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Amidst waves of severe shocks and stresses, climate resilience has become an increasingly urgent priority for leaders across the public and private sector. Three levers can help organizations better predict and act on looming risks.
The COVID-19 pandemic has presented a challenge of unprecedented scale, exposing vulnerable supply chains, crumbling infrastructure, and dysfunctional systems driving accountability. But COVID-19, though large, has an end in sight. Climate change poses a grimmer reality, presenting perpetual physical, economic, and social impacts that will occur both in the form of unexpected, severe shocks and gradual, chronic stresses. The number of reported disasters has nearly tripled since 1980, and the cost of those disasters is up 600%, to nearly $200 billion every year. This cost is expected to rise to $234 billion by the year 2040.
This article, including learnings from the current pandemic, will explore three key levers that can be used to improve the resilience of your business against the systemic shocks and stresses posed by climate change. Organizations that successfully capitalize on technology, rethink finance and operations, and form partnerships to tackle our largest challenges will be best suited to both prepare for risks and implement measures that build resilience.
Businesses and governments alike have long been aware of the looming impacts of a changing climate. Though sustainability goals have become increasingly ambitious, companies and cities alike have been slow to integrate climate risk into overall risk management strategies and long-term investment decisions. The delay can be attributed to two underlying gaps: a failure to appropriately understand these risks and hurdles in our foundational systems to execute on them.
Organizations face a tremendous gap in intelligence when attempting to understand risk. While organizations are aware of the global risks driven by climate change, translating those complex, intersecting risks into the direct or indirect impacts on a city or business is uniquely challenging for the following reasons:
The risks we face are not only ‘quantifiable’ risks such as physical, financial, and insurance risks, but also ‘unquantifiable’ longer term risks such as loss of goodwill, weakening relationships with suppliers, and stakeholder pressure.
These risks also occur on varying time horizons. There are acute, disruptive risks like pandemics, floods, famines and hurricanes, but there are also chronic, gradually increasing risks such as softening consumer demand, rising inequality, regionalization, and regulation.
Building climate resilience requires gathering the intelligence to reduce the unknowns to best prepare for complex and interconnected risks, while simultaneously building a foundation of information and processes to act quickly amidst the unpredicted, disruptive risks.
Challenges that are difficult to quantify and predict are inherently difficult to mitigate. Complex, collective challenges like rising sea levels, population growth, resource scarcity, and increasingly frequent fires, floods, and droughts will require solutions that fall outside of typical investment criteria, that defy lean operating models, and that pose challenges of a scale exceeding what can be tackled by a single organization. These systemic barriers ultimately reduce accountability and stall individual and collective progress.
Though stakeholders have engaged in cross-sector and multi-stakeholder collaborations for years to drive resilience planning, these actions must be accelerated to meet the moment. Partnerships across diverse stakeholders often fail to gain momentum due to misalignment of incentives or limited visibility across groups. Without a carefully crafted business cases driven by shared directional visions, engagement models, and transparent progress reporting, collective action will stall or erode over time.
As organizations build their risk mitigation strategies, they must integrate climate-related risks. Within this planning process, organizations should classify the risks they face by severity and predictability.
The matrix below provides a guide for organizations to assess their risks. The less predictable the risk, the greater the need for foundational systems that arm organizations with the necessary intelligence to effectively act in moments of crisis. The more severe the risk, the greater the need to unlock additional sources of funding or form coalitions to share in the costs and risk of mitigative measures.
To best address the knowledge and implementation gaps that both business and governments face, we will focus on three key opportunities: technology, operational buffers, and coalitions.
The COVID-19 pandemic has exposed tremendous systemic weaknesses, but clear solutions have also emerged. Successful companies and governments used science and technology to model and test the spread of the virus, used those insights to quickly shift operations, and formed coalitions to implement the necessary measures. These are the same levers that must be employed to better plan and execute on measures that build climate resilience.
New tools have emerged that significantly narrow the knowledge gap. These tools will help entities better model future risks and respond quickly in times of crisis. Leaders should consider investing in the following:
Using ENGIE's Siradel platform, the Ile-de-France region was able to aggregate data from 10,000 unique data sets in only six months, modeling over 2.5 million distinct buildings in a single, shared platform accessible to over 12 million stakeholders.
To withstand economic shocks, organizations must invest in infrastructure, operational buffers, and flexible systems that harden assets and build agility. But both knowledge and implementation gaps hinder progress. Though companies are increasingly disclosing climate-related risks, few are sufficiently calculating the financial impact or probability of those risks. Without solving for this knowledge gap, most organizations will not be well-positioned to implement the necessary mitigative measures. Instead, organizations should leverage the lens of climate risk to revisit operational risk management and reframe investment criteria.
Established frameworks like the Taskforce of Climate-related Financial Disclosures (TCFD) provide detailed guidelines to help companies consider their most relevant financial impacts, including avoided expenditures, assets and liabilities, revenue, and capital and financing considerations. Accounting for avoided expenditures (e.g., reduced maintenance costs and lower insurance premiums) and improved access to capital (e.g., sustainability-linked loans or green bonds) can significantly redefine the business case to invest in critical infrastructure and operational agility.
Every $1 invested in resilient
infrastructure saves $6 in future costs.
Diverse ecosystems will be an essential lever to tackle the systemic, collective challenges posed by climate change. While communities often band together following an extreme event, this collective action is far more difficult to rally at the planning stage. For years, forums like C40, WBCSD, and The World Economic Forum have emerged to facilitate learning and exchange knowledge. Yet gaps remain in executing on many of these collective best practices at the local level. Without clearly defined incentives and accountability, progress within local ecosystems will be slow. To best address these barriers, partners need a clear business case, carefully designed engagement models and transparent communication on progress.
As Stanford economist Paul Romer once said, “A crisis is a terrible thing to waste.” At this moment, on the heels of COVID-19 and amidst the most important decade to act on climate change, leaders must capitalize on the increased willingness and urgency to implement transformative changes that build resilience.
Organizations have already seized on this moment to accelerate climate resilience efforts. The European Commission has put forth a coronavirus pandemic recovery bill explicitly linked to advancing progress toward climate neutrality goals. In Genoa, Italy, construction crews have completed the rebuilding of the Morandi bridge in record time, replete with solar panels to fuel the robust network of sensors that monitor maintenance needs. In Pakistan, the government redirected more than 63,000 laborers affected by the pandemic to plant tree saplings to rebuild forests and mitigate climate change.
The solutions are within reach and the collective mindsets are primed for action. To build true resilience, businesses and governments must leverage the urgency of the moment to enact structural change, adopt new technology, and come together to jointly enact progress.
The authors would like to thank Sabeeha Islam and Jeff Waller for their contributions to this article.
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