The impact of climate change on Finnish business Summary of scenario study Study by Deloitte for the Confederation of Finnish Industries (EK)
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The impact of climate change on Finnish business Summary of scenario study Study by Deloitte for the Confederation of Finnish Industries (EK) January 2020
The impact of climate change on Finnish business
Summary
Study background Conclusions See the broader background report for
impact analyses specific to the EK member
• Climate change poses significant physical • The impacts of climate change on business by 2050 will depend on each
federations, including:
and societal risks to companies. Finnish value chain in question.
companies will face large-scale impacts due • Physical changes have a significant impact on global value chains, • Finnish Food and Drink Industries’ Federation
to changes in other countries and particularly in terms of access to raw materials, logistics routes and the • Finnish Energy
continents. location of production. • Finance Finland
Societal changes particularly affect legislation, technology, migration, • Finnish Commerce Federation
• On behalf of the Confederation of Finnish •
access to skilled labor, and investment within different countries. • The Chemical Industry Federation of Finland
Industries (EK), Deloitte has examined the
• PALTA (Service Sector Employers Palta)
effects of climate change on different • The scenario analysis highlighted phenomena for which Finnish companies • The Confederation of Finnish Construction
continents and the cross-border impacts of should prepare: Industries RT
those effects on Finland. • Finnish Textile and Fashion
• The purpose of this study is to support Changes in supply chains. More frequent extreme weather phenomena will • Technology Industries of Finland
affect where companies outsource, what kinds of logistics routes they use,
awareness-raising among EK member
and transportation costs – or whether familiar raw materials, intermediate
federations and companies about the global goods or services remain available at all.
impacts of climate change, and to help Recommendations for companies:
businesses anticipate and adapt to the Circular economy. The price of raw materials may have risen due to either 1) Map your own value chain in terms of
changes that will occur in the coming reduced availability and continued overconsumption or the desire to limit their climate risks
decades. These changes can also be use in order to reduce emissions and to protect the environment. Both options Which are the continents and countries, where changes would
transformed into opportunities. will increase the need for circular economy solutions. have a relevant impact on our operations?
Climate risks for finance and investment. Both the 4°C and 1.5°C global 2) Build a knowledge base
Study methodology warming pathways imply physical changes in the environment, which are What kinds of physical impacts and societal changes can climate
addressed by shifting investments towards low-risk countries. Low carbon change be expected to cause in these areas? Which variables
• The study examines the effects of climate investment targets are the clear winners on the 1.5°C pathway in particular. have an effect on the expected changes, and what kinds of
change through a scenario analysis with future scenarios can be created on the basis of these variables?
2050 as its target year. Competence development. The impacts of climate change will require new
competencies within companies and industries. A situation where raw 3) Conduct a scenario analysis
• The scenarios are based on two key How would different future scenarios affect our own
materials are scarcer and industries are restructuring will call for continuous
variables for Finnish business: investment in competences and product development. business? Which common elements exist between
• What future path will global warming different scenarious that we can expect to happen with
follow? The 4°C and 1.5°C pathways • Adapting to climate change and preparing for the resulting changes in the relative certainty?
mark the high and low boundaries of the business environment will help companies to anticipate changes in
4) Define follow-up measures
study. production and cost structures; fluctuations in customer expectations and
How should we prepare for the identified impacts? What
• How will the global trade policy develop? demand; to assess the profitability of their investments; to get ahead of and strategic and operational decisions should we make, and
We examine trade policy futures based differentiate themselves from competitors; and to seize new business on what timeframe? What are the costs and benefits of
on protectionism and free trade. opportunities. the measures?
© 2020 Deloitte Oy, Group of Companies. 2
The impact of climate change on Finnish business
Contents
Background and methodology 4
Impacts of climate change on different continents 8
Interface of trade policy and climate change 17
Scenarios for 2050 19
Conclusions 24
Recommendations for companies 29
© 2020 Deloitte Oy, Group of Companies. 3Background and methodology © 2020 Deloitte Oy, Group of Companies. 4
Background and methodology
The Confederation of Finnish Industries wanted to investigate the effects of climate change on
the business environment of Finnish companies
Background to the study Goals of the study The phases of the study
• In June 2019, a new government • EK wanted support to improve its own and its members' • The study was completed during
• xx program, ”Osallistava ja Osaava understanding of climate change impacts on Finnish November 2019 – January 2020.
Suomi” (Inclusive and Competent businesses.
• The work was done in four steps:
Finland), was published. This includes
• Due to the physical changes caused by different warming
an entry stating Finland's aim to
pathways, and the uncertainty and non-linear nature of Analysis of the global impacts of
become carbon neutral by 2035. All
different societal and political reactions, the decision was made climate change and trade policy
sections of society are expected to
to study the issue through scenario work.
participate in achieving this goal.
