Helping Business Adapt to Climate Change

As climate change sets in, its impacts — increasing severity of storms and weather disasters, receding snow and rivers, advancing deserts, and more frequent landslides and floods — will test companies’ ability to effectively deliver high-quality products and services.

In response, BSR is launching a series of briefs to illustrate how these changes will affect each industry and what current adaptation practices look like, beginning with an examination of the food, beverage, and agriculture sector (PDF).

Some effects of climate change will be familiar, such as crop failures and ensuing price shocks, but over the next several years, they will happen with more frequency and with even higher insurance costs. Beyond direct business impacts, companies will also need to understand how climate change will affect their most vulnerable stakeholders — the poor, citizens of developing countries, and women — who will face increasing risks due to drought, disease vectors, and the perils of migration.

The good news is that many resources on business adaptation to climate change are already available (see end of article). McKinsey & Company developed a cost curve for adaptation (PDF), for example, which highlights different adaptation options and shows that investment paybacks can be short. Also, companies do not need to choose between adapting to climate change and helping to mitigate it; the distinction between these two is rarely clear and we should do both together.

There are also tools that translate state-of-the-art climate monitoring, prediction, and imagery into practical information to help companies improve their relevant governance and decision-making processes. These tools include: the Climate Administration Knowledge Exchange (CAKE), Google Earth Engine, the International Research Institute for Climate and Society, the National Oceanic and Atmospheric Administration’s Climate Prediction Center, and weADAPT. Companies can also take advantage of new market opportunities by providing solutions to enable effective adaptation.

There are several obstacles to climate adaptation, even for those most committed to proactive and responsible responses. First, the language of adaptation does not resonate well beyond specialists, so communicating on the topic is difficult. As Carmel McQuaid, Climate Change Manager at Marks & Spencer, recently told us, it’s usually more effective to engage stakeholders by communicating on the topics that matter most to them. For example, retailers would be most concerned with their ability to continue to sell high-quality products, such as coffee. For companies that thrive on innovation, positioning adaptation as part of the portfolio of trends affecting the industry is usually more effective than treating it as a standalone topic.

Another obstacle is the complexity and uncertainty of the climate. This goes for today’s weather, let alone the future of the climate more broadly, as evidenced by the fact that we are not well-equipped to handle disasters such as the recent floods in Pakistan and Australia. The fact is that we do not know how to properly prepare for disasters even when they are expected. This is partially due to the cognitive difficulty of coping with low-probability, high-impact consequences, and it is also a result of markets and organizations that don’t encourage or reward proactive preparation.

Third, our first reactions may not serve us well. Companies are at risk of taking seemingly sensible actions that may lead to adverse effects elsewhere or on others. Such “maladaptation” (PDF) can take many forms, such as combating heat by turning up the air conditioning (which would produce more greenhouse gas emissions), using desalinization technologies that pollute marine environments, raising prices or otherwise excluding vulnerable customers that depend on insurance or other essential services, or giving customers more resources without the incentives to conserve.

This is partly a result of focusing on the specific, current problem at hand while not taking into account the broader repercussions. It is also a result of failing to identify where weather risk and other familiar issues have climate change dimensions.

Identifying the Hotspots

Over the past year, we’ve been following the topic of adaptation through discussions with BSR member companies, leading and participating in workshops and forums, including the U.N. climate talks in Cancun, and examining business responses to the Carbon Disclosure Project on climate risks and opportunities.

In doing so, we’ve found that while climate change impacts are ubiquitous, there are some approaches companies can use to identify and focus on vulnerable “hotspots” in their operations, supply chains, and key markets. Hotspots emerge both as physical locations and features of the company.

In terms of location, companies with operations in Asia, Africa, and Latin America face some of the greatest risks due to the extreme water loss or flooding predicted for those regions. In addition, these areas suffer from a general lack of resources to respond to problems.

In all parts of the world, coasts, flood plains, and ecological boundary zones, including mountains and islands, are vulnerable. In many cases, cities (PDF), as well as settlements where subsistence is marginally viable, are especially risk-prone. Companies should consider how their direct operations and key partners and markets are situated in relation to these physical areas.

