Insights
18 August 2022

What is climate resilience and why it’s essential for your business

Cervest

By Cervest

 What is climate resilience and why it’s essential for your business

Our increasingly volatile climate is forcing decision makers to adapt the assets they own, manage and rely on. Essential infrastructure must be prepared to withstand increasingly frequent and severe climate impacts. In every sector and every corner of the globe, climate risk is accelerating. By acting now, enterprises and governments can build resilience into their assets and operations.

In this article, we’ll explain:

  • What climate resilience is, and why it’s important

  • How building climate resilience will benefit your business

  • How you can build climate resilience using personalized and on-demand, asset-level climate intelligence

What is climate resilience?

Climate resilience is the degree to which a company’s assets are able to withstand and recover from extreme weather events and long-term shifts in weather patterns or seasons. The IPCC defines it more technically as, “The capacity of interconnected social, economic and ecological systems to cope with a hazardous event, trend or disturbance, responding or reorganizing in ways that maintain their essential function, identity and structure.”

From utilities to telecommunications networks, manufacturing supply chains to farms, many of the assets and systems we depend on were designed for climate conditions that have changed dramatically or will soon change. Most buildings simply weren’t built to tolerate the new climate hazards they are now being exposed to, such as rising temperatures and heatwaves, intense drought, and extreme rainfall. Even assets, such as offices, hotels and factories in areas that have always been exposed to such hazards are struggling to withstand the increased intensity and frequency of extreme weather events.

To become climate resilient, businesses must factor climate risk into how they manage existing and future assets, changing how we design, build, create policy, invest and do business. This “process of adjustment to actual or expected climate and its effects” is called adaptation, and doing it effectively is key to building climate resilience.

Why is climate resilience so critical?

Extreme weather events are increasing in severity and frequency all over the globe. Seasonal patterns are shifting. As the UNFCC says, “ global climate is changing at rates unprecedented in recent human history and will continue to change.” A Cervest survey found that 88% of companies have already seen a corporate physical asset, such as an office, warehouse, or other building, affected by extreme weather. Globally, climate change puts financial assets worth an estimated US$2.5 trillion at risk.

While boardroom agendas have rightly focused on decarbonization strategies, many have yet to consider the full picture of climate resilience - a picture that must include managing physical risk. Reducing greenhouse gas emissions to Net Zero is essential for stabilizing our climate in the long term. But even if we were to completely decarbonize today, decades of historic emissions lock in climate volatility for decades to come. To navigate the inevitable impacts on people, operations and bottom lines, businesses must also adapt and build resilience.

Adaptation offers other benefits beyond minimizing climate risk, as stated by the Global Commission on Adaptation (GCA). “It avoids economic losses, brings positive gains, and delivers additional social and environmental benefits.” Cervest’s survey found that, for well-adapted businesses, those positive gains are significant. “Assets with lower climate risk are likely to enjoy insurance and financing benefits, while businesses will be able to scrutinize their partners’ exposure and strengthen their supply chains. Unsustainable, risky operations can be wound down, vulnerable assets adapted, and new opportunities for investment revealed. And consumers will successively flock to more resilient providers in an increasingly volatile market.” Staff retention and morale is improved by resilience efforts, too. It also makes sound business sense – the GCA’s research finds that adaptation investment offers cost–benefit ratios between 2:1 and 10:1, or higher.

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How to build climate resilience into your organization

The first step on the path to climate resilience is understanding the exact physical risks that climate hazards pose to the assets owned, managed or relied on by an organization.

Until now, this has been a major challenge for businesses. Climate data is too complex for most organizations to analyze in-house. As Cervest’s Dr Helen Beddow says, “Our climate is an interconnected system and climate hazards interact with one another. Extreme heat can lead to droughts, which can increase the chance of forest fires. Any analysis examining the risk posed to a single building must also consider the climate impact as a whole. This is not an easy ask for any company that doesn’t specialize in climate risk insights.” Some organizations commission costly one-off reports – but these only offer a static risk analysis that is outdated within weeks or months and that can’t reflect the constantly evolving picture. Moreover, the analysis provided is often too high-level to support decision-making about specific assets.