• In addition to physical and societal changes occurring in
• The EU is aiming for carbon neutrality
Finland, EK wanted to explore global, continent-specific Scenario building and analysis of
by 2050. cross-border impacts
changes as they will have a significant impact for its member
• EK is committed to limiting global companies to be aware of in order to examine the future such
warming to 1.5 °C. To meet this as the future operational requirements of their own production
target, EK’s member federations are and supply chains, and those of their customers and Analysis of industry-specific impacts
currently preparing road maps competitors.
towards carbon neutrality.
• To deepen the understanding of industry-specific changes, EK
• Finnish companies are generally member federations were involved in assessing the impacts of Preparation of conclusions and
aware of the impacts of climate climate change on the companies of their industry, for recommendations for the Finnish
change for business, but due to example in terms of profitability, demand, competition, business community
changes in the business sector’s level suppliers and the availability of competences.
of ambition and operating
• As part of the results, EK also wanted to provide general • The work included interviews
environment, a new, deeper level of
recommendations on preparing for and adapting to the with subject matter experts, as
understanding of the possible impacts
impacts of climate change. well as workshops held with EK
is needed.
member associations.
© 2020 Deloitte Oy, Group of Companies. 5Background and methodology
The scenario work is based on an analysis of the impacts of climate change and trade policy –
future scenarios were used to assess the change in the business environment
Preparation of
Analysis of Scenario conclusions and
global impacts building and Analysis of recommen-
of climate analysis of industry- dations for the
change, and cross-border specific impacts Finnish
trade policy impacts business
community
An analysis of the global impacts Changes in the business Future scenarios were examined The presented climate change
of climate change and a study of environment were examined with from the perspective of Finnish impacts on business and means of
trade policy were used to build the help of scenario analysis for industries in order to identify preparing for such impacts help
scenarios based on scientific the year 2050. The scenarios were both industry-specific and wider companies to perform their own
knowledge and expert evaluations based on an analysis performed impact chains climate risk analyses
during the previous phase of the • The industry-specific impacts were • In the conclusions, we present
• The physical and societal changes of work. assessed in workshops with EK phenomena which was discovered to be
climate change were assessed for each
• The scenarios in this study are based member associations. The industries common to all of the examined futures,
continent. The following section
on the changes caused by different examined the four scenarios from and for which Finnish business should
presents more detailed perspectives on
global warming pathways and two their own perspectives. prepare.
the analysis, and summarized results.
possible directions of trade policy: • Examination of the industry-specific • As companies operate in different
• The assessment had a particular focus protectionism or free trade. impacts provided important tangible continents and countries, they should
on the interface of trade policy and
• See the section “Scenarios for 2050” information on the challenges different perform their own value chain-specific
climate change. More detailed
for a more detailed description of the sectors and industries are facing. The analysis of the impacts of climate
perspectives on, and the results of, the
scenarios and some of their cross- conclusions highlight the impacts of change. “Recommendations for
analysis are presented in the section,
border impacts on Finland – more different future scenarios on both the companies” provides guidance on
“The interface of trade policy and
details can be found in the background industry and service sectors. performing such an analysis.
climate change”.
report. • See the section "Conclusions" for the • The background report provides
• A more detailed description of the
industry analysis. Further information additional information on the benefits of
analysis methodology is given on page
is presented in the background report. assessing company-specific climate-
7. A more comprehensive description
of analysis results is presented in the change impacts, and on scenario
background report. analysis as an assessment tool.
© 2020 Deloitte Oy, Group of Companies. 6Background and methodology
The analysis of the global impacts of climate change, and of trade policy, was based on a
literature review and expert interviews
Impacts of climate change on different continents Impacts of global trade policy
• The work examined the physical and societal impacts climate change will • In addition to the impacts of climate change on each continent, the
have by 2050, from the perspective of all continents. research examined the impacts of trade policy on industries in Finland,
particularly the interface of trade policy and climate change.
• Warming pathways of 1.5°C, 2°C and 4°C were examined.
• According to the IPCC, these global warming pathways imply global • International trade and the related developments have a significant
warming of about 1.3–2°C by 2050. impact on the business environment of the Finnish export-driven
economy.
• NB! Subsequent scenario analysis omitted analysis of the 2°C scenario
– only the extremes were described. • Analysis included examination of both the influence of protectionist
measures on the society, and the context of free trade and related
• The physical impact assessment is based on scientific research, mainly
growing opportunities to promote international climate action through
sourcing IPCC reports.
mechanisms such as carbon pricing.
• In evaluating trends in the societal impact of climate change, assessments
• The review was based on interviews with international experts from the
by the interviewed experts were used in addition to public sources.
