The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands

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The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands
The adaptation tipping point:
are UK businesses climate-proof?

     “Most people who have
           taken climate risks into account have
     only considered half the picture…”

                           acclimatise
                           John Firth
                           +44 1636 812868
                           j.firth@acclimatise.uk.com

                           UK Climate Impacts Programme
                           Chris West
                           +44 1865 285717
                           enquiries@ukcip.org.uk

                           Carbon Disclosure Project (CDP)
                           Paul Dickinson
                           +44 7958 772864
                           paul@cdproject.net
The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands
Acclimatise and UKCIP gratefully acknowledge the advice and contributions of
                                Malcolm Dowden (Charles Russell, LLP). We would also like to thank Yara
                                Chakhtoura, who undertook the analysis of FTSE 350 responses to the CDP4
                                request for information.
                                Design by Stephanie Ferguson, UKCIP.

                                This report should be referenced as:
                                Firth, J, and Colley, M (2006) The Adaptation Tipping Point: Are UK Businesses
                                Climate Proof? Acclimatise and UKCIP, Oxford.
                                ISBN 0-9544830-9-X
                                Further copies of this report can be downloaded from www.acclimatise.uk.com
                                and www.ukcip.org.uk
                                Hard copies of the report are available from:
                                UK Climate Impacts Programme
                                Oxford University Centre for the Environment
                                Dyson Perrins Building
                                South Parks Road
                                Oxford OX1 3QY
                                Tel: +44 (0)1865 285717
                                Fax: +44 (0)1865 285710
                                Email: enquiries@ukcip.org.uk

“Most people who have
taken climate risks into
account have only
considered half the picture.”

Chris West, Director, UKCIP
The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands
Foreword

                       Foreword

T h e ada ptati on ‘ ti ppin g -po i nt ’:
      ar e UK bus ines ses cli mate- pro o f?

Our climate is changing, and we are faced with many years of continuing unavoidable
change. Even if we make a significant reduction in greenhouse gas emissions tomorrow,
the lag in the climate system means that we will need to cope with a changing climate for
the next 40 plus years, due to emissions we have already put into the atmosphere.
Businesses and the financial markets need to grasp the reality we face – that we have to
both reduce our emissions, and adapt to inevitable climate change.
There is no choice between mitigation and adaptation – we have to pursue complementary
actions on both.
The report explores why adaptation is and will become an increasingly important issue for
businesses, investors and the financial markets, in addition to the already urgent
mitigation agenda.
This report provides a concise explanation of the scale of the adaptation agenda and the
implications for business. It establishes a milestone against which future actions will be
measured by investors, employees, customers and communities.
All CEOs, Finance Directors, non-Executive Directors and all those engaged in providing
business, legal and financial advice will greatly benefit by reading this report and reflecting
on the consequences for their companies and clients if they fail to take action – now.

Chris West                                        John Firth
Director,                                         Managing Director,
UK Climate Impacts Programme                      acclimatise

                                                  1
The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands
Executive summary

Ex e cu tiv e su mm ary

Our climate is changing.                      The implications for businesses, and to            • This contrasts markedly with other
                                              their investors, customers and workforce,            companies in the same sectors
We are already faced with many years of
                                              through failure to assess and manage                 appearing not to recognise that they face
continuing unavoidable change.
                                              climate risks are significant.                       any climate risks.
Even if we make a significant reduction in
                                              • Value, return and growth will reach a            • Although the potential direct impacts of
greenhouse gas emissions tomorrow, we
                                                tipping-point when an increasing                   extreme events are recognised, there is
will need to cope with a changing climate
                                                awareness and understanding of the                 less appreciation of the impacts, both
for the next 40 plus years, due to
                                                realities of climate change challenges             direct and indirect, arising from changes
emissions we have already put into the
                                                previous expectations.                             in longer-term average conditions and
atmosphere. The future climate is already
                                                                                                   seasonal variation in temperature,
set over this time period and the             • Decisions taken by directors and
                                                                                                   precipitation etc.
consequences can not be ignored.                professional advisers may be open to
                                                legal challenge.                                 In addition to analysing the adaptation
Businesses and the financial markets need
                                                                                                 results from the CDP4 survey, this report
to grasp the reality we face – that we have   • The tipping points on value, return and
                                                                                                 also provides a primer for directors,
to both reduce our emissions and adapt to       growth are likely to trigger credit rating
                                                                                                 investors, fund managers and their
inevitable climate change. There is no          revisions and increases in the costs of
                                                                                                 professional advisers on the adaptation
choice between mitigation and adaptation        capital.
                                                                                                 agenda and the need for action.
– we have to pursue complementary
                                              • Customer expectations, preferences and
actions on both – now.                                                                           Businesses can respond to build resilience
                                                needs will change as the impacts of
                                                                                                 and climate-proof their interests.
                                                climate change become apparent.
                                                                                                 Uncertainty about the future is not a
                                              • Governments are likely to resort to              reason for inaction.
                                                prescriptive regulation if businesses do
                                                                                                 There is sufficient information to enable the
                                                not respond with adaptive action.
                                                                                                 impacts of a changing climate over the
                                              This report has analysed the Carbon                next 40 years to be embedded in decision-
                                              Disclosure Project responses of                    making at strategic and project levels.
                                              businesses in the UK FTSE 350 to explore           Adaptive management is feasible.
                                              their understanding of the need for
                                                                                                 Changing markets, customer needs and
                                              adaptation. These are the key findings.
                                                                                                 investor expectations will present
                                              • Despite an increasing realisation of             significant opportunities for those
                                                climate risks, this is not reflected in the      companies that take action to climate-
                                                risk management strategies of the                proof their businesses.
                                                majority of the FTSE 350. Only 10% of
                                                                                                 Taking adaptive action early may be cost-
                                                the FTSE 100 reported that they
                                                                                                 effective when compared with the costs
                                                considered the impacts of climate
                                                                                                 associated with remedial action at a later
                                                change pose a high risk to their business
                                                                                                 date. When analysing potential action,
                                                operations.
                                                                                                 companies should consider their fiduciary
                                              • Adaptation is not as well understood as          responsibilities.
                                                mitigation.
                                                                                                 Businesses should review their climate risk
                                              • The number of good responses, with a             management strategies and check that
                                                rich description of climate risks, is low.       they are responding to both the mitigation
                                                                                                 and the adaptation agendas. Action is
                                              • Within some sectors, there are a small
                                                                                                 required on both – now.
                                                number of companies that have
                                                demonstrated an understanding of
                                                climate risks. These companies are
                                                setting the pace and will become the
                                                benchmarks.

