Extreme Weather | Economia
weather and business
Not so quiet on the weather front From floods and cyclones to droughts, the world is experiencing new extremes of weather. But, asks Adrian Holliday, is anyone taking the potential threat to business from climate change seriously?
60
F
rom rising floodwater across Europe to hailstones the size of small fists in Asia, extreme weather shatters lives and businesses. Whether you’re scooping raw sewage out of a conservatory in Somerset or recovering from the trauma of Hurricane Sandy – at more than $70bn the second-costliest hurricane ever to hit the US East Coast – there are few places on the planet now left unscathed. Last month, UK environment secretary Owen Paterson was confronted by residents of floodsaturated South West England, exasperated with the Environment Agency’s (EA) inability to dredge their area’s rivers to ease the problem. Some of their anger fastened on government job cuts: the EA is slashing up to 1,500 jobs at a time when extreme weather and climate change make the news on an almost hourly basis. As this issue went to press, the politics of the UK’s extreme weather had turned ugly, with the prime minister David Cameron stepping in to chair a meeting of the emergency committee Cobra, in place of Paterson and politicians turning on each other and the EA. Cameron says he “suspects” the extreme weather may be connected to man-made climate change, but isn’t 100% sure. So is extreme weather more about better risk and resource management? Or are we reaching a tipping point where global weather conditions are moving too fast for us to properly cope?
march 2014
economia
“Climate is what you expect – weather is what you get” RA Heinlein
On home turf, it’s easy to throw stones over the consequences of the recent weather. Much of the government’s public talk is of cuts, while simultaneously claiming “protection” for essential EA services. But what’s easy to forget, says Matt Travis, board director at environmental consultancy Enzygo, is the local authority and emergency planner component. “The EA provides the warnings, but it falls to emergency planners to evacuate areas if they need to,” he says. “You may have a local lead authority so if you have a group of counties together, one will take the lead on flooding and it will send out teams to make sure that certain flood defences are working. You might highlight one agency, but overall they’re part of a bigger system. Look at it in the round.” Looking at the issue “in the round” means complexity and explanation. And, increasingly, the mood is unsympathetic. “This is not a freak act of nature, it is unforgivable negligence,” Ian Liddell-Grainger, Tory MP for Bridgwater and West Somerset, said when venting his anger about flooding in Somerset. The way some politicians talk about extreme weather events is also changing. When Lord Smith, chairman of the EA, was interviewed on Radio 4’s Today programme in late January about conditions in the Somerset Levels, he was asked a direct question on the lack of river dredging and
economia
march 2014
immediately deflected it to praise his staff. Then, he started to talk about more than a million homes that had been protected from further flooding. That signalled a subtle shift in how the debate is framed: not losses but what has been saved. Many, though, continue to struggle to make the connection between weather and long-term climate change says Roger Street, technical director for the UK climate impacts programme at the Oxford-based Environmental Change Institute. Weather is short-term minutes and months; climate is the woollier, long-term, harder-toquantify measure. As far as business goes, says Street, this is the difference between short-term Disaster Risk Reduction (DRR) strategies and serious long-term climate change adaption. “With medium and larger business, a number are concerned with DRR but also looking at how these investments will be taken forward – and they have the luxury of dealing with longer-term issues. Some of the thinking is around diversification and improving resilience to extreme weather, recognising vulnerability.” Such sectors include utility companies, banks and the retail sector, says Street, with much activity being driven by long-term shareholder pressure. Currently utility company Anglian Water controls 47,181 miles of sewers. Above ground – this region stretches from Lincolnshire in the north to Essex in the south – lies the UK’s biggest
Superstorm Sandy is estimated to have cost the New York/New Jersey region up to $50m
The UK government has pledged £130m for flood repairs and maintenance so far this year
Opposite page: High tides and gale force winds combined to wash away parts of the Exeter to Plymouth railway line in February. Below: In New Jersey last March, Superstorm Sandy left a trail of destruction along 127 miles of shoreline
61
weather and business
“If a ball is thrown through your window, the insurance company replaces it with glass. If it was replaced with a better window, there would be less damage in future”
agricultural production area. Half a million people also work in the sector. And it’s an area that contains one of the fastest-growing populations in the UK. But by the 2080s, global warming could see sea level rises of up to 69cm. Large swathes of this region, much of it already below sea level, could be pummelled. Andrew Brown, head of sustainability at Anglian Water, admits his company has significant assets at risk from flooding. Does he envisage parts of the Norfolk-Suffolk-Essex coast being surrendered to the sea, potentially risking company assets? Brown says there’s no word from the EA that it accepts this scenario. “The shoreline plans have been updated. We’ve used the information to help our next five-year business plan. But the EA and local authorities keep a regular review on how they will manage.” However the EA, it subsequently emerged, has hired consultants to look at a managed retreat in some areas of Norfolk.