Ministry for Foreign Affairs and Deloitte. Recent news coverage on issues
• There is more uncertainty related to the societal changes caused by such as developments in emissions trading and carbon tariffs, and other
climate change than about the physical changes. public sources were also used.
Factors considered in the physical Themes considered in the societal
Analysis of trade policy
impact assessment impact assessment
Warming of the Biodiversity Protectionism versus free trade policy
Policy and legislation
atmosphere Changes in Terms for combating climate change as part of trade negotiations
Society
Sea level rise vegetation Emissions trading schemes and emissions taxes
Economy
Changes in Glacier change Carbon tariffs
precipitation Technology
Fossil-fuel subsidy schemes
© 2020 Deloitte Oy, Group of Companies. 7Impacts of climate change on different continents © 2020 Deloitte Oy, Group of Companies. 8
Impacts of climate change on different continents
The warming climate will shape living conditions – the impacts will be unevenly distributed
across the continents
2050
North America Europe Arctic regions
• Increasing frequency of droughts • Rising temperatures and changes in • The climate in the Arctic warms so rapidly that society
and heatwaves put pressure on rainfall increase droughts in the cannot keep pace with the adaptation measures.
agriculture and human settlements. Mediterranean. • Access to resources in the Arctic
• Increasing frequency of extreme • Infrastructure is under high is a major topic in power politics debates – indigenous
weather events and rising sea levels pressure: rising sea levels threaten peoples play a crucial role in adaptation
threaten settlements and industry on coastal settlements, waterways are • Shipping traffic grows on both northern routes as sea ice
the east coast. becoming less secure and rail traffic recedes.
may be disrupted by heat.
• The direction of climate policy is
uncertain – states, provinces, • The EU meets its carbon neutrality
cities and companies implement target for 2050 and economic Asia
their own emission reduction plans. structures are changing.
• Storms and floods disrupt life on the coasts, drought is
doing so inland.
• Farming and fishing opportunities are under threat.
South America Africa
• China has increased its influence on other continents
• The average temperature is
• Global warming is most pronounced through infrastructure investments.
increasing throughout Africa in all
in the interior of the continent,
seasons and adds pressure on food
leading to changes in agricultural
production.
areas. Australasia
• Population growth continues and the
• Andean glaciers continue to melt, • Combined with rising sea temperatures, acidification
urban population triples by 2050.
affecting drainage basins along much endangeres the functioning of marine ecosystems.
of the west coast. • Intra-African market develops
through the African Continental Free • Intensifying dry and hot periods
• Climate change creates pressure on Trade Area. affect water availability and increase the frequency of
infrastructure and populations in the wildfires.
already highly urbanized region.
• Internal and external migration increases as a result of
climate change.
© 2020 Deloitte Oy, Group of Companies. 9Impacts of climate change on different continents – Europe
European development is guided by the EU's 2050 carbon neutrality goal, but even the 1.5°C
warming pathway will have major physical effects on the continent by 2050
2050 in Europe
Infrastructure is under pressure:
Rising temperatures and changes rising sea levels threaten The EU meets its carbon
in rainfall increase droughts in the coastal settlements, waterways are neutrality target for 2050 and
Mediterranean becoming less secure and rail traffic economic structures are changing
may be disrupted by heat
If the world follows a warming pathway of more Combined with heavy rainfall, the rise in global sea Europe's energy self-sufficiency increases and its
levels is very likely to cause storm floods in coastal dependence on energy imports reduce to 20% of
than 2°C , the climate will warm up by at least
areas, particularly along the Atlantic coast in consumption.
1.5°C by 2050. The number of hot days would
Northern and Southern Europe.
then increase by 20–30 a year in Southern Europe,
and the number of frost days reduce by 20–40 in More than 80% of energy comes from renewable
Northern Europe. sources and electricity covers half of energy needs.
Rails buckle in the heat and may thus stop rail
traffic altogether – droughts also make it difficult to
use inland waterways in Europe as logistics routes.
Southern Europe is severely affected by heat and Country-specific emission reduction targets leads to
drought. Limiting warming to 1.5°C could reduce, new solutions for the agriculture, transport, heating
but not eliminate, droughts of greater frequency and waste management industries, changing old
and intensity. operating models.
The building stock’s energy performance has
Europe needs more electricity for cooling its current significantly improved through energy renovations,
building stock as temperatures rise. At the same and houses built between the 2020s and 2050s are
time, the electrification of society has advanced. zero-energy.