                                                                                             2
The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands
Table of contents

T able of co nte n ts

Introduction                           4    Sector summaries                     11    Appendices                            25
                                                Aerospace and defence            12        Appendix 1: References            25
Why adaptation matters                 5
to business                                     Automobiles and machinery        12        Appendix 2: About the Carbon      26
                                                                                           Disclosure Project
                                                Banks                            13
A changing climate — what is the       6
                                                                                           Appendix 3: CDP4 questionnaire 27
science telling us?                             Chemicals                        13
                                                                                           Appendix 4: CDP4 signatories      28
                                                Construction and building        14
Significant business risks             7
                                                materials                                  Appendix 5: Companies’            30
     Value, return and growth at the    7                                                  responses to the CDP4
                                                Food-related industry            14
     tipping point                                                                         questionnaire
                                                General retailers                15
     Litigation                        8
                                                Hotel and leisure                16
     Brand and reputation              9
                                                Insurance                        16
     Credit rating                     10
                                                Media and entertainment          17
     Growing government action on      10
     adaptation                                 Mining, steel and other materials 17
                                                Oil, gas and electricity         18
                                                Pharmaceuticals and              19
                                                biotechnology
                                                Real estate                      19
                                                Software and computer            20
                                                services
                                                Specialty and other finance      20
                                                Support services                 21
                                                Telecommunications services      21
                                                Tobacco and beverages            22
                                                Transport                        22
                                                Utilities                        23

                                            What can business do?                24

                                            3
The adaptation tipping point: are UK businesses climate-proof? - Sustainability West Midlands
Introduction

I nt ro du ct ion

 "We are not talking any more about             This report focuses on the climate risks         The report explores why adaptation is and
     what climate models say might              to business from inevitable climate              will become an increasingly important
                                                change.                                          issue for businesses, investors and the
        happen in the future. We are
                                                                                                 financial markets. Exposure areas are
    experiencing dangerous human                The CDP4 questionnaire included a very
                                                                                                 described and the key risks including
                                                specific question (number 3) which,
 disruption of the global climate and                                                            litigation, brand and reputation, credit
                                                together with responses to other parts of
  we are going to experience more."             the questionnaire, was designed to assess
                                                                                                 rating, regulation and financial
                                                                                                 performance are discussed. Summaries
John Holdren, President, American Association   the understanding of the UK’s major
                                                                                                 are provided for each of the main business
              for the Advancement of Science    companies of the risks they face from a
                                                                                                 sectors.
                                                changing climate – rising temperatures,
                                                rising sea levels, changing rainfall patterns,   Finally, the report considers the actions
                                                and extreme events – and the adaptation          that can be taken to embed climate risk
                                                measures currently being used to                 management into decision-making, to
                                                safeguard assets and operations.                 build resilience and climate-proof
                                                                                                 businesses. These actions will allow risks
                                                The question asks:
                                                                                                 to be assessed and managed, and
                                                “How are your operations affected by             significant market opportunities to be
                                                extreme weather events, changes in               identified.
                                                weather patterns, rising temperatures, sea
                                                level rise and other related phenomena
                                                both now and in the future? What actions
                                                are you taking to adapt to these risks, and
                                                what are the associated financial
                                                implications?”
                                                The analysis in this report sits within the
                                                context of growing engagement in recent
                                                years by both businesses and their
                                                advisers in developing an understanding of
                                                climate change, and of calls from investors
                                                for greater disclosure in forward-looking
                                                risk management statements.

                                                                                            4
Why adaptation matters to business

W hy a dapta tio n mat ters to bus ines s

We face two climate change challenges,         Uncertainty is no excuse for inaction.
not just one.
                                               Uncertainty over climate change is often
Any conceivable emissions reductions           cited as justification for delay or inaction.
policies, even if successful, cannot have a    Yet there is greater consensus in the
perceptible impact on the climate for some     scientific community that man-made
decades – some change is already ‘locked       climate change is underway than on
in’ by historic emissions and by inertia in    almost any other issue. We have more
the climate system. Global temperatures        knowledge and understanding about how
will continue to increase for the next 30-40   our climate is changing than we have
years and sea level will rise for many         about demographic change, interest rate
centuries, and we must develop strategies      movements, currency fluctuations, or
to address these climatic changes.             market variations, and yet every day
                                               businesses are prepared to take decisions
This is not a reason to be complacent
                                               which are affected by these uncertain
about emissions reductions. Adaptation
                                               drivers. While there are still uncertainties
and mitigation are two sides of the same
                                               about the precise impacts of these climatic
coin: we must mitigate emissions in order
                                               changes at individual locations, there is
to limit future climate change, and we must
                                               sufficient information now to enable
adapt in order to deliver a sustainable
                                               businesses to incorporate climate risks
economy in the face of current and future
                                               into decision-making. Uncertainties can be
climate change. These are not alternative
                                               better understood by using climate change
strategies.
                                               scenarios and by identifying thresholds
Climate change is happening – the              and sensitivities.
process is already underway. It is having
                                               The sophistication of climate modelling
an effect on business now. There is no
                                               improves year on year. In the UK, the
quick fix as these effects will stay with us
                                               UKCIP02 climate change scenarios
for decades to come. Business has paid
                                               (produced by the Hadley Centre for
increasing attention to the mitigation
                                               Climate Prediction and Research and the
agenda, but has not yet grasped the
                                               Tyndall Centre for Climate Change
significant emerging risks posed directly
                                               Research) currently provide the best
by climate change and variability. Investors
                                               information on how the UK’s climate is
and businesses alike must recognise that
                                               expected to change over coming decades.
the past climate is no longer a sound basis
                                               The next UKCIP climate change
upon which to plan for the future.
                                               information package, due to be released in
                                               2008, will incorporate probabilistic climate
                                               information, and provide a useful tool for
                                               risk-based decision-making.
                                               A business will only flourish if its leaders
                                               are adept at weighing risks and making
                                               robust decisions in the face of uncertainty.
                                               The successful business of the future is
                                               taking climate risks into account today,
                                               and is developing adaptive strategies and
                                               actions to manage the uncertainties.

                                               5
A changing climate — what is the science telling us?

A c ha ng in g c li mate –
         wh a t is th e sc i e n ce te l li n g u s ?

