limate change has the potential to slow our economic growth in the coming decades as temperature changes could reduce incomes globally by roughly 23% by 2100. Another study found that a 4.5°C increase in global temperatures could cut the global domestic product by $72 trillion. Hidden within these global economic estimates are the effects on individual companies – and unpredictable weather will only intensify these effects, reducing the availability of raw materials and disrupting supply chains.
When the 2011 drought hit the Great Plains in the United States, several meat-processing plants were forced to close or relocate their businesses. Today, unpredictable weather patterns continue to threaten those businesses, as 21% of U.S. cattle herds were located in drought-stricken areas in March — up from 9% the previous year.
Climate change, as we currently know it, will continue to be a long-term risk to businesses. In the Global Resource Challenges Report, 66% of executives surveyed said climate change had affected the resource challenges their businesses face. However, only 11% said climate change had increased the priority of resource management. Those forward-thinking companies are seizing the opportunity to get ahead of their competitors.
Today, many companies are focusing on sustainability, but it’s time to put a greater emphasis on climate resiliency – a focus that is essential to adapt in and thrive in the era of unpredictable weather. Climate resiliency rejects the concept of business as usual and focuses on continuous transformation.
Change in resource management is needed as evidenced in the outlook for many of those key resources on which our industries rely. We know that we could face a shortage in oil supply by 2020, a 40% shortfall in our water supply by 2030, and a scarcity of rare earth metals used in electronics and batteries today.
To ensure we have the amount of quality resources we need to support our growing global population, business leaders must develop resiliency in 3 areas.
- Leverage innovation in the form of new materials, services and solutions throughout supply chains
- Convert raw materials into products more efficiently so we are less dependent on them
- Effectively retain and invest in the human capital needed to operate successful businesses
Building climate resiliency leads us toward a circular economy. In this concept, most waste would be reused, recycled or reprocessed. We have already seen this idea gain traction with the European Parliament’s recently passed regulations to ensure 70% of household and office waste is recycled by 2030, up from the current rate of 44%. Such regulations will force businesses to make waste reduction a primary part of their strategy.
Now, businesses have an opportunity to get ahead of such regulations and their competitors. It starts with identifying where they can reduce waste within their operations and then design it in to their processes. When doing so, they must be cognizant of the big picture.
For instance, reducing packaging waste is a hot topic in today’s consumer marketplace. But if an e-commerce company focuses only on packaging reduction, it will never achieve climate resiliency. Products can be touched a significant number of times in an e-commerce supply chain, so they need different packaging than brick and mortar stores. If products are not protected properly, waste is only pushed farther downstream in the form of goods damaged during shipping.
Investing in climate resiliency, however, requires the ability to monetize the benefits, which has remained a challenge for many companies. If you are saving on costs at the front end, it’s easy to recognize the financial benefit. But if added costs have an indirect but positive impact on profitability, you must capture that data to show you have chosen the best solution.
Many companies have started to invest in this data capture to demonstrate value. Companies that cannot monetize the benefits of resiliency in the era of climate change will struggle to adapt appropriately. Without a doubt, adopting this strategy will drive smart decision making for tomorrow’s leaders.