Business Adaptation to Climate Change

A systematic review of the

body of research

Prepared by: David NitkinRyan Foster

Jacqueline Medalye

Table of Contents

Section Pages

Study background 3-8

State and shape of the literature 9-17

Key findings 18-23

Risks, opportunities, and barriers 24-34

Leaders and laggards 35-38

What you can do 39-48

Future work 49-53

Sector strategies 54-80

STUDY BACKGROUND

Study Background: Guiding questions

• Are businesses incorporating climate change into their business models and strategies? If so, how? And are do differences exist across business units, in terms of risks, opportunities, processes, and outcomes?

•  Are certain sectors ahead of others? If yes, what drivers account for these differences, and what lessons can leading industries offer the laggards?

•  What tools and processes do businesses use to evaluate the opportunities to be gained from adapting to climate change? Are there any examples of businesses creating a competitive advantage by building adaptive capacity?

Study Background: Methods

• Systematic review (i.e., comprehensive, transparent search) of academic, practical, and teaching related sites (e.g. ABI Inform, Google, ECCH case studies)

• The universe of 2,455 eligible studies were culled to 201, based on relevance and uniqueness

• The 201 studies were rated and categorized by 2 PhD students

• Questions– What do we know?– What don’t we know?– What are the stakes?– How to be a leader?

Study Background: Definition of Adaptation

“Adjustments in natural or human systems in response to actual or expected climate stimuli

and their effects or impacts

which moderates harm or exploits opportunities”

-IPCC Third Assessment Report

MITIGATION• Cut GHG emissions• Long term• Global • Causes focus• Regulation• Compliance themes• Public good

ADAPTATION• Change practices• Short term• Regional/ local• Consequences focus• Voluntary• Leadership language • Business, individual

Study Background: Adaptation vs. Mitigation

MITIGATION• Indirect benefits to

actor• All systems• Benefits not seen for

decades• Effectiveness more

certain• Sometimes ancillary

benefits• Monitoring relatively

easy

ADAPTATION• Direct benefits to actor• Selected systems• Benefits seen more

immediately• Effectiveness less

certain• Mostly ancillary

benefits

• Monitoring more difficult

Study Background: Adaptation vs. Mitigation

STATE AND SHAPE OF LITERATURE

Literature: Status

• Search key words 2,400 candidates• Sensitivity, vulnerability, resilience, adaptative

capacity, risk, opportunity• Identified and reviewed 201 studies• New language (climate proofing, climate

resiliency, processes of co-adaptation)

Literature: Types

• Academic– Journal articles

• Government, International Organizations– Educational organizations– Climate change leadership councils (Pew,

Tyndall)• Practitioner Literature

– Insurance, reinsurance, finance company reports

– Carbon Disclosure Project; Industry Referrals

Literature: Number of studies by source type

Journal, Peer Review 66 Consortium/ NGO/ Think Tank 28

Journal, Secondary 23 Newspaper, Magazine 25

Industry Report 7 Referred Study 17

Government report 7 Web-Site 10

Internal organization 5 Other 13

Literature: Findings by Sector (sectors with more than 5 studies)

Insurance 35 Finance 7

Agriculture 23 Mining 5

Tourism & Recreation 20 Forestry 4

Energy 13 Oil & Gas 4

Water 12 Infrastructure 3

Construction 10 Transport 3

Literature: Findings by Sector (sectors with fewer than 5 studies)

Food & beverage 3 Chemicals 1

Electricity 2 Manufacturing 1

Airlines 2 Fishing 0

Information technology 2 Retail 0

Automotive 2 Real estate 0

Coal 1 Media 0

Literature: Content Analysis

Topic # studies

Case studies, lessons learned 32

Tools for business 18

Risk frameworks screening 9

Scenarios 5

Decision Trees 2

Literature: Focus on Academic Literature

• Sector level• Approach adaptative cognition and action• Closely linked to IPCC assessments• Avoid definitions in abstract in favour of

operationalizing the concept through– Theoretical construct– Empirical studies

Literature: Limitations of the Literature

• English language only (there are other language sources, notably German)

• Available on web• Reports, case studies and articles that are web

accessible• Articles or web sites, not books or book

chapters

KEY FINDINGS

Findings: Literature

• We are in early stage of “early adapter” literature: citations in last ten years

• Not many sectors have heavy coverage (more than 10 case studies) in literature

• Not many companies have a well told story in literature on adaptation

• Some adaptation literature is really adaptation to mitigation challenges

Findings: Management

• Important to add climate change risk and vulnerability analysis to decision-making

• Place to start is to define risk because climate change has many indirect

• Rationale based on traditional economics: save money, reduce risk, increase energy efficiency, minimize waste

Findings: Action

• One size or answer doesn’t fit all• What’s right for one company may not readily