© 2020 Deloitte Oy, Group of Companies. 10Impacts of climate change on different continents – the Arctic
The Arctic is changing so fast that society and infrastructure cannot adapt – emerging economic
opportunities create political tension
2050 in the Arctic
Access to resources in the Arctic
The Arctic’s climate warms so
is a major topic in power politics Shipping traffic grows on both
rapidly that the society cannot keep
debates – indigenous peoples play a northern routes as sea ice recedes
pace with the adaptation measures
crucial role in adaptation
Lack of knowledge, finance, expertise and Arctic oil reserves become accessible, which creates On the 2°C pathway, there is a 50% probability
organizational capabilities limit adaptation to a conflict with striving towards fossil-free energy that sea ice will melt during the summer. A
climate change in many sectors of society. policies – countries with ambitious climate policies completely ice-free summer occurs at least once
seek to prevent oil drilling in the Arctic. every 10 years – according to the most advanced
forecasts, in some years a 4°C pathway would
The melting of permafrost and the fluctuations in see the Northeast Passage open for up to 125
freezing processes intensify and cause damage to The representation of indigenous peoples in days by 2050.
e.g., structures in bridges, pipelines, industry and decision-making is a key element in ensuring
other infrastructure, and logistically important sufficient adaptation to climate change.
winter and ice routes become less available. Transport times between continents will be
significantly reduced between countries able to take
advantage of the routes.
© 2020 Deloitte Oy, Group of Companies. 11Impacts of climate change on different continents – Asia
Coastal regions in Asia suffer severe flood damage, while many inland areas suffer from water
supply problems and drought
2050 in Asia
Storms and floods disrupt China has increased its influence
Farming and fishing opportunities
life on the coasts, drought is on other continents through
are under threat
doing so inland infrastructure investments
Temperatures rise approximately 2°C everywhere. China's environmental and climate goals are driving
The ability of key rice-producing regions to provide
Warming is approx. 2–3 times faster in the northern technological development and the transformation
livelihoods and food reduces significantly, at least
regions, depending on the warming pathway. of the energy system.
in India, Pakistan, Thailand, Indonesia, the
Philippines, and many regions in China.
The number and intensity of tropical storms is China's reserves of rare metals foster the energy
increasing – the destructive effects of storms technology transition in the region.
intensify, especially in geographically low-lying In drought-sensitive areas, rainfall is projected to
areas such as Indonesia and Vietnam. decrease by up to 50% by 2050.
Developing countries in Asia continue to rely on
local fossil fuels for a long time to come, due to low
Accelerated glacial melting in the Himalayas increase inland water volumes in the drainage basins, increasing cost and security of supply.
flood risks. Access to water is a key challenge for societies in large arid regions of Asia, particularly Western
Asia.
Through its Belt and Road strategy, China has
successfully promoted major infrastructure projects
Fish stocks deteriorate as seawater warms and fish in Asia, the Middle East, Africa, Europe and the
seek cooler waters. Americas, increasing its global influence.
© 2020 Deloitte Oy, Group of Companies. 12Impacts of climate change on different continents – Australasia
Water security is a major issue in Australasia, as societies adapt to and try to overcome
intensifying climate risks
2050 in Australasia
Combined with rising sea Intensifying dry and hot periods
Internal and external migration
temperatures, acidification endangers affect water availability and increase
increases as a result of climate change
the functioning of marine ecosystems the frequency of wildfires
Coral reefs and other ecosystems in the area will be The northern parts of the continent become rapidly Despite major problems in the region due to
significantly affected or even destroyed by warming drier and warmer, forcing societies to make radical warming, people are moving to Australia from
seawater. changes in adapting to the new conditions. neighboring islands and South Asia.
Rising seawater and air temperatures are affecting the area's nature tourism and other local livelihoods such The exploitation and export of Australia's fossil fuel
as fishing. reserves may become controversial as the country
moves towards a renewable energy system.
More frequent wildfires and rising maximum
temperatures increase direct health risks posed to
humans and animals – in Melbourne, by 2070 the
number of days above 35°C is expected to
increase by 90–170% on the 4°C pathway and
30–90% on the 2°C pathway.
© 2020 Deloitte Oy, Group of Companies. 13Impacts of climate change on different continents – North America
In North America, the impacts of climate change are particularly evident on the east coast and in
the south
2050 in North America
Increasing frequency of extreme The direction of climate policy is
Increasing frequency of droughts
weather and rising sea levels uncertain – states, provinces,
and heatwaves put pressure on
threaten settlements and industry on cities and companies implement their
agriculture and human settlements
the east coast own emission reduction plans
On the 4°C warming pathway, by 2050 winter Hurricanes may proliferate in the eastern regions of Different regions have diverged in the
coastal temperatures rise by 1.5–3°C and, in the the continent and cause widespread storm damage implementation of climate policy which also affects
north and inland, by up to 3–6°C . in the built environment, cut off major traffic lanes, the pace of energy system reform.
and cause disruptions and security of supply
problems for industry.