As for companies themselves, a key vulnerability is a dependence on natural conditions to foster crops, snow, and other climate-sensitive inputs, which are likely to migrate and, on average, degrade. In general, long-lived and fixed assets, such as mines, as well as extended supply chains and distribution routes, tend to be more exposed to physical disruption.

Finally, lack of transparency is a problem: A combination of weather events and climate-related political actions are increasingly likely to disrupt energy availability and general operations of suppliers and other partners. While companies may be able to take steps to mitigate their vulnerability, they will have a hard time doing so if they are unable to make informed judgments about their partners’ key issues, options, and systems for making decisions.

When companies look ahead, here are some issues that they should tune into:

Communicating about climate risks and opportunities: Investors expect companies to report on physical, regulatory, and other risks and opportunities of climate change through the Carbon Disclosure Project. The U.S. Securities and Exchange Commission has also made informed reporting on climate risks a requirement. Also, working with distressed communities to cope with climate change is an increasingly material issue for annual sustainability reporting.

Meet needs responsibly: The private sector is being called upon to drive an effective response to climate change, ranging from delivering hydration and other growing basic needs, applying finance and information and communications technology to build more resilient infrastructure, and solving the potential problems of maladaptation.

To do so, businesses need to foster connections and discussions that help deliver sustainable solutions to society under dynamic and uncertain conditions.

Create climate-resilient local benefits: Many sources of risk for companies are likely to be found far away from their headquarters and centered in local communities where, for example, vulnerabilities to floods, windstorms, and droughts are growing. These communities need help with local investments to developing disaster-response systems and continuity plans. Companies should look for ways to help their community partners achieve triple-win impacts by reducing the effects of disasters, adapting to climate change, and safeguarding development gains.

Each month through July, we will produce discussion briefs for specific industry sectors on what they are and should be doing about climate adaptation. Each brief will include basic tools and references. As we produce this series, we’ll be holding discussions with BSR members and inviting feedback. We’ll also store our resources and other tools at www.bsr.org/adaptation.

Further Information

Climate change adaptation can be defined as “adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts,” including “changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.” For more information and a list of suggested reading, visit www.bsr.org/adaptation.

First posted at GreenBiz.

Creating Systemic Change: Lessons from Responsible Labor

Just one decade ago, the public was appalled to learn that children were producing Nike’s soccer balls in Pakistan, and the company was swiftly targeted by numerous high-profile, antagonistic NGO campaigns. Since then, more companies have come under fire by NGOs publicizing alleged corporate social and environmental abuses. Yet Nike — along with a handful of other companies once perceived as symbolizing ethical problems from global outsourcing — has come to be
regarded as a sustainability pioneer. What could explain such a fundamental turnaround?

In response to the exposure of poor labor practices in their supply chains, Nike and other consumer product companies embarked on a series of supplier audits and corrective actions to turn the problems around. They made many incremental improvements, but over time reached a common and critical conclusion — that on their own, compliance and monitoring processes are insufficient for creating real, sustainable improvements.

It turned out that although Nike was singled out by many in the NGO and corporate social responsibility (CSR) community, the company was not the sole culprit, but rather a harbinger of a greater, system-wide failure. As companies like Nike began to address symptoms of child labor through auditing, it became clear that the problems were driven by more fundamental institutional causes, such as absent and ineffective public policies, perverse and contradictory incentives from multinational business customers to their suppliers, and employees that lacked the power to stand up for themselves, given their communities’ prevailing customs.

In this process, industry learned a key lesson: Systemic change requires that multinationals work with relevant stakeholders to understand the root causes of problems and address them strategically. To increase the impact of this lesson, BSR has created the Beyond Monitoring initiative, which encompasses a strategy for next-generation management of sustainable supply chains. Beyond Monitoring uses four pillars to achieve its goal:

1. Alignment of commercial and social objectives by brands
2. Ownership of this agenda by suppliers
3. Empowerment of workers
4. Engagement with policy and governments
Now, as industry faces increasingly complex challenges,

Business for Social Responsibility (BSR) has started thinking about how to apply the Beyond Monitoring framework to sustainability issues beyond supply chain labor conditions.  Perhaps even more so than labor, other sustainability issues such as climate change and freedom of expression are increasingly complex. It is our hypothesis that by addressing the complexity of the whole system, the Beyond Monitoring principles could strengthen a host of other sustainability initiatives. The following framework, based on the four key concepts of alignment, ownership, empowerment and engagement, aims to do just that for two areas of particular interest:
􀀝 Greenhouse gas (GHG) emissions: in particular, reducing the impacts of supply chains.
􀀝 Privacy and freedom of expression: addressing the increasingly complex human rights problems faced by internet and telecommunications companies.