are looking at this. For example, if a ball is thrown through your window, the insurance company replaces it with glass. But if it was replaced with a better window, there would be less damage and fewer claims in future. Some companies are now looking at ways to reduce the cost of potential expense in the future.” John Hirst, the Met Office’s chief executive, admits visibility on the long-term forecast on global warming isn’t great. Nor is his outlook hopeful on the spread of expertise to deal with climate change. “Business will be affected by a changing climate in different ways,” he says. “A utility company will be looking at the efficiency of power lines in a warmer world. Energy consumption will increase in the summer as the demand for cooling systems grows. If you are a company that uses raw materials, or organic matter, there will be availability issues. Clothing manufacturers may have to change where they source cotton from, while food retailers will have to reassess where in the world food is grown. Large companies may have time to explore some of these issues, but my contention is that the level of expertise being used is often relatively small.” Many retailers, in particular, still treat forecasts in a shallow way: weather drives demand – what is bought and when. “We work with more sophisticated retailers,” Hirst adds. “We have a contract with Sainsbury’s. Helping them to understand the St Jude’s storm allowed them to take stocking decisions that protected their supply chain.” The St Jude storm hit north-west Europe in late October 2013, surging 1,240 miles across the Atlantic in under 26 hours, killing 18 people, with winds gusting to 120mph. Whitehall was closed to the public due to a collapsed crane near the Cabinet Office. Some 300,000 homes suffered power cuts and the East Coast line, Eurostar and Greater Anglia rail services were suspended. Yet despite huge technological advances, it’s tricky to nail down commercial exposure. Every business has its own sources of risk – often niches within niches – says Kyle Beatty, president of New Jersey-based Verisk Climate, a climate risk assessment company. “Weather risk to a company’s supply chain can be the most elusive, since it can be difficult to identify the vulnerabilities that lie within the primary group of suppliers and, in turn, the next tiers of supplier dependency. For one company, hedging against commodities risk may be a necessity of risk management, whereas for another company, adaptive sourcing of parts from multiple continents may be critical.”