The devastating effects of wildfires on nature and There is strong development of CCS technology due
societies increases, particularly in the southern and to the use of the region’s own fossil fuel reserves
western United States. Agricultural productivity Disruptions and damages of transportation routes especially in North America; CSS may become
declines due to worsening droughts and an insecure increase as the effects of climate change intensify. economically viable by 2050.
water supply.
Coastal societies have to invest in flood control and prevention, while southern and central parts of the
The great plains in Central America are also affected country will have to invest in water security.
by drought, which impacts the region's food
production and local livelihoods.
© 2020 Deloitte Oy, Group of Companies. 14Impacts of climate change on different continents – South America
South America’s large agricultural sector will transform as the climate warms
2050 in South America
Global warming is most
Andean glaciers continue Climate change creates pressure on
pronounced in the interior of the
to melt, affecting drainage basins infrastructure and populations in the
continent, leading to changes in
along much of the west coast already highly urbanized region
agricultural areas
On the 4°C warming pathway, regional warming is Particularly in large urban areas, the availability of clean water is a growing concern, and increasing demand for
already close to 3°C by 2050 in Central America water is increasing the price of agricultural water supplies. This complicates the position of farmers.
and the interior of South America. Rainfall
decreases on the west coast and increases in the
southeast. Glacier decline correlates to hydropower productivity The major urban areas on the continent grow even
as river flows from the Andes decline over time. further as uncertainty caused by extreme weather
events increases migration to cities.
Yields of main crops decrease, particularly in
Central America, Northeast Brazil and the Andes –
however, primary production is expected to As the standard of living on the continent rises, the
increase in both Central and South America due to number of passenger cars is expected to triple by
the growing demand for food and biofuel. 2050, compared to 2000. Rising temperatures and
increasing air pollution increase health problems
among city dwellers.
The fauna and flora of the Amazon and Guyana
regions are particularly affected by climate change.
© 2020 Deloitte Oy, Group of Companies. 15Impacts of climate change on different continents – Africa
In Africa, the average temperatures are rising faster than the global average; a combination of
heat and drought contribute to desertification, particularly in the north and south of the region
2050 in Africa
The average temperature is
Population growth continues The African internal market
increasing throughout Africa in all
and the urban population triples by develops through the African
seasons, putting pressure on food
2050 Continental Free Trade Area
production
By 2050, throughout Africa temperatures rise by The share of the population with poor access to African countries engage in closer economic
about 1–1.5°C on the 1.5°C warming pathway – clean water falls to less than 20% by 2050. cooperation and the internal market of Africa
the intensity and frequency of dry periods increase, develops. The negotiation power of Africa in relation
particularly in the northern and southern parts of to other economies grows.
the continent. Young people account for a significant proportion of
the population. If living conditions and
environmental conditions deteriorate as the climate Africa’s energy system electrifies and the societies
A warming climate poses major risks to Africa's warms, population movements increase within and adopt new technologies. However, some countries
food security – working conditions are also out of the continent. remain reliant on fossil fuel reserves for a long time
deteriorating.
to come.
For example, tea, coffee and cocoa plantations and
productivity are affected, and the area suitable for
maize cultivation in West Africa contracts by 40%.
© 2020 Deloitte Oy, Group of Companies. 16Interface of trade policy and climate change © 2020 Deloitte Oy, Group of Companies. 17
Interface of trade policy and climate change
Role of climate change mitigation in trade policy – climate-related controls will be introduced to
level the playing field between economies
Trade policy instruments in the fight against climate change
Reform of fossil fuel
Climate clauses in trade Global carbon pricing initiatives (1/2020) subsidy schemes
agreements
Use of fossil fuels is still
Measures to combat climate
subsidized in many countries. The
change can be included in
reform of these subsidies will
bilateral trade negotiations. The
have important trade policy
EU requires that free trade
implications as fuel prices change
agreements comply with the Paris
and energy self-sufficiency
Agreement.
increases.
Emissions trading schemes
Carbon tariffs
and emissions taxes
In practice, carbon tariffs are a
Transnational emissions trading
marginal tax paid by companies
systems and emissions taxes will
on other continents in order to
set a price for emissions and
sell their products on the market
level the playing field for
of the state or economic territory
companies in different countries.
imposing the carbon tariff. The
If all countries are not covered
aim of carbon tariffs is to price
by the same emission pricing
climate impacts into products or
systems, carbon leakage may
raw materials produced, using
occur, such as the off-shoring of
high-polluting technologies,
industrial production to countries
outside the economic territory in
where emission pricing does not
Source: World Bank Carbon Pricing Dashboard 2020 question.
occur.