“work” for another (management, geography, business strategy)

• Not all businesses need to take action now, but most need to ensure decision-making includes a good vulnerability analysis (property damage, business disruption)

Findings: Value of Literature

• Possibilities of collaboration• Organizational adaptation is individual and

direct response• Mitigation not enough: curb GHGs too late to

prevent significant warming• Some businesses, managers confuse weather

(daily) and climate (long term)

Findings: Climate Change

• Requires diligence in looking not only at extreme events (flooding, hurricanes, drought) but also at – greater intensity of extremism– Significant uncertainties

• May lead to technical change for some sectors and not others

• When it does, it can either enhance or badly hurt (destroy) a company

RISKS, OPPORTUNITIES & BARRIERS

Risks & Opportunities: Landscape

• Risks are tangible and real– Canada highest country risk– Africa highest vulnerability– Mitigation may not be enough

• Opportunities are dramatic– Prosper not just survive– Positive cost-benefits

Risks & Opportunities: Types of Climate Change Risk

Market Changing consumer behaviour

Operations Increasing operational, infrastructure costs

Reputation Being perceived as a laggard

Counterparty Bankrupted suppliers

Political/Legal New regulations, lawsuits

Business/Competitive

Uncertain costs, deferred decisions

Risks & Opportunities: Scientific Status Climate Change

• Scientific community has accepted that (a) climate change is happening; (b) that it is largely man-made; and (c) it will have significant effects (IPCC 2007, Stern 2006, Source 178)

• Increase risk drought, desertification, melting ice, flooding, intense hurricane activity

Risks & Opportunities: Opportunities

• The business sourced literature puts an especial emphasis on business opportunities

• Mitigation and adaptation are co-dependent but different contexts of climate change

• Actions involve shorter term adaptation (decreasing unavoidable damages) together with longer term mitigation can reduce risk

Risks & Opportunities: Forms of Adaptation

• Bearing the cost• Preventing losses• Sharing or spreading losses through insurance• Changing the activity (for example, making ski

resorts four season facilities)• Changing the location of activities• Enhancing the adaptive capacity of

ecosystems to be more resilient.

Source: Natural Resources Canada

Risks & Opportunities: Types of Adaptation

• Intent: timing relative to climate change (proactive, reactive)

• Temporal (short-term, long-term)• Spatial (local, regional)

Risks & Opportunities: Barriers to Adaptation

• Lack vision• Lack regulation• Lack leadership• Lack long term sector specific climate change

data• Poor pricing certain resources (water)

Risks & Opportunities: Findings on Vulnerability (1)

• Degree to which system is susceptible to and unable to cope with adverse effects of climate change

• Three factors affect vulnerability: – Nature of climate change to which exposed– Climate sensitivity of system– Capacity of system to adapt (IPPCC, p 21)

Risks & Opportunities: Findings on Vulnerability (2)

• Businesses likely affected by– Climate change itself– Exposures: regulatory, physical, competitive and

reputational• While climate change may well be a slow-moving

force, relative to terrorism or hurricane, asset prices will on occasion move sharply when – new evidence reaches the market– policies are changed.

Source: Lehman Brothers

Risks & Opportunities: Time Scales and Forecast

• Short: 3-12 months, typical biz, long range hurricane; info on coming season, year

• Medium: 5-10 yrs, longest biz can consider• Long: 10-100 yrs; pension fund, nuclear

generation or waste; limited climate data

Source: Med Office Consult

LEADERS AND LAGGARDS

Leaders and Laggards: High Resources Dependence

High Level of Coverage

Moderate Level of Coverage

Low Case Study Coverage

Agriculture Fishing ChemicalsEnergy Forestry ElectronicsTransport Industrial products Pharmaceuticals

Leaders and Laggards: Long Planning Horizons

High Level of Coverage

Moderate Level of Coverage

Low Case Study Coverage

Energy Automotive Real estateTransport Health Waste-Nuclear

Mining

Leaders and Laggards: Already Affected by Climate

High Level of Coverage

Moderate Level of Coverage

Low Case Study Coverage

Agriculture Fishing Food and beverageTourism & Recreation

Forestry Pharmaceuticals

Insurance Health Real estate

WHAT YOU CAN DO

What You Can Do: Strategies (1)

• Rethink business strategy: look into pure adaptation

• Prepare for the worst: contingency planning• Cut green exposure/taxes; really mitigation• Determine if there is any/no risk• Develop climate resilience strategy with co-

dependent mitigation, adaptation actions

What you can do: Strategies (2)

Manage Bear the costTransfer Share or spread losses through insuranceAvoid Prevent lossesAdjust Change nature activities, businessAdapt Enhance adaptive capacityAnticipate Invest in acquiring better info

Risk + opportunity= Adapt initiative

What you can do: Adaptation Pyramid

What you can do: Lessons from Insurance

• Pricing and capital markets are deficient and lacking

• Extreme windstorm events will increase in particular with major impact on businesses and insurers

• Climate change will have great impact on asset values: more important to price risk accordingly

• Not addressing these issues will bring lawsuits from shareholders, investors and clients

• UNEP: critical to adopt vigorous adaptation measures even as we strive to cut emissions because even with aggressive mitigation– can’t avoid further warming– benefits of mitigation not seen before 2040– ocean’s at least 0.6 degrees warmer due to inertia,

whatever we do• Key is to realize “triple dividend”

– Need integrate and/or synergize sustainable development, risk management and adaptation.