  The rising concentration of carbon                                      The result is climate change. Global                 In the absence of any human modification
dioxide (CO2) and other greenhouse                                        average temperature has risen by about               of climate, temperatures such as those
                                                                          0.6°C since the beginning of the twentieth           seen in Europe in 2003 are estimated to be
 gases (GHGs) in the atmosphere is
                                                                          century, with about 0.4°C of this warming            a 1-in-1,000 year event. A simulation using
       changing its composition and                                       occurring since the 1970s. The                       the Hadley Centre’s global climate model
  preventing heat from escaping the                                       Intergovernmental Panel on Climate                   (Figure 1, red line) of summer warming until
          earth’s surface. Man-made                                       Change (IPCC) has attributed most of the             2100 over southern Europe shows that by
   emissions have already increased                                       observed warming of the last 50 years to             the 2040s a 2003-type summer is
                                                                          human activities.                                    predicted to be about average, and by the
    CO2 concentrations by one third                                                                                            2060s it would typically be the coolest
         compared to the start of the                                     The summer of 2003 was an unusually hot
                                                                                                                               summer of the decade.
                                                                          one over large parts of Europe, with
                 industrial era and, by                                   August temperatures 3°C higher than the              Under continuing climate change, in the
    mid-century, concentrations are                                       long-term average. This caused major                 UK we can expect:
                expected to be twice                                      business disruptions and over 20,000
                                                                                                                               • increasing climatic variability,
                  pre-industrial levels.                                  excess deaths directly attributable to the
                                                                          high temperatures. In the UK there were an           • rising temperatures,
                                                                          estimated 2,000 excess deaths. The Met
                                                                                                                               • increasing risk of heat waves,
                                                                          Office estimates with high probability that
                                                                          the risk of such anomalously high                    • changing patterns of rainfall, with wetter
                                                                          European temperatures has already                      winters and drier summers,
                                                                          doubled due to the effects of GHG
                                                                                                                               • increasing risk of drought and flood,
                                                                          emissions.
                                                                                                                               • rising sea level,
                                                                                                                               • increased frequency and severity of sea
                              8
                                                                                                                                 storm surges,
                                               Observations
                                                                                                                               • possible increased storm intensity and
                                               Medium−High Emissions                                                             frequency.
                              6
                                                                                                                               There is also mounting evidence that
                                                                                                                               tropical cyclones (known as hurricanes in
   Temperature change (oC)

                                                                                                                               the North Atlantic) will become more
                              4                                                                                                intense in a warmer world. The devastating
                                                                                                                               impacts of Hurricanes Katrina and Rita in
                                                                                                                               2005 demonstrate the kinds of risks that
                                                                                                                               could become more common.
                              2
                                                                                                                               The Gulf Stream will continue to exert a
                                                                                                                               very important influence on UK climate.
                                                                                                                               Although its strength may weaken in
                              0                                                                                                future, perhaps by as much as 25% by the
                                                                                                                               end of the century, it is unlikely that this
                                                                                                                               would lead to a cooling of UK climate since
                             −2                                                                                                warming from GHGs will more than offset
                              1900                  1950                  2000                  2050                   2100    any cooling from a weakening of the Gulf
                                                                                                                               Stream.
                                                                          Year

                                     Figure 1: European 2003 summer temperatures could be normal by the 2040s; cool by 2060s
                                                                                              [Source: Hadley Centre, 2005]

                                                                                                                          6
Significant business risks

Significant business risks

The impacts of increasing climate               • corporate governance interest in             “The direct risks arising from climate
variability and a changing climate for            director-level risk management is            change – rising sea levels, more
business will be far reaching.                    growing fast,
                                                                                               extreme weather events, alterations
Our current economic structures and             • society is becomingly increasingly           to rainfall patterns – will affect
social and cultural support systems have          risk-averse.
                                                                                               operational costs for many
developed over many years partly in
response to relatively stable climatic
                                                It is clear that few businesses have yet to    businesses as they adapt sites and
conditions. The stability to which we have
                                                recognise the new and unfamiliar threats       processes to mitigate them.”
                                                arising from a changing climate. Fewer still
become accustomed has allowed a                                                                Tom Burke, Visiting professor at Imperial and
                                                have begun to assess the risks and
measure of predictability based on the                                                         University Colleges London,
                                                opportunities and to develop risk
analysis of historic climate data. In a                                                        Environmental Policy Advisor to Rio Tinto
                                                management processes and actions to
changing world these systems and
                                                meet the challenges. Impacts will be felt by
structures are increasingly exposed to
                                                every business irrespective of their size,     "Integrating… climate change into
extreme weather conditions and changing
                                                location, markets, products and services,
long term average climate conditions.
                                                and will affect:
                                                                                               investment analysis is simply
Decisions based on a historic analysis of                                                      common sense…
climate data are no longer future-proof.        • natural resources and raw materials,
                                                                                               The carbon intensity of profits is an
Awareness of climate risks is growing           • supply chains and logistics,                 approach that needs to be
across all areas of government, business
                                                • fixed asset design and construction,         adopted… Climate change is a
and society. There are a number of driving
forces that are increasing the visibility of    • asset operation, performance and             problem that’s not going to be
climate risks and the market opportunities:       maintenance,                                 solved by politicians… Politicians
• the climate is changing,                      • processes,
                                                                                               have an important role to play; but
                                                                                               the underlying reality is going to
• the frequency and intensity of severe         • asset values,
  weather events is increasing,
                                                                                               have its effects on the market,
                                                • markets,                                     regardless of public opinion and
• there is increased interest in scientific
  information about the climate and a
                                                • products and services,                       government action.”
  consensus within the scientific               • workforces.                                  Al Gore
  community on climate change,
                                                In this report we discuss some of the risks
• there is also increasing interest from the    companies will face to, for example,
  legal profession and recent cases of          financial performance, litigation, brand and
  litigation on climate change in the US,       reputation, credit rating and regulation.
                                                Those that fail to respond will be unable to
• governments and others in the public
                                                take advantage of the opportunities.
  sector are beginning to create guidance,
  legislation and regulation to address
  changing climate risks,
                                                Value, return and growth at the
                                                tipping point
• public awareness of climate change is
                                                The perception and realisation by the
  very high and is linked to brand value,
                                                financial markets and investors of the risks
• the insurance and investment                  to value, growth and return are emerging.
  communities have awakened to the              The insurance industry in particular, is
  risks, and are highlighting their concerns,   already acutely aware of the potential
                                                impacts and has had first hand experience
• there is increasing importance attached
                                                of the costs arising from events driven by
  to business continuity,
                                                climate change.

                                                7
Significant business risks

    “The potential results of climate

                                                     Climate change impacts

                                                                                                                                                           Measures of business success
change including changing weather                                                                                 increasing impacts, risk and cost

  patterns, rising temperatures and
  sea level rises would affect Sky (in
                                                                                                                                        Current value,
  the same way as any business) in                                                                                                  return and growth
       the long term in many ways.”                                                                                                      expectations

            British Sky Broadcasting, FTSE 100

“We expect climate change not only
        to produce extreme capital
                                                                                                                                             Reduced
      damaging events but also to                                                                                                         value, return
       increase uncertainty around                                                                                                         and growth

     corporate business plans and
                                                                              2006   Tipping point                                         Significant impacts
   potentially reduce asset values.”
                              Lloyd’s of London
                                                                                                         Figure 2: Value, return and growth at the tipping point