Hands across the water
A tidal wave hits Miyako City in Japan after the earthquake of March 2011
One tactic to deal with climate issues is collective action. There’s a lot of discussion and opportunity for cost-effective collective flood prevention work, says Brown. “The EA has a role to look for joint funding and we’re keen to see a mix, whether it’s a single defence that might provide protection for another utility or a retailer or retail park.” The natural instinct to put things back to the way they were after an environmental calamity also needs to be fought wherever it occurs, says Roger Street. “A number of insurance companies
reuters
Big weather
62
march 2014
economia
It’s a view Dave Alberts, a director of supply management company Crimson & Co, has some time for. Crimson works with many global brand names, particularly supporting companies pushing into East Asia’s emerging markets. Few companies, he says, are really resilient, despite repeated warnings about the effects of a changing climate
economia
march 2014
for more than a decade. “Most companies don’t have the processes of recording and measuring disruptions. It’s really surprising.” Too many continue to focus on low-cost outsourcing, consolidating their manufacturing in highly clustered areas over too small a number of sites. “They’ve done that because their investors may have told them they want fewer dots on the map for bigger, consolidated cost savings. But what they’ve lost is flexibility.” Or slack. In the modern world, slack is seen as expensive. Maintaining more inventories or capacity than you need is thought of as an expense shareholders instinctively dislike. The production strategies of many companies almost cause the problem, says Alberts. New technologies like 3D printing may help build more flexibility back into the supply chain, he says. For example, you might make a generic product that’s reasonably close to the finished product. 3D printing allows you to make major tweaks in the last stage, close to home. In Alberts’s view, companies that cut risk by identifying supply chain pinch points become hardened enterprises. “They design from the customer end in, understanding what the customer proposition is and what the impact will be – how do we keep customers happy when it’s not business not usual? The focus isn’t about designing supply chains but building them to withstand knocks. It’s not about more cost.” Longer term, extreme weather will become more frequent he adds. “When the tipping point is, who knows – but there will be one.”
The Japanese government estimates the cost of rebuilding after the earthquake and tsunami of 2011 will be £189m
Tipping point? even Davos gets it Business and their supply chains don’t have much of an excuse, apart from the fact that greener corporate strategies are hard to get off the ground. But add to that shareholder short-termism, divided company boards, innately conservative consumers, confusing government regulation and 24-hour media that thrives on ridicule and humiliation... Collectively it conspires to make real business breakthroughs on climate change hard. Which is why the role of politicians to take long-term difficult decisions is so badly needed. For the first time ever, business leaders at the Davos World Economic Forum in January assigned a day to climate change. Was this a tipping point that the economics of extreme weather and climate change merit serious discussion from the business community? Very possibly. “We’re getting closer to a political tipping point,” ex US vice president Al Gore said at the summit. “These extreme weather events, which are now 100 times more common than 30 years ago, are really capturing people’s attention.”
63
Not so quiet on the weather front From floods and cyclones to droughts, the world is experiencing new extremes of weather. But, asks Adrian Holliday, is anyone taking the potential threat to business from climate change seriously?
60
F
rom rising floodwater across Europe to hailstones the size of small fists in Asia, extreme weather shatters lives and businesses. Whether you’re scooping raw sewage out of a conservatory in Somerset or recovering from the trauma of Hurricane Sandy – at more than $70bn the second-costliest hurricane ever to hit the US East Coast – there are few places on the planet now left unscathed. Last month, UK environment secretary Owen Paterson was confronted by residents of floodsaturated South West England, exasperated with the Environment Agency’s (EA) inability to dredge their area’s rivers to ease the problem. Some of their anger fastened on government job cuts: the EA is slashing up to 1,500 jobs at a time when extreme weather and climate change make the news on an almost hourly basis. As this issue went to press, the politics of the UK’s extreme weather had turned ugly, with the prime minister David Cameron stepping in to chair a meeting of the emergency committee Cobra, in place of Paterson and politicians turning on each other and the EA. Cameron says he “suspects” the extreme weather may be connected to man-made climate change, but isn’t 100% sure. So is extreme weather more about better risk and resource management? Or are we reaching a tipping point where global weather conditions are moving too fast for us to properly cope?