© 2020 Deloitte Oy, Group of Companies. 18Scenarios for 2050 © 2020 Deloitte Oy, Group of Companies. 19
Scenarios for 2050
Four future scenarios were created by examining alternative global warming pathways and trade
policy directions - companies can use these scenarios to anticipate future changes in the
business environment
• Scenario analysis is a tool used in strategy work, The worldviews presented by
to prepare for a range of futures. The scenarios the scenarios were
are not forecasts or predictions, but imaginary Global harmony Hegemony of the supplemented by some
future narratives based on the knowledge and strong certainties, that is, trends
observed phenomena of today. Their purpose is
Free trade
occurring in all four scenarios,
to help strategic thinking. irrespective of the warming
• The year 2050 was chosen as the scenario target pathway and direction of
Direction of trade policy
year because it is a key target year in climate trade policy.
policy and by then, the effects of different Certainties
warming pathways will be evident. The year is
also relevant in terms of companies’ investment • The EU retains and
horizons. achieves its carbon
neutrality goal for 2050
• These scenarios are based on an examination of
the predicted physical changes caused by the • There is free trade in
1.5°C and 4°C warming pathways and the Independent A world of conflict emission-reducing
responsibility bearers technologies
Protectionism
resulting societal impacts. The variable illustrates
the extremes of the predicted trends: the 1.5°C • Development of digitization
warming pathway assumes that societies make a and automation continues
very rapid low carbon transition, while the 4°C
warming pathway assumes dramatic physical • Urbanization continues
changes. • Global population growth
• The other variable chosen for the study was the continues, but in developed
direction of trade policy. The scenario analysis countries the population
examined the potential effects of both free trade declines
and protectionism.
Global warming pathway
© 2020 Deloitte Oy, Group of Companies. 20Scenarios for 2050
The scenarios depict the most extreme future narratives - the development path that will
eventually prevail is likely to lie between those extremes
Global harmony Hegemony of the strong
• Almost all countries have implemented climate policies, • The EU has pursued an ambitious climate policy (carbon-
at least fulfilling the level of UN Paris Agreement. neutral by 2050), but most of other economic areas have not.
• Unified environmental legislation and product standards. • EU’s economic structure has diverged from other regions – fossil
Free trade
• Free and open markets have contributed to global low-carbon economy accounts for a relatively small size of the economy.
development and the expansion of clean technologies. • Overconsumption of natural resources has led to resource
• Circular-economy thinking predominates among industrial shortages and distress in some regions and rises in commodity and
Direction of trade policy
companies and consumers buy services rather than products. food prices, while making resource-rich countries better off.
• Adaptation to climate change has been done well on time, with a • Large companies focus on adapting to climate change by procuring
positive impact on the economy. only vital resources from high-risk regions and concentrating
production in low-risk regions.
Independent responsibility bearers A world of conflicts
• Increasing tension in international relations leads to major • Global developments are dictated by the great powers and their
Protectionism
clashes, such as trade embargoes and cyber attacks, but the populist leaders, and international tensions mount due to power
number of armed conflicts is low. politics.
• High carbon tariffs and sanctions between economic areas have • Overconsumption of natural resources and complacency about climate
raised the level of ambition regarding climate action. change has led to resource scarcities and rises in commodity and food
• Strong protectionism has led to growing inequality between states – prices in some regions.
small and poor countries suffering from high commodity prices may • Primarily in small countries, living standards are falling and conflicts
have to increasingly fall back on regulation of energy and food. over natural resources are growing between and within countries.
• Countries have increasingly shifted towards exploiting their own
resources and the benefits of circular economy, but strong countries are
also practicing neo-colonialism, which exacerbates regional conflicts.
1.5°C Global warming pathway 4°C
© 2020 Deloitte Oy, Group of Companies. 21Scenarios for 2050
Examples of cross-border impacts on Finland
Global harmony Hegemony of the strong
Demand for Finnish clean technology has grown and there is a Large companies are growing and moving into multiple
large global market for it industries in order to gain access to dwindling raw materials
Free trade
Decisions by Finnish companies to invest abroad are Finland is viewed as an attractive investment target, mainly
increasingly determined by climate risks due to its stable climatic and societal conditions
Direction of trade policy
Global investments have been redirected toward sustainable
Insurability has suffered in Finland too, and the insurance
and low-carbon targets, thereby changing the structure of the
industry is focused on climate-proof targets
market
Independent responsibility bearers A world of conflicts
Supply chains are shorter than before and outsourcing is
The internal market has increased in importance for the EU,
directed at the internal market where possible, because this is
Protectionism
since resources are expensive and difficult to access
cheaper and minimizes supply risks
Carbon tariffs improve the position of Finnish companies in Many companies need to rethink their supply chains and
the EU’s internal market, but hinder international trade with logistics, as shipments are hampered by extreme weather
other continents events such as droughts and floods
Under protectionism, commodity prices are higher than in the Global warming and increased precipitation have spurred
free trade scenario, increasing the popularity of circular forest growth in Finland, but plant and animal diseases are
economy much more common than before
1.5°C Global warming pathway 4°C
© 2020 Deloitte Oy, Group of Companies. 22Scenarios for 2050
Similarities and differences between scenarios
Inde-
pendent Hegemony
Global A world of
Sub-area Features of scenarios consensus
responsi- of the
conflicts
blity strong
bearers
The EU’s low-carbon climate No extensive global climate Tense Unified environmental
policy policy international legislation and product
Policy and relations standards
legislation
Circular economy –based Over-consumption and scarcity Ecologically sustainable Expensive raw materials
operating of natural resources global economic growth
Economy models in use
Significant changes Increased population Increasing inequality between Threat of major conflicts
in social structures movements countries
Society
The EU is a driver of low- No large-scale abandonment of Rapid development of recycling Energy production is largely
carbon technology fossil energy sources technologies emission-free
development
Technology
© 2020 Deloitte Oy, Group of Companies. 23Conclusions © 2020 Deloitte Oy, Group of Companies. 24
Conclusions
The physical impacts of climate change will increase towards the mid-century but remain
moderate in Finland – thus Finnish companies are influenced primarely through the
developments in their global value chains
On a global scale… In Finland...