 “Sudden financial shocks could still
   pose a threat to financial stability.
   Such shocks can take a variety of                Hurricane Katrina has been widely                    Directors are being challenged by
    forms, such as natural disasters                recognised as a tipping point for the                investors to demonstrate their corporate
         (possibly driven by climate                insurance industry in the USA. In the UK             governance credentials. The spotlight on
                         change)…”                  and Europe insurers have been at the                 financial management and reporting is
                                                    forefront of business sector activity in             now also focusing on wider strategic risk
                     Financial Services Authority   analysing the potential impacts. The                 management issues. Over the next few
                                                    Association of British Insurers assessed             years we will see a greater awareness and
       “While some companies have                   the financial risks of climate change and            understanding of the impacts of a
                                                    warned of the risk of increasing tropical            changing climate. The importance of this
 begun to treat climate change as a                 storm activity and its impact on insurance           for businesses is that their adaptation
  fundamental strategic issue, many                 and economies prior to Hurricanes Katrina            strategies and actions need to be in place,
more are not disclosing their climate               and Rita. Lloyd’s this year warned of the            that is businesses must become climate-
risks or plans to address it, creating              challenges the industry and its clients              proofed, before the tipping point and well
                                                    faced and the threats to long-term                   before the direct effects of a changing
         uncertainty for investors and
                                                    solvency. Aviva, Allianz and Axa have been           climate are felt.
 difficulty assessing the true longer-              active in understanding the risks to their
         term value of our portfolios.”             businesses; Swiss Re and Munich Re have              Litigation
                                                    been at the forefront of raising the profile of
  Institutional investors at the Investor Summit,                                                        The interest in climate change from the
                                                    climate change as a business risk rather
                                        May 2005                                                         legal profession has for the most part been
                                                    than an environmental issue.
                                                                                                         restricted to the emerging markets in
                                                    Figure 2 shows that the costs, risks and             carbon trading and emissions. There has
  “Climate change could be the next
                                                    impacts of climate change will increase              been limited attention to the issue of
      legal battlefield: compensation               over time. There will be a point (the tipping        adaptation. As the financial impacts of
claims for man-made environmental                   point) driven by either a financial shock (for       climate change and adaptation begin to be
 damages would make the tobacco                     example, an extreme event) or by an                  recognised we are likely to see the use of
                                                    increasing awareness and understanding
         sector payouts look small.”                                                                     litigation as a means to recover costs. The
                                                    of the reality of climate change, when               legal costs and reputational damage
                  Financial Times, 14 July 2003     these costs, risks and impacts challenge             associated with defending climate change
                                                    expectations for value, return and growth.           actions could be enormous.
                                                    At this point the financial markets,
                                                                                                         A recent report by Freshfields Bruckhaus
                                                    analysts, credit rating agencies, investors,
                                                                                                         Deringer has challenged the traditional
                                                    fund managers etc., are likely to review the
                                                                                                         narrow interpretation of fiduciary duty. The
                                                    risks and their expectations of value, return
                                                                                                         report identifies the impact of climate
                                                    and growth figures. Although for some
                                                                                                         change as a risk which may affect any
                                                    sectors there are perhaps 20+ years before
                                                                                                         investment; failure to assess the risks may
                                                    the impacts of climate change have a
                                                                                                         result in claims of neglect of fiduciary duty
                                                    significant effect, the tipping-point will
                                                                                                         by beneficiaries.
                                                    occur earlier, as investors review their
                                                    portfolios and assess their investment
                                                    liabilities.

                                                                                                     8
Significant business risks

Lawyers are beginning to acknowledge                                       Figure 3 identifies the effect of knowledge      “The effects of climate change can
that there is now sufficient information                                   points on decision-making and litigation         now be regarded as being
available on climate change for companies                                  risks. All decisions made and advice given
                                                                                                                            reasonably foreseeable at every
to take it into account in both strategic and                              since the dates of the knowledge points
project level decision-making. All                                         have an accrued litigation liability. The        stage – it must be incumbent upon
decisions taken by directors and                                           accrued litigation liability will continue to    professional advisors to ensure that
professional advisers that do not take                                     increase through continuing failures to          appropriate steps have been
climate change into account may be open                                    build climate change into decision-making.       taken.”
to legal challenge. In the future the courts
                                                                           Reasonable forseeability of climate change       Malcolm Dowden, Charles Russell LLP
will examine claims and may decide that it
                                                                           and the risk of litigation should be on the
was reasonable, at the time the decision
                                                                           radar screens of all companies in their
was made or advice given, to have                                                                                           “It is prudent to plan for a
                                                                           corporate risk assessment procedures.
foreseen the impacts of climate change,
based on the information available in the
                                                                                                                            substantial change in consumer
public domain.
                                                                           Brand and reputation                             behaviour on climate change.”
                                                                           Consumer preferences and needs will              The Carbon Trust
The issue for the courts will be deciding if
                                                                           change as the impacts of climate change
there were any ‘knowledge points’ from
                                                                           become apparent. To take a simple
which it may have been reasonable to
                                                                           example, southern European holiday
consider that the impacts of a changing
                                                                           destinations may become less attractive in
climate should have been known. Potential
                                                                           summer, due to increasingly hot
knowledge points may include documents
                                                                           temperatures.
produced by governments, regulatory
agencies, professional institutions, sector                                Those sectors and individual businesses
organisations and advisory bodies setting                                  that do not respond will find their
out the impacts of climate change and                                      reputations suffer significant damage.
actions that may be necessary, relevant or                                 Correspondingly those that recognise the
advised.                                                                   opportunities will become sector leaders.
These knowledge points already exist.                                      Research commissioned by the Carbon
There is generic information, for instance,                                Trust demonstrates that there are high
reports produced by the Intergovernmental                                  levels of public awareness of climate
Panel on Climate Change (IPCC) and also                                    change in the UK, and that it may not be
sector-specific information . Some                                         long until it becomes a mainstream
examples of these knowledge points are                                     consumer issue.
given in the sector summaries in later
sections of this report.

Figure 3: Increasing liabilities
Climate change impacts

                                                                         Increasing impacts, risk and cost

                             IPCC First
                             Assessment Report

                                                                                                                       Future
                         1990 Generic
                         knowledge point                       Now

                             Accrued liabilities for decisions Accumulating liabilities
                             which are not climate-proof