march 2014
economia
“Climate is what you expect – weather is what you get” RA Heinlein
On home turf, it’s easy to throw stones over the consequences of the recent weather. Much of the government’s public talk is of cuts, while simultaneously claiming “protection” for essential EA services. But what’s easy to forget, says Matt Travis, board director at environmental consultancy Enzygo, is the local authority and emergency planner component. “The EA provides the warnings, but it falls to emergency planners to evacuate areas if they need to,” he says. “You may have a local lead authority so if you have a group of counties together, one will take the lead on flooding and it will send out teams to make sure that certain flood defences are working. You might highlight one agency, but overall they’re part of a bigger system. Look at it in the round.” Looking at the issue “in the round” means complexity and explanation. And, increasingly, the mood is unsympathetic. “This is not a freak act of nature, it is unforgivable negligence,” Ian Liddell-Grainger, Tory MP for Bridgwater and West Somerset, said when venting his anger about flooding in Somerset. The way some politicians talk about extreme weather events is also changing. When Lord Smith, chairman of the EA, was interviewed on Radio 4’s Today programme in late January about conditions in the Somerset Levels, he was asked a direct question on the lack of river dredging and
economia
march 2014
immediately deflected it to praise his staff. Then, he started to talk about more than a million homes that had been protected from further flooding. That signalled a subtle shift in how the debate is framed: not losses but what has been saved. Many, though, continue to struggle to make the connection between weather and long-term climate change says Roger Street, technical director for the UK climate impacts programme at the Oxford-based Environmental Change Institute. Weather is short-term minutes and months; climate is the woollier, long-term, harder-toquantify measure. As far as business goes, says Street, this is the difference between short-term Disaster Risk Reduction (DRR) strategies and serious long-term climate change adaption. “With medium and larger business, a number are concerned with DRR but also looking at how these investments will be taken forward – and they have the luxury of dealing with longer-term issues. Some of the thinking is around diversification and improving resilience to extreme weather, recognising vulnerability.” Such sectors include utility companies, banks and the retail sector, says Street, with much activity being driven by long-term shareholder pressure. Currently utility company Anglian Water controls 47,181 miles of sewers. Above ground – this region stretches from Lincolnshire in the north to Essex in the south – lies the UK’s biggest
Superstorm Sandy is estimated to have cost the New York/New Jersey region up to $50m
The UK government has pledged £130m for flood repairs and maintenance so far this year
Opposite page: High tides and gale force winds combined to wash away parts of the Exeter to Plymouth railway line in February. Below: In New Jersey last March, Superstorm Sandy left a trail of destruction along 127 miles of shoreline
61
weather and business
“If a ball is thrown through your window, the insurance company replaces it with glass. If it was replaced with a better window, there would be less damage in future”
agricultural production area. Half a million people also work in the sector. And it’s an area that contains one of the fastest-growing populations in the UK. But by the 2080s, global warming could see sea level rises of up to 69cm. Large swathes of this region, much of it already below sea level, could be pummelled. Andrew Brown, head of sustainability at Anglian Water, admits his company has significant assets at risk from flooding. Does he envisage parts of the Norfolk-Suffolk-Essex coast being surrendered to the sea, potentially risking company assets? Brown says there’s no word from the EA that it accepts this scenario. “The shoreline plans have been updated. We’ve used the information to help our next five-year business plan. But the EA and local authorities keep a regular review on how they will manage.” However the EA, it subsequently emerged, has hired consultants to look at a managed retreat in some areas of Norfolk.
are looking at this. For example, if a ball is thrown through your window, the insurance company replaces it with glass. But if it was replaced with a better window, there would be less damage and fewer claims in future. Some companies are now looking at ways to reduce the cost of potential expense in the future.” John Hirst, the Met Office’s chief executive, admits visibility on the long-term forecast on global warming isn’t great. Nor is his outlook hopeful on the spread of expertise to deal with climate change. “Business will be affected by a changing climate in different ways,” he says. “A utility company will be looking at the efficiency of power lines in a warmer world. Energy consumption will increase in the summer as the demand for cooling systems grows. If you are a company that uses raw materials, or organic matter, there will be availability issues. Clothing manufacturers may have to change where they source cotton from, while food retailers will have to reassess where in the world food is grown. Large companies may have time to explore some of these issues, but my contention is that the level of expertise being used is often relatively small.” Many retailers, in particular, still treat forecasts in a shallow way: weather drives demand – what is bought and when. “We work with more sophisticated retailers,” Hirst adds. “We have a contract with Sainsbury’s. Helping them to understand the St Jude’s storm allowed them to take stocking decisions that protected their supply chain.” The St Jude storm hit north-west Europe in late October 2013, surging 1,240 miles across the Atlantic in under 26 hours, killing 18 people, with winds gusting to 120mph. Whitehall was closed to the public due to a collapsed crane near the Cabinet Office. Some 300,000 homes suffered power cuts and the East Coast line, Eurostar and Greater Anglia rail services were suspended. Yet despite huge technological advances, it’s tricky to nail down commercial exposure. Every business has its own sources of risk – often niches within niches – says Kyle Beatty, president of New Jersey-based Verisk Climate, a climate risk assessment company. “Weather risk to a company’s supply chain can be the most elusive, since it can be difficult to identify the vulnerabilities that lie within the primary group of suppliers and, in turn, the next tiers of supplier dependency. For one company, hedging against commodities risk may be a necessity of risk management, whereas for another company, adaptive sourcing of parts from multiple continents may be critical.”