Alignment
In practice, aligning commercial and social objectives means bridging traditionally unrelated company teams and creating
consistent enterprise objectives and communications messages on sustainability.
􀀝 GHG emissions: For many companies, the primary driver of GHG emissions is energy use, which bears directly on costs. To encourage suppliers to undertake new energy investments and strategies, companies need to align the CSR and purchasing teams to give consistent and predictable messages about customer priorities.
􀀝 Privacy and freedom of expression: Three functions should align commercial objectives with human rights: 1. Technology and product design need to address the freedom of expression and privacy features and applications of the product. 2. Legal affairs needs to manage its relationship with law enforcement agencies consistent with human rights. 3. Sales and strategy need to consider human rights when deciding which markets to enter and which products and services to offer.

Ownership
Ownership means that all relevant actors identify a business case for “owning” their sustainability agenda, and they work with their partners in shaping shared objectives. With ownership, stakeholders are likely to make personal investments that support sustainability goals, and they are less likely to block progress.
􀀝 GHG emissions: Increasingly, companies are under pressure to disclose emissions. However, like many labor compliance disclosure requests during the past decade, emissions disclosure requests are often based on methodologies that were made without supplier input. As a result, suppliers resist for a number
of reasons: They don’t understand the request, they don’t know how to get the information or they don’t see the point. Instead, it’s important to work with suppliers to co-create protocols that make sense for everybody.
􀀝 Privacy and freedom of expression: In terms of ownership, the challenge is moving beyond large multinationals such as

Google, Yahoo! and Microsoft. With so many startup companies emerging, progress is most likely if these companies are equipped to “own” their own approaches to privacy and
freedom of expression. The goal is to develop international standards that are widely understood and accepted by the hundreds of small and startup companies operating in markets all over the world, such as those providing services for blogging and user-generated content.

Empowerment
By ensuring that stakeholders understand their options for recourse and have channels for action that are consistent with existing incentives and worldviews, empowerment increases the likelihood of sustainability policies to be embraced and implemented.
􀀝 GHG emissions: In this context, there’s an opportunity to empower two constituencies. The first is workers, who are most likely to act if they are trained, given a mandate and provided resources to increase energy efficiency. Communities and the public, which are stakeholders in the context of climate change, comprise the second constituency. Help educate them about issues and help them act through direct and other measures, such as voting in elections or making product choices.
􀀝 Privacy and freedom of expression: It’s important to empower the user through transparency about the circumstances
in which personal information may be passed to governments or content may be restricted. Information empowers the user to make informed judgments about data privacy or the
completeness of the content being provided.

Engagement
Companies often work with governments to ensure the consistent and fair application of laws and regulations. This includes
strengthening policies that exist but are not yet fully implemented, and facilitating the development of appropriate new ones.
􀀝 GHG emissions: Companies have two key policy opportunities — participating in dialogue about standards, and engaging in discussions
about legislation. With respect to standards, companies can help develop new emissions reporting systems like the GHG Protocol’s guidance
on product and associated (“scope 3”) emissions, and the Carbon Disclosure Project’s treatment of suppliers with respect to reporting. Companies can also attempt to provide input on rule-making. For example, in the United States, members of the U.S. Climate Action Partnership have been lobbying the U.S. Congress to begin phasing in regulation steadily and predictably.
􀀝 Privacy and freedom of expression: Often, when it comes to violations of privacy and freedom of expression, government is the main cause, and companies have limited room
to maneuver. However, companies can take action, such as advocating government approaches that are consistent with international human rights laws and standards on freedom of expression and privacy, and challenging governments when human rights standards or local law are not applied. They can also help educate and build capacity in governments of emerging economies.  At its heart, the sustainability challenge is characterized by common systems problems, and there is a wealth of knowledge
to build from. Sustainability practitioners owe it to their cause to make sure that they are thinking in terms of systems, and collaborating with each other. We believe the lessons from BSR’s Beyond Monitoring framework will help companies do just that.

Originally published by BSR.