                                                                           9
Significant business risks

      “The insurance industry has to               These are the conclusions from the                 Other sectors will be similarly affected with
           respond to customer and                 research.                                          changes to credit ratings and higher costs
                                                                                                      of capital as they reach their own tipping
        shareholder needs. Both will               • The public today are aware of the
                                                                                                      points.
  increasingly look to the industry to               prospect of climate change. Two thirds
   provide effective responses to the                of Britons say they know ‘a great deal’ or
                                                                                                      Growing government action on
                                                     ‘a fair amount’ about it.
 threats caused by climate change.”                                                                   adaptation
                                                   • In banking, the mostly likely exposure to
                    Evan Mills, Staff Scientist,                                                      The response by governments in Europe to
                                                     climate risks arises from a bank’s
               Lawrence Berkeley National Lab                                                         inevitable climate change has so far been
                                                     investment and lending exposure. A
                                                                                                      patchy. In the UK we have seen a
                                                     bank’s position on decisions such as
                                                                                                      tightening of building regulations and
    “Increased losses could raise the                mortgage conditions on properties
                                                                                                      planning policy controlling the use of land
      cost of capital and increase the               exposed to increasing flood risk may
                                                                                                      and construction standards in response to
                                                     cause a negative response from
      volatility of insurance markets.”              consumers.
                                                                                                      concerns over increasing flood risk and
                                                                                                      subsidence risk due to climate change.
                                      ABI 2005
                                                   • In some sectors, the lead time for action        The EU is currently considering a floods
                                                     could be several years, leaving                  directive and an adaptation strategy with
                                                     unprepared companies at risk.                    calls for greater controls on spatial
                                                                                                      planning.
                                                   • There is an opportunity for differentiation
                                                     against competitors. Forward-looking             Government action on adaptation is not
                                                     companies need to assess the risks, to           confined to flooding. A new Planning
                                                     avoid falling behind on such a                   Policy Statement, PPS26, focused
                                                     mainstream consumer issue.                       specifically on climate change, will be
                                                                                                      published towards the end of 2006. All
                                                   This research is confirmed by further work
                                                                                                      sectors could be affected by changes in
                                                   recently commissioned by BSkyB, which
                                                                                                      government policy and regulations. There
                                                   found that 81% of UK consumers are
                                                                                                      are already, for example, calls for the
                                                   "strongly concerned" by climate change or
                                                                                                      introduction of ‘maximum workplace
                                                   “recognise it as important”, demonstrating
                                                                                                      temperatures’ for factories, offices,
                                                   a significant latent demand.
                                                                                                      schools, hospitals and public buildings. If
                                                   The insurance sector is showing                    such standards were introduced, there
                                                   leadership in this area recognising that           could be significant financial impacts
                                                   consumer preferences and needs will be             arising from the increased capital and
                                                   different. A recent report commissioned by         maintenance costs necessary to adapt
                                                   CERES explores the opportunities for new           buildings.
                                                   products and services.
                                                                                                      It is inevitable that legislation and
                                                                                                      regulations will change, as will supporting
                                                   Credit rating
                                                                                                      guidance, codes of practice and standards
                                                   Credit ratings and the cost of capital will        in response to the impacts of climate
                                                   change in response to the actual and the           change. This will impose future liabilities
                                                   perceived impacts of climate change. The           which may require remedial action.
                                                   tipping points on value, return and growth         Climate-proofing strategies and projects
                                                   are likely to trigger rating revisions and         now is a sensible adaptation action. The
                                                   increases in the costs of capital. We are          longer the delay by business in responding
                                                   already seeing these movements in the              to inevitable climate change, the more
                                                   insurance industry.                                likely we are to see governments respond
                                                                                                      and act more aggressively with
                                                   The increasing frequency and intensity of
                                                                                                      prescriptive regulation on adaptation.
                                                   climate-related catastrophes has exposed
                                                   a number of insurers and reinsurers who
                                                   had underestimated their catastrophe
                                                   exposures. Credit rating agencies around
                                                   the world have been reassessing the
                                                   exposures of the industry and adjusting
                                                   credit ratings accordingly. Increasing
                                                   storm activity and intensity and the impact
                                                   of more frequent droughts, heatwaves,
                                                   fires, subsidence and heave, together with
                                                   the effect on business continuity and
                                                   increasing director and officer liabilities will
                                                   increase the pressure on the insurance
                                                   industry.

                                                                                                10
Sector summaries

S ec tor su mmari es

                                                                                                          2%
Vulnerability to climate change varies           exposure to climate risks, 32% expressed           5%                         Answered questionnaire

significantly from sector to sector, and         a medium level of concern, 46%               10%                              Provided information

from company to company. This variation          expressed a small amount of concern, and                                      No response
depends on the individual business or            9% were not concerned at all.
                                                                                                                               Declined to participate
sector’s ability to manage the physical,
                                                 Figure 5 shows the level of concern over
litigation, financial, reputational and market
                                                 climate risks expressed by CDP4
risks of future climate change.
                                                 respondents, by sector and as a total.       83%

The following analysis is not intended as a
                                                 The highest proportion of ‘highly                    FTSE 100
comprehensive examination of the climate
                                                 concerned’ respondents were found in the
impacts on individual business sectors. It                                                          11%
                                                 following sectors: Utilities (50%), Banks
is based on the responses received from                                                                            36%
                                                 (43%), Chemicals (33%), and Mining, steel
the CDP4 information request,
                                                 and other metals (29%).
supplemented by our comments. It
highlights the likely risks and                  The highest proportion of respondents
demonstrates the potential scale of the          who expressed little or no concern were
impacts if businesses fail to take account       drawn from the following sectors: Software
                                                                                              38%
of climate change as a business risk. A          and computer services (100%), Media and
                                                                                                                 15%
complementary report has been prepared           entertainment (91%), Real estate (89%),
                                                                                                      FTSE 250
for the Carbon Disclosure Project by             Pharmaceuticals and biotechnology
Trucost, which analyses the responses in         (80%), Automobiles and machinery (80%),
the context of greenhouse gas emissions.         Leisure and hotels (75%), Aerospace and      Figure 4: Response rates to the CDP4 information
                                                                                              request from the FTSE 100 (top) and FTSE 250
                                                 defence (67%), Chemicals (67%), and          (bottom).
CDP4 questionnaire response rates for the
                                                 General retailers (67%).
FTSE 100 differ considerably from the
response rates of the smaller companies          A modified version of the Financial Times
that make up the FTSE 250, as shown in           sector classification system was used for
Figure 4. Whereas 83% of FTSE 100                this analysis. Because of the large number
companies answered the questionnaire,            of sectors and the low response rate in
only 36% of FTSE 250 did so. The                 some sectors, we merged some sector
proportion of companies that provided            categories on the basis of similar climate
information in place of a questionnaire          risks. As an example, we combined the
response was similar: 10% for the FTSE           ‘Mining’ sector with the ‘Steel and other
100 and 15% for the FTSE 250. Only 7%            metals’ sector to create a new ‘Mining,
of the FTSE 100 companies declined to            steel and other metals’ category.
participate or did not provide a response.
                                                 In the following sector summaries we
By contrast, half of the FTSE 250
                                                 provide a very brief outline of FTSE 350
companies (49%) declined to participate in
                                                 respondents’ perception of the climate
the CDP4 process or provided no
                                                 risks faced by their company,
response. A list of the companies in the
                                                 accompanied by quotes drawn from
FTSE 100 and FTSE 250 is provided in
                                                 company responses. We have included
Appendix 5.
                                                 some quotes from the FT 500 responses,
Responses to Q3 (and, to some extent,            though these are not included in the
Q1) of the CDP4 questionnaire described          analysis. This is followed by our expert
the level of understanding and concern           analysis of each sector’s exposure to
about the risks posed to companies by the        climate risks, and case studies of impacts
impacts of climate change. Our analysis          that are already being felt.
shows that, of the 165 UK companies that
responded to the CDP4 information
request, 13% are highly concerned about

                                                 11
Sector summaries

                               100%
   Percentage of respondents

                                                                                                                                                        None

                                                                                                                                                        Small
                               80%
                                                                                                                                                        Medium

                               60%                                                                                                                      High

                                                                                                                                                    Level of concern
                               40%                                                                                                                  over climate
                                                                                                                                                    change risks

                               20%

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Figure 5: Level of concern over the risks posed to companies by the impacts of climate change.