• Global warming and the resulting physical impacts are • A warming climate does not significantly improve agricultural conditions in
distributed very unevenly throughout the world. Finland, but accelerates forest growth and enables greater carbon
sequestration.
• On a large scale, the southern hemisphere and continents
experience faster warming than the north, and inland areas • However, growing the carbon stock requires avoiding and preventing forest
warm faster than the coasts. damage. Development in forest use also strongly affects actual carbon
sequestration.
• Even on a 1.5°C warming pathway, disruption of freshwater
supply occurs in many areas, e.g. southern Africa and the • Industries dependent on foreign raw materials are vulnerable to the physical
Mediterranean. risks posed by climate change.
• Changing rainfall and a warming climate cause vegetation biome • Changes of climate conditions on different continents affect the reliability of raw
shifts and the migration of species to new areas, and extinctions material supply chains, due to factors such as infrastructural damage, leading to
of animal and plant species. changes in supply chains or increasing costs.
• Loss of biodiversity reduces societies’ ability to adapt to climate • By 2050, Finland relies mostly on clean energy technologies and the society
change. is extensively electrified.
• Following a 4°C warming pathway means a rise of 2°C of the • Efforts to reduce industrial emissions have markedly increased demand for
average global temperature by 2050. electricity generation.
• The physical impacts of climate change by the mid-century are • The impacts of climate change for the service sector are mainly indirect and
more profound in the 4°C pathway in comparison to the 1.5°C experienced through the shifts in economy.
pathway. On the 4°C pathway for example the extreme weather
• Demographic trends in Finland also play an important role for the service sector. In
events and sea level rise are much more pronounced.
a world following the 4°C warming pathway, population movements driven by
• Reaching a 1.5°C warming pathway requires comprehensive climate change are likely to increase significantly more than on the 1.5°C
and rapid transformation in various sectors. Low-carbon pathway. This may mean a major increase in immigration to Finland.
solutions are the winners in the global economy aiming for that
• Finland's attractiveness as an investment environment may increase due to
path.
the relative stability of the country from the point of view of physical climate
impacts.
© 2020 Deloitte Oy, Group of Companies. 25Conclusions
Each scenario identified recurring phenomena for which all companies in Finland should prepare
Changes in supply chains. More frequent extreme weather phenomena will affect where companies outsource, what kinds of
logistics routes they use, and transportation costs – or whether familiar raw materials, intermediate goods or services remain
available at all.
Circular economy. The price of raw materials may have risen due to either reduced availability and continued
overconsumption or the desire to limit their use in order to reduce emissions and to protect the environment. Both options will
increase the need for circular economy solutions.
Climate risks for finance and investment. Both the 4°C and 1.5°C global warming pathways imply physical changes in the
environment, which are addressed by shifting investments towards low-risk countries. Low carbon investment targets are the
clear winners on the 1.5°C pathway in particular.
Competence development. The impacts of advancing climate change will require new competencies within companies and
industries. A situation where raw materials are scarcer and industries are restructuring will call for continuous investment in
competences and product development.
