As record-breaking wildfires rage throughout California for another year, residents aren’t the only ones contending with a difficult reality. From skyrocketing insurance rates to lost hours of operation, businesses in industries as diverse as retail, agriculture and tourism are reeling from the cost of doing business in the “new normal” of fires brought on by extended drought and an unstable power grid.
This is a powerful example of how climate change isn’t just a political and environmental issue any longer, but increasingly a business one. According to a recent report by CDP, some of the world’s largest companies, including Apple, Nestle and JP Morgan Chase, put the estimated cost of climate change to businesses at more than $1 trillion over the next decade. Yet, even at the level of senior leadership, many companies still aren’t giving full weight to climate considerations.
As extreme weather disrupts supply chains, infrastructure and workforces, leaders can start by actively bringing climate under their purview, right alongside revenue, profit and people issues. Indeed, the top CEOs of tomorrow may well be Climate Executive Officers. Here are key questions that leaders can begin thinking about now to build climate competency in the years ahead.
What is your workforce telling you?
With an increase in floods, fires, and longer, more destructive storms, leaders need to ask how their workforce will be affected by everything from compromised infrastructure to the emotional stress of dealing with disruption and disaster. Could your employees reach the office in a fire? How about a blackout? If a storm hits during business hours, do they have access to food and medication? How would your computer systems and communications infrastructure fare?
This is far from theoretical. In California, utility companies have begun initiating rolling blackouts to minimize fire risk from downed power lines during heavy winds. More than an inconvenience, the outages have snarled traffic, shut down schools and small businesses, overwhelmed hospitals, community centers and government phone lines, and made it all but impossible for some people to get to work or do any work when they get there. (And, realistically, that may be the last thing on their minds.)
Mitigating these risks, which are only predicted to become more commonplace, starts with looking at the data you have now. Taking stock of factors like employees’ commuting patterns, average distances to work and modes of transportation can reveal vulnerabilities to be guarded against in planning for more volatile weather events.
Are you anticipating shifting public demands?
In 2018, 29% of Starbucks shareholders supported a proposal to reduce its plastic packaging. The board voted it down. This year, 44.5% of shareholders supported a similar proposal, warning the company would lose out to competitors like McDonald’s if it didn’t improve its environmental standards. More and more, stakeholders are appreciating the business benefits of adopting greener practices and innovation — as well as the price of inertia.
For decades, investment in reducing environmental footprints was in the ‘optional’ category. Even today, board consensus on green upgrades is hardly guaranteed. But shifting expectations require a new view on this issue. Going forward, climate inaction may well represent a liability, with companies penalized by investors, insurers and their own customers for reluctance to go green or for failing to factor climate data into planning locations and supply chains.
In Norway, for example, the government is already divesting from energy companies that haven’t doubled down on clean energy. In the U.S., shareholder proposals on environmental and social issues are now outpacing those on corporate governance and oversight. In the U.K. legislation will soon start requiring publicly traded companies to disclose their climate-related financial risks.
How will your customers be impacted?
Shifting weather patterns have already dramatically impacted supply chains around the world, for everything from fish used in frozen entrees to components in consumer electronics. During Thailand’s severe flooding in 2011, for example, the global electronics market shuddered. HP lost $2 billion; Western Digital lost nearly half of its total shipments. A global shortage of hard disk drives ensued, with consumers feeling the impact at checkout.
On a deeper level, climate change promises to shift wealth and spending in pervasive and sometimes unexpected ways. Customers saddled with high heating and cooling bills, for example, may have less disposable income to spend on consumer goods. Rising prices for meat products, and increasing awareness of the environmental impact, may drive more people to plant-based alternatives. Job instability brought on by the transition from coal and oil to cleaner energy has and will continue to disrupt entire local economies. And the list goes on.
There’s no crystal ball to predict changes at this level. But leaders can only benefit by starting to factor climate considerations into their day-to-day decision-making, now. Some simple questions can help. What am I doing that hurts our climate readiness? What am I doing that helps? How am I actively planning for the future? Are my employees prepared and in a place that is sustainable? Is my power supply reliable? How exposed am I to supply or distribution chain interruptions?
The job of leaders today remains, as it has always been, to reach the best decision with the information at hand. Climate change, in this matrix, is one more risk factor to anticipate and mitigate.