            “At the moment we do not                                     Aerospace and defence                             the availability, or disruptions to the
                                                                                                                           supply, of either resource will affect sector
   anticipate major threats to our key                                   Despite the significant potential climate
                                                                                                                           performance.
    facilities due to climate change.”                                   risks in this sector, most aerospace and
                                                                         defence respondents (67%) show little or         • This industry is also reliant on production
                                                 Rolls-Royce, FTSE 100                                                      line and factory workers, whose comfort
                                                                         no concern about the impacts of climate
                                                                         change on their business.                          and productivity can be compromised by
   “Every individual is exposed to the                                   • Like all high technology and engineering
                                                                                                                            warmer working conditions.
    effects of extreme climatic events                                     industries, the aerospace and defence
                                                                                                                          Automobiles and machinery
                        and changes.”                                      sector is vulnerable to any disruption in
                                                                           supply chain or manufacturing                  CDP respondents in this sector do not yet
                                                         BMW, FT 500
                                                                           processes. Both incremental changes            appear to have experienced losses or
                                                                           and extremes of climate can interrupt          increased costs due to climate risks. These
    “The potential effects of climate                                      engineering operations. Just-in-time           industries are most vulnerable where
   change include a combination of                                         manufacturing and delivery systems can         businesses are dependent on climate-
                                                                           exacerbate the vulnerability of supply         sensitive resources, or where their supply
   physical and material damage as                                         chains and operations.                         and operations are affected through
   well as operational losses. Other                                                                                      consumer behaviour or transport disruption.
                                                                         • Climate variability and change can also
   possibilities are image risk, third-                                                                                   Of those who provided a response to the
                                                                           have knock-on impacts on quality,
  party liability and, in certain cases,                                   timeliness, precision and performance in
                                                                                                                          CDP questionnaire, 80% expressed little or
                                                                                                                          no concern about climate risks.
    market risk. To date, there have                                       manufacturing.
 been no tangible or visible effects in                                  • The climate risks to global security are
                                                                                                                          • Climate variability and change can cause
                                                                                                                            significant supply chain interruptions to
                       our operations.”                                    potentially enormous. Climate change will
                                                                                                                            intensive production schedules, with
                                                                           likely trigger severe disruptions with
                                                       Renault, FT 500                                                      subsequent cost implications. Transport
                                                                           significant consequences for local,
                                                                                                                            systems, on which the global supply chain
                                                                           regional, and global security. These
                                                                                                                            depends, are also vulnerable to climate
                                                                           events could exacerbate existing
                                                                                                                            impacts. The high value of finished stock
                                                                           tensions, prompting diplomatic and trade
                                                                                                                            in transport or port storage is vulnerable
                                                                           disputes. In the worst case, extreme
                                                                                                                            unless the ports and shipping risks are
                                                                           events have the potential to destabilise
                                                                                                                            managed.
                                                                           the global economy and geopolitical
                                                                           balance, and incite conflict. The market       • The complexity of this sector’s production
                                                                           repercussions for the aerospace and              network makes it vulnerable to
                                                                           defence industries are considerable.             interruption. The automobile and
                                                                                                                            machinery sector should review the
                                                                         • This sector is heavily reliant on both water
                                                                                                                            climate risks to supply chains and
                                                                           and energy. Climate-related reductions in
                                                                                                                            logistics, particularly where extreme

                                                                                                                   12
Sector summaries

 events have the potential to cause              opportunities associated with climate            “Barclays considers adaptation to
 significant disruption.                         change are actively considered within            be an important issue which society
                                                 investment processes.
• Higher indoor temperatures, when                                                                must start to address in order to
  combined with the heat of process            • The office-based banking industry also           face the future impacts of climate
  environments, will result in more              faces business risks from decreased              change.”
  uncomfortable working conditions. This         employee productivity in buildings that
  has the potential to reduce productivity       are not designed to cope with higher             Barclays, FTSE 100
  and increase workforce health risks,           temperatures.
  respiratory problems and absenteeism.
                                               • Much of the discussion on climate risks          “The impact of climate change on
  Any adaptation strategy will need to
  weigh up these productivity costs
                                                 and vulnerability for the insurance sector       the costs of extreme weather
  against, for example, costs of improving
                                                 is relevant to the wider financial service       events is of major concern to
                                                 sector because of the inter-linking of
  building ventilation.
                                                 insurance and capital markets.
                                                                                                  HBOS, particularly as we are the
• Process environments will become hotter                                                         UK’s leading mortgage lender and
                                               • A proactive stance on dealing with climate
  with increased need for cooling. Any                                                            home insurer.”
                                                 change could enhance the reputation of
  additional cooling must be low carbon, in
                                                 individual banks and the financial sector.       HBOS, FTSE 100
  line with climate change mitigation
  objectives. Increased humidity will
                                               Chemicals
  increase drying time for painted products.                                                      “Climate change, climate policy and
  Some product components and testing          One third of CDP4 respondents in this              adaptation processes create risks
  regimes may need to be adapted to cope       sector are highly concerned about their
                                                                                                  as well as opportunities for Bayer.”
  with climate change.                         exposure to climate risks.
                                                                                                  Bayer, FT 500
• Regulatory risks include the possible        • Rising ambient air temperatures,
  introduction of maximum working                variations in water quality, and the
  temperatures in manufacturing and              availability of cooling water will all have an
  process environments.                          effect on chemical processes. These must
                                                 be considered thoroughly, as they will
Banks                                            have knock-on impacts across all
                                                 activities in this sector.
Respondents in the banks sector show a
high level of awareness of the risks they      • Low river flows during hot, dry summers
face from the impacts climate change. Over       can lead to restrictions on water
85% of companies who responded to the            abstractions, with consequences for
CDP4 questionnaire in this sector                cooling processes when the need for
expressed a high or medium level of              cooling is highest. Low flows also mean
concern about the vulnerability and              restrictions on the volume of high
exposure.                                        temperature water that companies are
                                                 allowed to discharge to rivers and
• The banking sector faces a potentially
                                                 streams, with impacts on production.
  high level of risk if investments are made
                                                 Finally, low river flows are less able to
  in assets that are vulnerable to climate
                                                 dilute pollutants, leading to tightened
  change. Climate risk management
                                                 restrictions on effluent discharge.
  strategies should incorporate a risk
  screening for assets and investments.        • Changes to chemical processes,
                                                 particularly under extremes of high
• Fund managers face potential risks and
                                                 temperature, will affect process
  opportunities associated with climate
                                                 operations and corrosion rates.
  change. These include risks to equities,
  debt (both corporate and governmental),      • Volatile chemical storage procedures will
  and real estate. Impacts will vary between     need to take account of rising
  sectors, companies, and the countries in       temperatures and the impacts on tank
  which particular assets are based.             pressure. The stability and performance of
                                                 some chemical formulations are
• Corporate investment decisions made
                                                 temperature dependent.
  now should take into account the
  potential physical impacts of a changing     • Vulnerability of supply chains may lead to
  climate. Where possible, adaptation            an increased disruption to supply. This
  strategies should ensure that they are         may mean that providing additional
  appropriate to future climate risks.           materials storage capacity may be
                                                 desirable to provide greater resilience.
• As climate change will affect shareholder
  value now and in the future, fund            • There are considerable regulatory risks to
  managers should be taking appropriate          consider, as handling, transmission and
  steps to ensure that the risks and             storage safety standards may be
                                                 compromised.

