience planning up to date.
In a separate report, Low Carbon Economy Index 2012, PwC analyses its conclusion that world governments are being highly unrealistic in their assumption over the past two decades that global warning can be kept down to no more than 2°C.
The report shows that global carbon intensity — the measure taken to assess the thermal blanketing effect of carbon dioxide and related greenhouse gases in the atmosphere — fell by some 0.8% a year from 2000 to 2011. During 2011, carbon intensity fell by a further 0.7%.
This is nowhere near good enough, the report continues. The global economy needs to reduce carbon intensity by 5.1% in every one of the 37 years between now and 2050 to retain any chance of meeting the 2°C target, it argues.
A further study by the UN’s Environment programme confirms that greenhouse gas emissions are 14% higher than it needs to be by 2020 to meet the 2°C objective. It adds that the target is still technically achievable but will be lost without swift action by world governments.
UN research (Emissions Gap Report 2012) carried out by 55 scientists in 20 countries warns that without concerted government action, the equivalent of 58 gigatonnes of carbon dioxide will enter the atmosphere every year by 2020. That is some 14 gigatonnes too many annually. Even if countries were to meet their most ambitious pledges, the excess in the current year is likely to be 8 gigatonnes over the limit.
Meanwhile, the European Environment Agency (EEA) says that there is mounting evidence of the effects of climate change across Europe. Andre Jol, Head of the EEA’s Vulnerability and Adaption Group, notes that the increased cost of damage is the result of more industry, people and infrastructure being located in high-risk areas.
Last updated on 14/03/2013
First published by Croner-i on 14 March 2013