– This will integrate adaptation policies with sustainable development policies and disaster management.

What You Can Do: Why Mitigation is Not Enough

What you can do: The wait-and-see option

• Wait See Approach Predominates• North American Task Force FI, UNDP study of

costs of waiting by time periods• Wait and see is folly as issue is inescapable

carbon footprint responsibilities: it’s the market curve, not the regulatory curve; it’s a business imperative, not an environmental one

What you can do: Proactive and Reactive Matrix

Monitor

Follow

Lead

React Act

Wait for gov’t regulations

Adapt

Do risk analysis

What you can do: Collaborations (1)

• Industry collaborations– Insurance

• Academic/industry centres– Pew Centre– Tyndall Centre– Intergovernmental Panel on Climate Change

What you can do: Collaborations (2)

• Institutional networks or shared action-study mechanisms– Carbon Disclosure Project– Equator Principles– UNEP Financial Initiative– CERES– Investor Network on Climate Risk (INCR)– Institutional Investors Group on Climate Change

FUTURE WORK

Gaps in Knowledge: Literature

•Lack of consensus surrounding meaning of business adaptation•“early” literature: Not often literature address risks, opportunities and adaptation at firm level•Rarely reveal insights not only of actions •taken and why but also what action alternatives not taken, or why

Gaps in Knowledge: Decision Making

• Uncertainty re: statistically significant variations – climate change risk by region– Perceptions of climate change risk

• Actual risk exposure for each sector by country

• Lack empirical data carbon emissions/risk measure for each plant, office

• Lack transparency firm level opportunities analysis

Gaps in Knowledge: Meteorology

• Near absence projections beyond 2012• Weather and climate info needed across a

range of time scales• Need know impacts climate change on water,

weather, food, health and ecosystems at temperature increases 1 to 5 degrees

Gaps in Knowledge: Future Research Agenda

• Research collaboration– Industry associations– Multi-stakeholder networks– Academic-practitioner collaborations

• Assess efficacy various decision-making models

• Climate change scenarios– Disaggregate, sectoral

SECTOR STRATEGIES

Sector Strategies: Agriculture (1)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Drought and flood resistant seeds

New heat-tolerant goats

Invest in women as seed keepers

Irrigation, drip systems

New heartier crop strains

Exterminate cattle ticks

Cold tolerant plant species

On-farm genetic diversity banks

Water conservation

Challenge: drought in Africa

Sector Strategies: Agriculture (2)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

New irrigation trading rights

Biodiversity conservation

Adopt plumbing fixtures

Fertilize oceans with iron (reduce CO2)

Revegetation for carbon sequestration

Grow more resilient crops

Use biofuels Improve rangeland management

Relocate activities

Challenge: increased incidence weather extremes

Sector Strategies: Automotive Sector

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Set emission targets Design, use more carbon efficient raw materials

Design lower emission products

Build hybrids, more fuel efficient vehicles

Measure carbon footprint (total and plant basis)

Assess which types adaptation will increase GHG

Sector Strategies: Building and Construction (1)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Redesign roofs and windows

New product, materials, markets

Flood prevention equipment

Modular systems Invest in better water treatment

Watertight storage

Design for safer living

Larger drain pipes Measure carbon footprint

Challenge: high tides and storm surges

Sector Strategies: Building and Construction (2)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Redesign roofs and windows

Increase use local power supply

Better water storage

Modular systems Prefabrication Move offices

Better emergency planning

Better drainage(material, sewers)

Improve insurance coverage

Challenge: droughts, less water

Sector Strategies: Chemicals

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

New agricultural, health products

“No till” farming herbicides

Exit some businesses based on carbon emission grounds

Assess, invest in biotechnology

Use less carbon intensive fuels

Better insulation, energy efficiencyReuse heat from manufacturing

Sector Strategies: Electric Utilities

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Catastrophic event bonds

Reduce water for cooling

Reduce air travel

Zero air and water emission plants

Reconfigure data centre

Reduce carbon emissions through supply chain

Reuse heat to make electricity

Sector Strategies: Energy (1)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Water acquisition strategy