To start building climate resilience, a company must first accurately understand the climate risks facing their assets, which can only be done through access to climate intelligence (CI). True climate intelligence, such as that provided by EarthScan™, Cervest’s CI product, provides decision-ready intelligence on asset-level climate risk. It creates full visibility of multiple climate hazards, such as flooding, drought and extreme temperatures, across multiple climate scenarios, backwards to 1970 and ahead to 2100. Allowing businesses to zoom in and out across multiple scales, timeframes, hazards and geographies makes CI decision-useful at both asset level, or across a portfolio of assets. Designed to be actionable, it goes far beyond climate analytics, and supports the development and monitoring of effective climate adaptation strategies. Quantifiable and shareable CI helps to overcome one of the most common obstacles to climate resilience: “failure to get senior management buy-in on the operational and strategic risk of climate change”.

To build resilience, businesses must understand the climate risks posed not only to their own assets, but also to that of their suppliers. Climate-related supply interruptions “are likely to occur with increased frequency if strategic planning is not done to limit disruptions in the future,” says AON. To build climate resilience, supplier risk must be discoverable and therefore actionable. Once a business understands the risks across their entire supply chain, they can ensure they are only working with those suppliers who are building resilience to adpat to the increasingly volatile climate.

WIth a clear view of what, where, when and how their organization is likely to be impacted, decision-makers can develop an asset adaptation strategy to reduce that risk. As the UNFCCC (United Nations Framework Convention on Climate Change) says, “There is no ‘one-size-fits-all-solution’—adaptation can range from building flood defenses, setting up early warning systems for cyclones and switching to drought-resistant crops, to redesigning communication systems, business operations and government policies.”

Using climate intelligence to build resilience

Climate intelligence provides science-based insights and comparable and independent ratings organizations need to understand their risk – and allows them to make informed decisions on how to effectively build resilience. Designed to be decision-useful, it goes beyond climate analytics to support the development and monitoring of effective asset adaptation strategies. The business case for doing so is clear: according to the Global Center on Adaptation, “Adaptation actions, done right, are some of the most cost-effective investments a country, city, or company can make.”

For existing assets, businesses can use CI to decide whether climate resilience would be best achieved by retrofitting, retiring or relocating them depending on the exact hazards, risk level and relevant timeframe. With many businesses retrofitting assets to meet decarbonization targets, combining Net Zero and adaptation retrofits at the same time can provide significant cost savings.

Measures to consider might include mitigating heat waves through increasing tree coverage, retrofitting cooling rooftops, minimizing flooding risk by upgrading drainage systems or creating innovative designs for new facilities. Divestment may even be considered as the best strategy for assets with the highest risk. Climate resilience may also entail restricting working hours for outdoors work, or moving to an alternative power supply (power is the main business impact of extreme weather, according to the BCI).

One adaptation-focused global organization is using EarthScan to stress test its infrastructure investments. The long-term nature and fixed location of infrastructure means visibility of climate risk is critical. With EarthScan, they can identify their risk, and feed climate insights into their workflows to identify operability and expenditure risk for their assets. Using these CI insights, they are investing in targeted resilience measures that will secure stable, long-term financial returns for their clients.

Climate intelligence also directly supports building resilience across supply chains. Rather than optimizing solely for efficiency and cost, businesses can optimize for resilience. Using CI’s insights into supplier vulnerabilities across different locations, timeframes and hazards, organizations can choose suppliers with favorable risk ratings, or work with existing suppliers to take adaptation measures that enhance resilience.

As climate change accelerates and intensifies, organizations can use climate intelligence to start taking adaptive measures today that will enhance the resilience of their assets to improve operations and bottom lines in future. As research from McKinsey points out, “stakeholders can address the risk posed by climate change only if they understand it clearly and see the nuances that make it so complicated to confront.” With CI, that understanding and clarity at the asset level can become the bedrock of your organization’s resilience strategy.

Find out more about how EarthSan can help you understand the climate risks facing your assets by booking a short call with us.

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