Alastair Baglee, Technical Director for Acclimatise, an advisory firm specialising in climate change risk management and adaptation, explains how governments and the corporate world are responding to the inevitable risks of climate change, along with the strategies, regulations and policies they’re putting into place.

Across the world, the reduction of greenhouse gas emissions is moving up the agendas of governments and businesses. But there is another important aspect to climate change that’s still in its relative infancy: adaption.

Even before the adoption of the Kyoto Protocol in 1997, the need to reduce greenhouse gas emissions in order to mitigate climate change was firmly on the radar for a number of concerned groups, predominantly among the scientific and environmental activist communities, together with more insightful businesses and government departments. It has since developed into one of the biggest – some would say the biggest – political and economic issues confronting the world. The recent Copenhagen Summit (COP15) aroused an unprecedented level of media interest, largely focused on how to achieve the feat of persuading all nations, both developed and developing, to agree to binding emissions reduction targets beyond 2012, the end point of the targets set under the Kyoto Protocol.

But there was another important item, aside from mitigation, on the agenda at the Copenhagen Summit: the need to adapt to climate change. As Sir Nicholas Stern, the author of The Stern Review on the Economics of Climate Change, has said, ‘Adaptation is the only response available for the climate change impacts that will occur over the next several decades before mitigation measures can have an effect.’ And if mitigation efforts fail to deliver the required greenhouse gas emission reductions, then our capacity for adaptation will only become more crucial.

Governments, businesses and the financial markets increasingly recognise that climate change is inevitable. At its core, ‘adaptation’ is about maintaining business and community continuity, reducing risks, developing opportunities and building resilience in the face of this reality. A common myth is that climate change will only impact developing countries. This is not the case: we live and operate in a global economy where, more than ever, shocks cannot be contained by borders.

Over the course of this century we are likely to see increased competition for scarce resources, such as food and water, driven by population growth and economic development. We will also see existing infrastructure and assets being subjected to increasing stress by a changing climate. Financial markets and businesses will face new challenges – and new opportunities. In other words, climate change will add yet another layer of complexity to our already complex world, largely through physical effects, regulatory and policy changes and market shifts.

Governments will have to adapt to and manage these risks and opportunities, or else suffer the consequences. The upside is that progressive governments will have an opportunity to show clear leadership in developing climate-resilience to protect business, trade and investment while meeting the needs of society. It is inevitable that public policy and regulations will change as a result – as will supporting guidance, codes of practice and other standards.

REGULATORY INITIATIVES

The UK provides an excellent example of how progressive governments can develop adaptive responses to climate change. In 1997, the Labour government set up the United Kingdom Climate Impacts Programme (UKCIP) to help private and public sector decision-makers prepare for inevitable climate change. Along with providing general guidance and support, the Programme has developed the world’s first web-based climate adaptation tool, the UKCIP Adaptation Wizard, and a best-practice climate risk assessment and management framework that has been recommended by the Intergovernmental Panel on Climate Change (IPCC), the UN and the World Bank.

The Climate Change Act was brought into force in 2008, making the UK the first country in the world to enact a legally binding, long-term framework for cutting carbon emissions. Late last year the government ‘switched on’ the Act’s Adaptation Reporting Power, which allows the government to request statutory undertakers (such as energy and water companies) and public sector organisations to report on their business risks relating to climate change and show how they plan to reduce those risks. The data collected from these responses will enable the government to undertake a UK-wide climate change risk assessment, which it is now legally required to complete every five years. The UK government is thus demonstrating to the international community that understanding and managing climate change risks is not only important to governments but a vital component of remaining internationally competitive.

In June 2009 the government, working with the Met Office and UKCIP, released climate change projections (UKCP09) which provide the best indication yet of how the UK’s climate will change over the twenty-first century. UKCP09, the fifth generation of climate projections for the UK, is the most comprehensive package to date, including for the first time probabilistic projections of climate change that users can then apply to their own circumstances to help answer the question: ‘What could climate change look like for my organisation and/or me?’

In 2009 the European Commission created the EU’s Adaptation Framework, which adopts a two-phased approach. Phase 1 (2009-2012) is concerned with building a more comprehensive adaptation strategy (ie, Phase 2) atop four pillars of action: 1) building a solid knowledge base on the impact and consequences of climate change for the EU; 2) integrating adaptation into EU key policy areas; 3) employing a combination of policy instruments such as market-based instruments, guidelines and public-private partnerships to ensure effective delivery of adaptation; 4) stepping up international cooperation on adaptation. The EU and national, regional and local authorities will all need to cooperate closely if Phase 1 is to be a success.

Further afield, in January this year the US Security and Exchange Commission (SEC) voted to publish an ‘interpretive guidance on disclosure related to business or legal developments regarding climate change.’ The SEC now considers that climate change may constitute a material business risk that must be disclosed to investors. This development follows multiple petitions filed with the SEC by investor coalitions; similar investor pressures may result in climate risk disclosure requirements elsewhere in the world.

ADAPTING BUSINESS

The corporate world plays a vital role in combating climate change. However, businesses that exclusively pursue mitigation are beginning to realise they are only considering half the picture; they are also starting to see that the effects of climate change represent a core business risk. Businesses in the mid-twenty-first century will operate in a different world than they do today.

Market-leading businesses, many of which Acclimatise works with, are preparing strategies to assess and manage the impacts of a changing climate, and in doing so they are gaining important competitive advantages. All companies will be affected by climate change, regardless of their sector, location or size. They will experience a ‘pinball’ effect as the impacts work through their business models and create new and enhanced risks for raw materials, supply chains, utilities, operational processes, assets, employees, customers, local communities and environments.

Businesses that do not undertake proactive risk management strategies will find themselves coping reactively with a host of damaging impacts. For some sectors and geographies, these impacts will be felt in the short-to-medium term. Proactive businesses, rather, will be the ones that flourish in this environment. And while there are still uncertainties about the precise impacts of climate change at individual locations, there is sufficient information available now to enable businesses to incorporate climate risks into their decision-making.

Over the next few years we will see increasing numbers of governments and businesses taking up adaptation positions and developing mitigation policies. Climate change cuts right to the heart of business – in other words, the balance sheet – and as awareness of this fact grows, building resilience to it will come to be seen as a simple matter of good governance. Government and business leaders that fully understand the adaptation imperative will be the real winners.