Contingency planning

Cut carbon exposure

New exploration fields, locations

Low impact vehicles Report carbon emissions

Set CO2 output targets

Drill ships Deep injection water to recover oil

Challenge: lower water levels, less water

Sector Strategies: Energy (2)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Diversify location critical functions

Pollution to reflect sunlight

Run wires into stations at roof level

Reflect sunlight back into space

More generation from renewables

Recycle CO2 into fuel (hydrogen)

Target outage reduction timing

Tougher anchor platform specs

Relocate vulnerable operations

Challenge: extreme events, melting permafrost

Sector Strategies: Finance

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Facilitate emission trading markets

Catastrophic events bonds

Measure carbon footprint

Invest in clean power, renewables

Weather derivatives Energy efficient lighting, sensors

Climate change investment fund

Conservation throughout operation

Sector Strategies: Fisheries

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Fish farming Diversify into other species

Build better climate models

Conservation

Challenge: more severe floods, droughts, storms, spread of disease

Sector Strategies: Food and Tobacco

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Set water use targets

Seed research Abandon storage facilities in hot climates

Invest in sustainable agriculture

Investment in water management

Measure carbon footprint

Use more resistant seeds

Educate supply chain

Sector Strategies: Forestry

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Plant climate resistant species

Process dead trees Community reforestation

New reforestation partner strategies

Plant forests to sequester CO2

Increase urban (waste) sources

Convert wood damaged by pine beetle to biofuel

Plant trees reduce urban heat islands

Sector Strategies: Health

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Invest in water treatment and storage

Introduce climate resilient seeds, food varieties

Increase mangrove swamps (hurricane protection)

Better emergency management

Social protection Disaster responses foe epidemicsPest management

Sector Strategies: Industrial Products

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Rainforest skin: analyze carbon sequestration

More sophisticated thermostats

Telecom substitute for travel

Set carbon footprint targets

Design products made from carbon-efficient materials

Reduce carbon emissions through supply chain

Design products that consume less energy

Sector Strategies: Insurance (1)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Public-private partnerships

Association networking

Manage supply chain expectations

Finance low carbon technology

Innovative financing Invest in GHG credits

Weather derivatives Client risk education Enhance design standards

Challenge: increased incidence of catastrophic losses

Sector Strategies: Insurance (2)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Reduce reliance on historical losses info

New insurance products, underwriting procedures

Increase attention water-related property damage

Corporate responsibility partnerships

Better predictive models of climate change

Support carbon footprint disclosure

Catastrophic event bonds

Customized insurance policies

Protect high value property in vulnerable areas

Challenge: increased natural catastrophe exposure

Sector Strategies: Mining and Metals

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Sturdier buildings, machinery

Close loop operations systems

Increase maintenance of rail, roads

Emphasize recycled sources for metals

Catastrophic insurance coverage

Water strategy

Curtail building roads

Challenge: more extreme weather events

Sector Strategies: Oil and Gas

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Invest in offshore, onshore wind turbines

Multi-fuel (not just gas) stations

Better climate change data, scenarios

Invest in hydrogen fuel cells

Shift to alternative energy

Review drilling station risks

Challenge: extreme weather events

Sector Strategies: Pharmaceuticals

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

New tropical disease products

“No till” farming herbicides

Trap factory fugitive emissions

Low GHG emission production

Water recycling

Sector Strategies: Real Estate

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

New forms of catastrophic insurance coverage

Relocate new investment in less risky zones

(No literature)

Reposition asset portfolio

Sector Strategies: Retail

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Reduce power consumption

Buy, use green/ renewable energy

Buy local

Location decision models include climate change

Reduce emissions throughout supply chain

Combine heat, power (use waste heat): on-site energy production

Measure, target carbon footprint

Purchase carbon offsets

Energy efficient lighting, sensors

Sector Strategies: Tourism & Recreation

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Develop off-site activities

Snow farming and fencing

Ski slope design

Invest in more indoor facilities

All year round tourism

Invest in artificial snow

Create artificial beaches

Develop higher terrains

Flexible ticket pricing

Sector Strategies: Transport (1)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Year-round roads Ice class vessels Apply higher emission standards

Scenarios re: marine, land transport systems

Climate research Maintenance and safety standards

Strategic marine services

Water treatment Relocate railroads to new growing areas

Sector Strategies: Transport (2)

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

NorthWest Passage Thermosyphons Improve insurance coverage

Eject CO2 from atmosphere at poles

Water tight storage Improve supply chain management

Move offices

Challenge: change in permafrost, sea and lake ice, and snow cover

Sector Strategies: Water Utilities

ADAPTATIONINITIATIVE

BUILDRESILIENCE

DECREASE VULNERABILITY

Promote conservation

Catastrophic event bonds

Reduce water for cooling

Better risk forecasts data

More resources on climate change from nbs.net

• Reports from this study• Other resources on climate change