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June 21, 2011

Report Recommends Private Sector Adaptation to Climate Change
    by Robert Kropp

While corporate signatories to the Caring for Climate initiative understand the risks and opportunities presented by climate change, few are taking concrete steps to formulate adaptive strategies.

SocialFunds.com -- In its 2010 Quadrennial Defense Review (QDR), the US Department of Defense stated, "Climate change and energy will play significant roles in the future security environment…climate change could have significant geopolitical impacts around the world, contributing to poverty, environmental degradation, and the further weakening of fragile governments. Climate change will contribute to food and water scarcity, will increase the spread of disease, and may spur or exacerbate mass migration."

One might reasonably surmise that members of the US Congress, reflexively strong on defense spending but increasingly prone to climate denial, would read such a passage from one of their favored institutions and acknowledge the necessity for a worldwide agreement on the reality of climate change that appears to escape them. As a recent report stated, "It is ultimately the responsibility of the public sector to meet the critical climate change adaptation needs of the poor and vulnerable; thus private sector engagement cannot substitute for critically needed public investment and policies."

The report, entitled Adapting for a Green Economy, is noteworthy for the breadth of involvement by organizations in its preparation. No fewer than four—the United Nations Global Compact, the United Nations Environment Programme (UNEP), the World Resources Institute (WRI), and Oxfam—collaborated on it.

The report draws upon the results of a 2010 survey of 72 corporate signatories to the Caring for Climate initiative of the Global Compact and UNEP. The signatories, which currently number 262 large companies and 115 small- and medium-sized enterprises from 65 countries, agree "to make a lasting commitment to climate action," according to the Caring for Climate Statement.

While there is certainly no dearth of reports detailing the necessity of a business response to climate change, the Caring for Climate report is also noteworthy for its focus on the relationship of business operations to local communities. As it states, "Community risks are business risks…It is difficult to separate community well-being from companies' viability and, in turn, overall economic growth."

As Raymond Offenheiser, President of Oxfam America, stated in a press release announcing the publication of the report, "The well-being of communities on the frontlines of climate change and the viability of companies are intricately intertwined."

To the end of aligning the interests of business with those of communities, the report provides several recommendations. By addressing climate risk throughout their operations and supply chains, companies can help increase community resilience. The provision of products and services that help communities adapt to climate change can present opportunities for companies, as can engagement with the public sector, particularly in developing nations where the effects of climate change are already being felt. Taking such steps can improve a company's reputation and help it maintain its license to operate in affected communities.

Especially considering that, as the report observes, the "perspectives and actions (of Caring for Climate signatories) in the area of climate change adaptation may not be representative of the private sector as a whole," its findings reveal that survey respondents have a long way to go in such crucial areas as engaging with their supply chains. While over 80% of respondents report an awareness of climate-related risks and opportunities, the report found, "most companies are not yet taking concrete steps to address climate change risks and to respond to new opportunities in a comprehensive, integrated way."

While there are exceptions to this finding—particularly in addressing "the most obvious or immediate threats," such as access to water and energy—the understanding of most companies remains insufficient in the areas of incorporating scientific data into local operations, and analyzing the full range of the costs and benefits of adaptation. "Companies may see few economic and policy incentives to make significant up-front investments that bolster long-term climate resilience," the report states, both for themselves and the communities in which they operate.

Noting that investors have "become more aware of climate change impacts and the need for adaptation," the report warns companies that their access to capital may become constrained. Investors filed more than one hundred climate-change related shareowner proposals in 2010, and the report states that investors are demanding more information. In response, companies should "improve reporting processes to proactively engage investors with information and updates on climate adaptation progress and challenges."

Other key stakeholders with whom companies must improve engagement include industry groups, suppliers, and customers. Building positive relationships with local communities and civil society organizations is also of critical importance.

However, as noted earlier, adaptation to the realities of climate change requires significant commitments on the part of policymakers, and the report calls on them to formulate "stronger policy and finance commitments to adaptation, financial and risk-reduction incentives to stimulate the market, and…new forms of public-private partnerships."

"Urgent action is needed to create effective public-private partnerships and lay the foundation for an adaptation infrastructure that can enable systemic, organized adaptation efforts," the report states.

The report concludes, "Companies typically develop operational and investment strategies that respond to perceived near-term consumer and business needs and that are projected to accrue returns on investment in the short term." However, climate change presents challenges to businesses and communities that are expected to unfold over the long term. In response, "Companies that identify opportunities to enhance resilience in their operations can also develop new strategies for products and services that meet needs in markets adapting to a changing climate."

Achim Steiner, UNEP Executive Director, stated, "We…live in a world where infrastructure established decades ago will become increasingly at risk to events…that in turn threaten the viability of the business-as-usual models of the past. Climate-proofing is not just a responsibility of governments, but should be at the center of more and more companies' business models and forward-looking corporate strategies."

© SRI World Group, Inc. All Rights Reserved.

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