Corporations Must Build Climate Resilience and Adapt to Climate Change

Climate change presents an array of physical risks with immediate and long-term implications for businesses. Frequent extreme weather events such as floods, droughts, hurricanes, and wildfires cause operation and supply chain disruptions with serious financial implications. Longer term climate shifts, such as temperature changes, will affect agriculture-dependent businesses as new crop diseases emerge and farmers face lower productivity. Additionally, rising sea levels will affect companies’ infrastructure and distribution systems, and expanding water-stressed regions will increase water-supplying costs. Given the imminent threat of climate change, how can corporations build climate resilience?

Climate Risks and Opportunities Assessment

The first step for companies to build climate resilience is the assessment of business risks and opportunities posed by different climate scenarios, which provides critical information to stakeholders. The Task Force on Climate-Related Financial Disclosures (TCFD) recommends that organizations use at least a 2°C scenario aligned with the Paris Agreement and consider using other scenarios relevant to their business. Guidehouse helps companies through this process using methodologies compliant with TCFD. Based on these risks, companies develop emergency management strategies or business continuity plans.

Climate Resilience Best Practices for Corporations

After making a commitment at the board level, corporations should take action to adapt current operations and business models to reduce climate risks and leverage opportunities, integrating them into corporate strategies. Guidehouse identified leading corporate climate adaptation practices, based on research looking at the food and beverage, pharmaceutical, and apparel industries:

• Climate-resilient sourcing strategy: Source key raw materials from geographically diverse suppliers and consider the shifts in availability of certain crops in specific regions. Guidehouse informed Mars Inc.'s approach to sourcing by integrating climate change considerations.
  
• Research innovative materials, processes, and products: Identify water efficiency technologies for water-stressed regions and reduce energy inputs; move toward climate-resilient raw materials to minimize supply chain disruptions risks. Heineken invests in water technology to reduce its breweries’ water use and its water balancing projects include researching new irrigation techniques with farmers in Mexico.
  
• Use climate projections: Use climate models to influence business decisions, such as improving crop yields, anticipating consumer demands, planning storage, and transportation needs, or relocating facilities to less vulnerable areas. In partnership with Agrible, AB InBev helps farmers access data and predictive insights on long-term climate effects to better manage crops.
  
• Assist farmers and suppliers to adapt to climate change: Train suppliers to build climate resilience and provide them with new technologies and climate-resilient crops to improve water efficiency and crop yields. Nestlé developed high yield, drought and disease-resistant cocoa and coffee plants reducing farmers losses and ensuring long-term availability of raw materials.
  
• Develop new products with increased demand: Transform business strategy for food and beverage companies to focus on local low carbon, climate-resilient products. In the apparel sector, H&M introduced its Conscious sustainable products, which contain at least 50% recycled materials or organic materials.
  
• Expand existing products to new markets: As certain diseases migrate due to climate change, pharmaceutical companies must prepare to help at-risk populations. Takeda is developing a dengue fever vaccine, as the tropical disease will spread out due to higher global temperatures.
  
• Flexible production and supply chain: Apparel companies can quickly adjust their production according to demand fluctuations. Inditex’s (Zara’s) flexible business model allows it to continuously adapt to consumer demands for more sustainable products. The company responds to sudden and unpredictable weather changes with its integrated platform of on and offline stores.
  
• Invest in renewable energy for adaptation purposes: Increase onsite renewable energy capabilities and :decentralize energy sourcing to reduce energy disruption risks. Johnson & Johnson is reducing its dependence on fossil fuels and diversifying its energy portfolio as its long-term strategy could be affected by climate change.

Time to Act

Climate change is affecting individuals and businesses around the world. Pfizer Inc. reported $195 million inventory losses when its Puerto Rico manufacturing sites were hit by the 2017 hurricane. Companies are getting more pressure from regulators, investors, and consumers to start focusing not only on mitigation but also on adaptation, and some corporations are already leading the way. Guidehouse guides corporations and governments through uncertain climate futures, helping clients develop climate adaptation solutions and ensure long-term growth.