                                               13
Sector summaries

    “No direct physical risks today or        Construction and building materials                      • The vulnerability of housing and
            expected for the future.”         As buildings generally have an expected
                                                                                                         commercial developments to floods is
                                                                                                         partly a function of design and the
                      Saint-Gobain, FT 500    lifetime of between 20 and 100 years, it is
                                                                                                         materials used. Modern housing is more
                                              important that we take the impacts of
                                                                                                         vulnerable to flood damage because of
                                              climate change into account when
    “Climate change impacts on our            designing or retrofitting our built
                                                                                                         the greater use of chipboard floors, dry
                                                                                                         wall plasterboard, cavity insulation, and
      business in several areas, e.g.         environment. Despite this, more than 40%
                                                                                                         design features such as lower door
   design of buildings, infrastructure        of companies in this sector expressed low
                                                                                                         thresholds to improve access.
    and support services, transport,          levels or no concern over their vulnerability
                                              in the face of a changing climate.                       • Building design should take full account
     biodiversity, through our supply                                                                    of future potential water constraints,
           chain and through all our          • Many non-domestic buildings such as
                                                                                                         through use of ‘grey water’ recycling and
                                                offices and shops have high internal heat
   atmospheric impacts (energy and              gains and therefore require cooling in all
                                                                                                         other water conservation practices.
                  fuel consumption).”           except cold winter weather. Temperature                • Climate change adaptation and
                    Carillion PLC, FTSE 250     increases will significantly increase                    mitigation are closely related for the built
                                                cooling loads in new and existing                        environment; many single measures will
                                                building stock. It is vital that any new                 have effects on both. For example
  “Sainsbury’s is potentially affected          cooling is low-carbon, in line with                      planting trees reduces summer
       by these symptoms of climate             emissions reductions targets. Warmer                     temperatures (adaptation) and cooling
    change both directly (in so far as          winters will also reduce heating                         loads (mitigation).
                                                requirements.
 store operations, warehousing and
distribution could be affected having         • In order to meet comfort criteria for a
                                                present-day ‘hot’ summer, several
             a direct effect on product
                                                features can be included in building
   availability) and indirectly (in so far      design to manage indoor temperatures.
 as our global supply chain could be            Examples are high thermal mass,
      affected by events further afield         shading, and natural (windows open) or
        which in turn could potentially         mechanical (fans) night-time ventilation.
                                                These features may be lacking in existing
   compromise product availability).”           buildings, and are expensive, difficult or
                     J. Sainsbury, FTSE 100     sometimes impossible to retrofit.

                                              Figure 6: Knowledge points for construction and building materials sector

                                              2006           Adapting to climate change: lessons for London
                                                             London Climate Change Partnership

                                              2005           Beating the heat: keeping UK buildings cool in a warming climate
                                                             Arup and UKCIP

                                                             Climate change and the indoor environment: impacts and
                                                             adaptation CIBSE TM36

                                                             Adapting to climate change: a checklist for development
                                                             Three Regions Climate Change Group

                                                             Climate change risks in building – an introduction CIRIA

                                              2003           Building knowledge for a changing climate EPSRC and UKCIP

                                                                                               14
Sector summaries

Food-related industry                           General retailers
                                                                                                  Buy now while stocks last
Because of its reliance on agricultural         It is clear that the weather plays a              (The Indepedent, 31 May 2006)
production, stable energy supplies and          significant part in affecting consumer
distribution systems, the food-related          preferences, and the complex distribution         • GlaxoSmithKline, the company that
industry is exposed to climate risks across     systems of general retailers can make this          owns Ribena and buys 95% of the
all activities. CDP respondents in this         sector vulnerable to the impacts of climate         UK blackcurrant harvest, is
sector as a whole have not grasped the          change. Despite this, none of the general           concerned that production of the fruit
sector’s vulnerability to climate risks, with   retailers who responded to the CDP4                 will suffer in milder winters.
only 12.5% of companies expressing a            questionnaire expressed a high level of           • The pharmaceutical group has asked
high level of concern about the impacts of      concern. More than two thirds of                    scientists to cross-breed varieties
climate change, though a few market             respondents expressed low levels or no              that are less reliant on harsh winters
leaders are taking this issue very seriously.   concern over their vulnerability in the face        and heavy frosts.
                                                of a changing climate.
• As part of a wider global market, the                                                           • Growers of UK blackcurrants have
  UK’s food-related industry is vulnerable      • General retailers are less exposed to the         noted that crops, currently worth
  to the complex impacts of climate               direct impacts of climate change than,            about £10 million annually, have
  change on competitors and customers.            for example, the agricultural or                  declined in recent years.
                                                  manufacturing sectors, but they face
• Higher temperatures, changing patterns
                                                  knock-on impacts in terms of supply
  of rainfall, and knock-on impacts on
                                                  chains and distribution, premises, and
  pests, diseases and competing plants all
                                                  changing structures of market demand.           A weather eye on the bottom line
  mean that crops may no longer be
                                                                                                  (The Observer, 6 August 2000)
  economically viable in current locations      • All premises and transport systems are
  under future climate conditions. Crops          vulnerable to weather-related events like       • Weather has a strong effect on
  that remain workable may be of reduced          floods, storms, subsidence.                       consumer preferences, and retailers
  quality.                                        Infrastructure for transport and utilities is     stand to benefit by taking this into
                                                  particularly vulnerable, and therefore            account for supply planning.
• Current production methods and market
                                                  places at risk wholesale and retail trade
  standards (e.g. supermarket washed                                                              • The Observer reports that sales of
                                                  businesses.
  produce) are water and energy intensive,                                                          canned lemonade rise as
  and may become increasingly                   • Retailers with global markets or                  temperatures exceed 18°C, but
  expensive.                                      suppliers will be affected by climate             decline again on very hot days when
                                                  change impacts in other countries.                consumers prefer water to quench
• Diversification into new crops with which
                                                                                                    their thirst.
  they have little experience growing           • People tend to consume different kinds
  exposes producers to vulnerability. In          of products in different weather                • Banana sales slump during cold
  addition, investment in equipment               conditions and in different seasons.              months and also perform badly
  constrains producers to specific crops          Market opportunities may result from              during the hottest months.
  until the capital is repaid, making it          climate change.
                                                                                                  • Understanding the impact on
  difficult to diversify.
                                                • The impacts of temperature, rainfall and          customer demand can be the
• As temperatures increase, suppliers and         wind upon the buildings in which retail           difference between a good and a bad
  distributors will be increasingly forced to     business is conducted are important.              trading statement.
  rely on refrigerated/cooled systems for         Working conditions in such buildings
                                                                                                  Sales suffer after hot summer
  produce and livestock. Any new                  could become adversely affected in high
                                                                                                  (Financial Times, 8 September 1995)
  refrigeration or cooling systems should         summer temperatures, reducing morale
  be low-emission and low-carbon, in line         and productivity, whilst driving rains          • The long hot summer of 1995
  with emissions reductions targets.              could necessitate higher levels of routine        affected seasonal consumer
                                                  maintenance. Additional cooling may be            purchasing patterns, with customers
• During hot, dry summers there will be an
                                                  required to alleviate higher working              uninterested in autumn and winter
  increasing risk of interruption of water
                                                  temperatures, and this must be achieved           clothing while temperatures remained
  supply to irrigation systems.
                                                  without jeopardising emissions                    high.
• Staff may need training in new skills           reductions targets.
                                                                                                  • Many retailers postponed acceptance
  associated with new crops, new
                                                                                                    of, and payment for, autumn/winter
  technologies and new approaches to
                                                                                                    orders, causing share prices in some
  land management. A largely outdoor
                                                                                                    clothing manufacturers to suffer.
  agricultural workforce is at increased risk
  of heatstroke and skin cancer.                                                                  It s too hot to shop as records tumble
                                                                                                  (Daily Telegraph, 27 July 2006)
                                                                                                  • Continuing hot weather is causing
                                                                                                    problems for shops with sales down
                                                                                                    5%.
                                                                                                  • Department stores reported that
                                                                                                    trade was down 7.3%.

