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Industries most vulnerable to climate change

Global warming and climate change pose a seemingly ever-increasing global risk, but can the damage be repaired or even halted?

According to the World Economic Forum (WEF) Global Risks Report 2019, we are “sleepwalking into catastrophe” when it comes to environmental risk. In 2017, climate-​related disasters caused acute food insecurity for some 39 million people across 23 countries. The WEF says the “failure of climate-​change mitigation and adaption” is the second most impactful risk in the world.

Where will the impact be felt most?

Jonatan Pinkse, professor of strategy, innovation and entrepreneurship at Alliance Manchester Business School, says oil and gas companies, car manufacturers and energy companies are already being affected.

“Looking ahead we’re likely to see more food and drink companies feel the effects of climate change,” he says.

The insurance industry is expected to be most affected, as they have to pay for the damage occurring in other sectors

Peter Jansen, London School of Business and Finance

Peter Jansen, principal lecturer at London School of Business and Finance, and a specialist in sustainable business development, says developing countries are likely to suffer more from climate change than rich countries.

“The insurance industry is expected to be most affected, as they have to pay for the damage occurring in other sectors,” he says. “The second most is agriculture due to increases in temperature as 30 per cent of the world population is depending on agriculture for their income.”

Food production, in particular, faces huge threats

Jim Totty, Earth Capital

The beverage industry is also likely to be hit as climate change affects pure water levels. The European Commission says infrastructure and building, energy systems and tourism are also high-​risk sectors.
“More intense and frequent heat waves will shift energy supply and demand patterns, often in opposite directions,” says Dr Jansen. “Greater size and higher frequency of extreme weather events will cause threats to physical energy infrastructure, such as overhead transmission and distribution. Tourism patterns may change, for instance southern Europe will attract fewer tourists, while central Europe might see an increase.”

What are the implications?

Jim Totty, managing partner at Earth Capital, a sustainable impact private equity manager, says climate change will cause political tensions, water and food shortages, and human migration.

“Food production, in particular, faces huge threats,” he says. “The population worldwide is rising towards ten billion, and water and resources are needed to service agriculture. There are over 200 major rivers in the world which cross international boundaries and these are going to be flashpoints for political and military tensions going forward.”

Asia has 60 per cent of the world’s population, but only 36 per cent of available water, and the Middle East and North Africa has 6 per cent of world population, but less than 2 per cent of the water, he says.

“Water scarcity will become an issue and there will be a debate around the conflicting needs of the domestic, agricultural and industrial use of water. There will be flashpoints, for example governments or companies building dams upstream for water or hydroelectric stations, which impacts on nations further downstream, and this will cause intense political concern, and the potential for conflict and economic instability,” says Mr Totty.

“If climate change continues on the current path and we see warming of 3 to 4C, we will see dramatic changes in the world’s ability to grow food and continue with agriculture. There will be increasing numbers of people having to seek refuge elsewhere because of lack of water or resources. There could be ten to a hundred times more people moving from North Africa and the Middle East.”

Emerging threats: weather damage

Increased frequency of storms will affect the developed world. Reinsurers have been at the forefront of attempts to quantify the effects of this change, trying to understand what impact it will have.

Mr Totty says: “Munich Re has reported that there has been a threefold increase in loss related floods in the last 30 years and double the number of windstorms and hurricanes. Swiss Re reported that Hurricanes Irma, Maria and Harvey in 2017 caused $93 billion of insurance losses.

“We do not know how much sea levels may rise and what effects there might be. Allianz estimates that a 0.5 metre rise by 2050 would cause $25 trillion of assets to be exposed. We have already seen the effects of flooding in New York with Hurricane Sandy.”

Technology can aid water conservation

Mr Totty says technology and innovative ways of managing resources and water are starting to address some of these challenges. In the case of arable crops, drones can provide live pictures and identify where irrigation and fertiliser is needed. Ground-​based drones can be used for harvesting and micro-​weeding.

“There are already smart irrigation technologies to diagnose when and how a crop needs irrigating, and how much water to use, reducing wastage,” he says. “The food and beverage industry is concerned about water discharge rules and the cost of bringing in new water, and the focus is now on recycling and cleaning up waste water.”

Challenges for the automotive industry

While electric cars are already on sale, in a bid to reduce harmful emissions, autonomous vehicles will have the biggest effect on the business model and structure of the automotive industry. Mr Totty says this is as significant as the change from horse power to the car.

“The way you own a car is going to change, with ’mobility as a service’ becoming common,” he explains. “There will be fewer cars sold and fewer on the road. This is an existential threat to the industry which will hit in ten to fifteen years’ time, and will feed back to oil and gas producers as our consumption of liquid fuel changes.”

Utilities: adapting to flood and supply challenges

“For utilities companies, the potential disruption to the supply of their services from climate change, such as extreme weather events, is significant,” says Tom Telford, account director at Landmark Information.

“With assets spread over a large land-​mass area, combined with regulatory pressure to ensure customers receive a high level of uninterrupted service, utility companies need to be proactive in managing climate-​related risk,” he says.

Landmark, working in partnership with Ambiental Risk Analytics, has worked with utilities companies to develop FloodFutures, a project initiated by Wales & West Utilities. This is a national flood map that incorporates both current and future predictive flood scenarios for the 2020s, 2050s and 2080s.

Professor Pinkse says risk mitigation planning is a collective responsibility and industries have started to share best practice. Businesses should also need to be working closely with government and NGOs.

“To really tackle the issue of climate change head on and at a higher level, we need people and organisations to take the lead,” he says.

Businesses can start small

Will Richardson, founder of Green Element, an environmental consultancy, says the first step for companies is to understand their environmental impact.

“This includes rethinking business travel and how staff meet clients; is a face-​to-​face meeting always necessary?” he asks. “Do employees always need to commute to the office? Remote working could be encouraged where appropriate.”

To really tackle the issue of climate change head on and at a higher level, we need people and organisations to take the lead

Jonatan Pinkse, Alliance Manchester Business School

Paul Munday, climate resilience lead at consultancy WSP, says the use of green infrastructure and sustainable urban drainage systems, such as green roofs and walls, offers businesses the opportunity to reduce flood risk and promote healthier lifestyles, while also contributing to improved mental health and increased desirability of real estate.

“There is support for businesses to help reduce the impacts of climate change and build resilience,” says Dr Munday. “The Financial Stability Board, set up in the aftermath of the 2008 financial crisis, through its Task Force on Climate-​related Financial Disclosures has developed a consistent way for business to identify and disclose financial risks from climate change.”