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IPCC report shows climate change is mother of all risks – PwC

The IPCC’s AR5 report is critical for any business with ambitions to develop and expand overseas say consultants PwC

(Pic: Alexander Kachkaev/Flickr)

By Dr Celine Herweijer

For business, planning for a 2C world is about business resilience.

Planning for a 3C or 4C world is about business and societal survival. It’s not a world any of us should be planning for.

The last time we had such a difference in global temperature (in this case colder), we were in an ice age.

The fifth IPCC report will show even more clearly the scale of risk we face from un-managed climate change, and the importance of greenhouse gas emissions being reduced so we have a reasonable chance of limiting global temperature change to 2C.

It’s clear that if we continue on our current trajectory of emissions, we will be well beyond 2C by the end of the century.

For business it is not about arguing with scientific consensus; it is about understanding the scale of the risk. This is about simple business risk and planning: where can you invest, how can you protect your infrastructure, where can you source supplies; what is the cost of commodities, what’s your plan b?

When we speak to CEOs of global corporations, the top issues on their minds are growth, costs, resilience and reputation. Climate change impacts each of these.

The changing frequency and severity of extreme events, and more gradual climate shifts will increasingly impact business – from security of supply of water and commodities to business continuity, asset value and operating conditions.

The issue is that if business models are based on past experiences alone then we will become increasingly more exposed to losses in the future.

Global supply chains

Business understands the concept of dealing with risk, and climate change is the mother of all risks that we’ll face this century.

One thing is clear even as we wait for the detail, that the current rates of emissions reduction falls far short of what is required to decarbonise the global economy to avoid some of the dangerous impacts that the IPCC has warned.

It’s not just climate impacts in the UK. Even if the UK copes with localised climate change issues, flooding or drought for example, we’re cannot hide from international climate change.

Global supply chains link us directly to hazard prone and oftentimes poorly prepared countries in developing and emerging economies on the front line of climate change. For example, 80% of the FTSE350 assets are overseas.

We have already seen that recent headline disasters across the world, can impact our high streets and UK PLC share prices back home. It’s these supply chain and market risks that are hardest to manage.

Business needs to get to grips with examining risk in a different way. Particularly at risk are high value fixed assets like manufacturing sites and energy, utilities and mining sites – if they are built assuming risks today will be the same as those in decades to come – they risk depreciating in value and in the worst case becoming stranded assets.

Then you also have businesses with revenues sensitive to changes in weather and climate such as tourism, retail, agribusiness, energy and insurance. Looking forward insurers, for example, may find that in some regions of rising risk, the required premiums may simply become unaffordable for homeowners and businesses.

Businesses can do a lot by themselves but they can’t provide all the answers. Companies want and need governments to minimise the risks they will face; they want clear, consistent and long-term government policies and investment that will prevent warming beyond 2C.

Dr Celine Herweijer is a partner at PwC, and climate policy and business resilience specialist. This article first appeared on the PwC website

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