                                                15
Sector summaries

                                              Hotels and leisure                                             • Hotels and other leisure developments
 Breton tourism boosted by the                                                                                 must be built with the future climate in
 heat wave (AFP, 14 June 2004)                The global nature of the hotel and leisure
                                                                                                               mind. Many hotels, cafes, restaurants,
                                              industry makes this sector particularly
 • Tourism professionals in Brittany                                                                           and visitor attractions in the UK do not
                                              vulnerable to climate risks worldwide. It will
   attributed one million additional                                                                           have air conditioning at present. Low-
                                              be affected by market shifts in the UK, as
   visitor nights in last minute                                                                               carbon cooling of indoor environments
                                              well as changes to global competitors and
   reservations or lengthened stays to                                                                         may be necessary to meet customer
                                              international consumer preference. Despite
   the heatwave of August 2003.                                                                                expectations.
                                              this, none of the CDP respondents indicated
 • Visitors keen to flee the strong heat of   that they were highly concerned about their                    • Riverside locations may become less
   the south or centre of France found        exposure to climate risks. Three-quarters of                     attractive with increased risk of flooding.
   refuge on the moderate Finistère           the leisure and hotel respondents expressed                      Sports and recreational fishing could
   coast of Brittany.                         a low or no level of concern.                                    suffer in dry summers, and there may be
                                                                                                               insufficient water to maintain inland
 Global warming to wash away                  • Southern Europe and other traditional
                                                                                                               canal navigation. Maintaining water
 beaches, warns Spanish study (The              destinations may become less attractive
                                                                                                               quality will be critical during hot, dry
 Guardian, 11 September 2006)                   for summer holidays due to increasingly
                                                                                                               summers with low stream flows. This
                                                hot temperatures and the potential for
 • Spain’s beaches are expected to                                                                             could also affect the attractiveness of
                                                water availability problems and loss of
   decrease by an average of 15 metres                                                                         waterside commercial leisure
                                                beaches to sea level rise.
   by 2050, according to a Spanish                                                                             developments.
   environment ministry report that           • Though this may result in increased visits
   highlights the effects of rising sea         to British and other northern European                       Insurance
   levels and stronger waves and                destinations, in order to exploit this
                                                                                                             The insurance industry has considered
   currents on the country’s coasts.            potential opportunity operators and
                                                                                                             adaptation more thoroughly and for longer
                                                managers must maintain a high quality
 • Holiday homes on unprotected                                                                              than most other sectors. Most major
                                                environment, efficient transport systems
   beaches are directly at risk of                                                                           insurance organisations globally are
                                                and sufficient capacity to cope with a rise
   flooding.                                                                                                 beginning to ask questions and produce
                                                in tourist numbers, all of which will be
                                                                                                             guidance on management of climate risks.
 • The report’s coordinator, Professor          vulnerable to climate risks.
                                                                                                             More than half of the respondents in this
   Raúl Medina, said that property in         • Sea level rise, coupled with an increased                    sector expressed a high or medium level of
   areas currently popular with British         frequency and severity of sea storm                          concern about climate change impacts,
   holiday home buyers is an                    surges will contribute to the loss of UK                     reflecting the fact that this industry is
   increasingly bad long-term                   beaches.                                                     gaining a clear understanding of the
   investment.                                                                                               complexity of this as a business issue.
 Scotland s ski industry balances             Figure 7: Knowledge points for insurance sector
 precariously (Financial Times, 10
 January 2006)
                                              2006                 Climate change: adapt or bust Lloyd’s
 • The number of skier days across
   Scotland fell to just under 150,000 in
   the 2005-06 season, down from over
   650,000 in 1987-88, according to Visit     2005                 Availability and affordability of insurance under climate change:
                                                                   a growing challenge for the US CERES
   Scotland.
 • The impact of climate change on the                             Financial risks of climate change Association of British Insurers
   already unpredictable winter sports
   season has influenced managers to
   market ski resorts as all-year
                                              2004                 A changing climate for insurance Association of British Insurers
   destinations. This follows the
   example of Whistler in Canada, a
   centre for skiing in winter and
   mountain biking and walking in the         2002                 Climate risk to global economy UNEP Financial Initiatives
   summer.

                                              2001                 Climate change and insurance Chartered Insurance Institute

                                                     Climate       The implications of climate change for the insurance industry
                                                     change
                                                     & insurance   Building Research Establishment
                                                     Chartered
                                                     Insurance
                                                     Institute

                                              1994                 The impact of changing weather patterns on property insurance
                                                                   Chartered Insurance Institute

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