Hands across the water
A tidal wave hits Miyako City in Japan after the earthquake of March 2011
One tactic to deal with climate issues is collective action. There’s a lot of discussion and opportunity for cost-effective collective flood prevention work, says Brown. “The EA has a role to look for joint funding and we’re keen to see a mix, whether it’s a single defence that might provide protection for another utility or a retailer or retail park.” The natural instinct to put things back to the way they were after an environmental calamity also needs to be fought wherever it occurs, says Roger Street. “A number of insurance companies
reuters
Big weather
62
march 2014
economia
It’s a view Dave Alberts, a director of supply management company Crimson & Co, has some time for. Crimson works with many global brand names, particularly supporting companies pushing into East Asia’s emerging markets. Few companies, he says, are really resilient, despite repeated warnings about the effects of a changing climate
economia
march 2014
for more than a decade. “Most companies don’t have the processes of recording and measuring disruptions. It’s really surprising.” Too many continue to focus on low-cost outsourcing, consolidating their manufacturing in highly clustered areas over too small a number of sites. “They’ve done that because their investors may have told them they want fewer dots on the map for bigger, consolidated cost savings. But what they’ve lost is flexibility.” Or slack. In the modern world, slack is seen as expensive. Maintaining more inventories or capacity than you need is thought of as an expense shareholders instinctively dislike. The production strategies of many companies almost cause the problem, says Alberts. New technologies like 3D printing may help build more flexibility back into the supply chain, he says. For example, you might make a generic product that’s reasonably close to the finished product. 3D printing allows you to make major tweaks in the last stage, close to home. In Alberts’s view, companies that cut risk by identifying supply chain pinch points become hardened enterprises. “They design from the customer end in, understanding what the customer proposition is and what the impact will be – how do we keep customers happy when it’s not business not usual? The focus isn’t about designing supply chains but building them to withstand knocks. It’s not about more cost.” Longer term, extreme weather will become more frequent he adds. “When the tipping point is, who knows – but there will be one.”
The Japanese government estimates the cost of rebuilding after the earthquake and tsunami of 2011 will be £189m
Tipping point? even Davos gets it Business and their supply chains don’t have much of an excuse, apart from the fact that greener corporate strategies are hard to get off the ground. But add to that shareholder short-termism, divided company boards, innately conservative consumers, confusing government regulation and 24-hour media that thrives on ridicule and humiliation... Collectively it conspires to make real business breakthroughs on climate change hard. Which is why the role of politicians to take long-term difficult decisions is so badly needed. For the first time ever, business leaders at the Davos World Economic Forum in January assigned a day to climate change. Was this a tipping point that the economics of extreme weather and climate change merit serious discussion from the business community? Very possibly. “We’re getting closer to a political tipping point,” ex US vice president Al Gore said at the summit. “These extreme weather events, which are now 100 times more common than 30 years ago, are really capturing people’s attention.”
63