© 2020 Deloitte Oy, Group of Companies. 26Conclusions
The scenarios were examined from the perspectives of different industries in collaboration with
EK member federations – the impacts vary widely across sectors
Industry will suffer Increased energy use in Immigration is likely to Protectionist trade In the free-trade
more than services other sectors will have increase, affecting policy is largely negative scenarios, research and
from the direct impacts an impact on the energy domestic demand as for Finland and will development in low-
of climate change industry well as companies' affect all sectors due to emission technology will
recruitment the slowdown of the be a major competitive
• Changes in supply chains, • From the energy industry’s
rising commodity prices and perspective, investments in opportunities world economy factor
unpredictable production clean energy systems will • Climate change may cause • Finland is an export-driven • A world with an ambitious
conditions on other have been made by 2050. major population movements. economy and increasing climate policy will have huge
continents will have a direct protectionism is likely to markets for clean, sustainable
• The scale of investment needs • The stronger global warming
impact on the profitability of reduce international demand. solutions.
to respond to e.g. the growing is, the more unpredictable will
industrial companies.
demand for electricity is its effects on the scale and • Protectionist measures • There will be demand for
• The impacts on service depends on the scale of and direction of population between large states or solutions if the world follows
sector will occur indirectly, fluctuations in electricity movements be. economic areas are likely to the 4°C pathway: continents
through general economic demand by other sectors and have a negative impact on outside the EU will also need
developments. Climate consumers. • A major increase in the Finland: operating conditions to take account of air pollution
change will affect the service number of immigrants to are likely to become more in large cities, which may
• In an uncertain political Finland would have a
sector through factors such difficult for industry as factors increase demand for clean
environment, a 4°C warming substantial impact on the
as reduced consumption and of production, such as raw technology in this scenario
pathway will be more likely country’s social structures in
immigration. materials, become more too.
than the 1.5°C scenario, and general.
companies will be more likely expensive.
• To be winners in global
to invest in projects with a • Various industries emphasized • The service sector will largely competition, Finnish
short payback period. the importance of investing in follow the general economic companies would be wise to
education and social trend, being affected by the increase their investments in
integration, regardless of the reduction in people’s emission-reducing technology.
expected immigration levels. purchasing power.
© 2020 Deloitte Oy, Group of Companies. 27Conclusions
Highlights of the cross-border impacts of climate change on Finnish business
Many crucial production materials will become more In some regions, business and housing insurance may
difficult to acquire as e.g. production areas relocate, become impossible due to high climate risks.
crops suffer and mining is hampered by changing ➢ Even in Finland, flood risks may for example
climatic conditions. affect the insurability of buildings.
➢ Demand for circular economy solutions and
alternative raw materials will grow in heavy
industry as well as the food and clothing
industries.
A warmer climate will adversely affect the working More frequent heatwaves will cause tracks to buckle and
conditions of outdoor workers and factories without air- hamper the use of inland waterways as logistics routes.
conditioning, especially in the southern hemisphere –
➢ Shipments suffer, new logistics routes must be
there may be stoppages due to heatwaves.
found and are becoming more expensive, or
➢ Working conditions will deteriorate and suppliers are being sought from closer locations
productivity fall in many factories. to ensure security of supply.
© 2020 Deloitte Oy, Group of Companies. 28Recommendations for companies © 2020 Deloitte Oy, Group of Companies. 29
Recommendations for companies
Each company has a different value chain, and therefore the impacts of climate change should
be studied from the perspective of individual companies and the third parties they operate with
From the perspective of individual companies, the physical and societal changes caused by climate change are
worth examining, in four steps:
1 2 3 4
Map your own value chain Build a knowledge base Conduct a scenario Define follow-up measures
in terms of climate risks analysis
• What kinds of physical impacts • How should we prepare for
• Which are the continents and and societal changes can • How would different future the identified impacts?
countries, where changes would climate change be expected to scenarios affect our own • What strategic and
have a relevant impact on our cause in these areas business? operational decisions should
• Which common elements exist we make, and on what
operations? • Which variables have an effect
between different scenarious timeframe?
on the expected changes, and
that we can expect to happen • What are the costs and
what kinds of future scenarios benefits of the measures?
with relative certainty?
can be created on the basis of
these variables?
Adapting to climate change and preparing for the resulting changes in the Taking the above steps in anticipation of climate change impacts is therefore
business environment will help companies to anticipate changes in production worth including e.g. in business environment reviews done as part of strategy
and cost structures; fluctuations in customer expectations and demand; to processes.
assess the profitability of their investments; to get ahead of and differentiate
themselves from competitors; and to seize new business opportunities.
© 2020 Deloitte Oy, Group of Companies. 30Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. In Finland, Deloitte Oy is the Finnish affiliate of Deloitte NSE LLP, a member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), and services are provided by Deloitte Oy and its subsidiaries. In Finland Deloitte is among the nation’s leading professional services firms, providing audit, tax, risk advisory, legal, consulting, and financial advisory services through 600 people in 3 cities. Known as an employer of choice for innovative human resources programs, Deloitte is dedicated to helping its clients and its people excel. For more information, please visit our website at www.deloitte.fi. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2020 Deloitte Oy, Group of Companies
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