Climate Change's Winners and Losers
20 Apr, 2007 03:04 pm
I've long maintained that one of the biggest mistakes that the environmental community -- and many of us -- made around climate change is relegating it to being an "environmental issue." It is, of course, but it's also a public health issue, a human rights issue -- and a huge economic issue.
That's a question addressed by two noteworthy articles published this month: a discussion on "competitive advantage on a warming planet" in the March issue of Harvard Business Review, and a cover story in the April Atlantic on "who loses -- and who wins -- in a warming world."
The HBR article, by World Resources Institute president Jonathan Lash and WRI senior financial analyst Fred Wellington, is presented as "a guide for identifying the ways in which climate change can affect your business and for creating a strategy that will help you manage the risks and pursue the opportunities."
It doesn't exactly deliver all that, but it's well worth reading anyway. After all, this IS Harvard Business Review, the big Kahuna of corporate strategy journals.
Lash and Wellington write that companies' management of climate change is different from other environmental issues from a risk perspective -- it's not simply about regulatory compliance, potential liability from industrial accidents, and pollutant release mitigation. Climate risk is different because the impact is global, the problem is long-term, and the harm is essentially irreversible. Moreover, they say, it's not simply a risk for energy-intensive industries like utilities and chemical manufacturing.
In fact, the most important distinctions to be made when considering environmental risk assessment aren't between sectors but within sectors, where a company's climate-related risk mitigation and product strategies can create competitive advantage.
Lash and Wellington go on to describe the six types of risk: regulatory risk (the impact of emissions caps or carbon taxes); supply chain risk (disruptions or price hikes in materials or energy, in many cases because of the huge distances such supplies are shipped); product and technology risk (companies' varying ability to identify ways to exploit new market opportunities for climate-friendly products and services); litigation risk (the threat of lawsuits for significant carbon generators, similar to the suits faced in the tobacco, pharmaceutical, and asbestos industries); reputation risk (companies found guilty in the court of public opinion for selling or using products, processes, or practices that have a negative impact on the climate); and physical risk (the direct impacts of droughts, floods, storms, rising sea levels, etc.).
The authors proffer "four key steps" to "improving your company's climate competitiveness," none of which will be big news to companies already engaged in this space (but may be news to many of HBR's readers): quantify your carbon footprint; assess your carbon-related risks and opportunities; adapt your business in response to the risks and opportunities; and "do it better than your competitors."
There's some good stuff here, including a several prototypical questions companies might ask themselves (e.g., "How will changes in customer demand patterns affect pricing?" "What threats do we face from low-carbon substitute products?") and an interesting analysis of auto companies' vulnerability to risks and their ability to seize opportunities. It begs the question: Where would your company sit on a similar diagram of your sector?
Meanwhile, over at The Atlantic, journalist Gregg Easterbrook has done a yeoman's job of wrestling with the complex topic of divining climate change's winners and losers. (The article is online, but accessible to subscribers only.) As Easterbrook puts it:
If the global climate continues changing, many people and nations will find themselves in possession of land and resources of rising value, while others will suffer dire losses-and these winners and losers could start appearing faster than you might imagine. Add artificially triggered climate change to the volatility already initiated by globalization, and the next few decades may see previously unthinkable levels of economic upheaval, in which fortunes are won and lost based as much on the physical climate as on the business climate.
The Big Question about climate change, in Easterbrook's world, is: "What in it for me?"
His answer covers a great deal of ground -- and water. (My favorite section: "A 401(k) for a Warming World," with suggestions of what types of stocks to favor or avoid.)
Take land. As has been widely written, a warming world could shift the greenbelt northward, rendering parts of the U.S. Midwest (and other regions at similar latitude) arid and currently frozen land arable. "Climate change could place Russia in possession of the largest new region of pristine, exploitable land since the sailing ships of Europe first spied the shores of what would be called North America," writes Easterbrook. "The snows of Siberia cover soils that have never been depleted by controlled agriculture. What's more, beneath Siberia's snow may lie geologic formations that hold vast deposits of fossil fuels, as well as mineral resources."
Similarly, in the water world, Europe could get inundated by rising seas, but formerly frozen parcels near the poles could suddenly become hot spots, at least in real estate terms. Counsels Easterbrook: "While staying ready to sell your holdings in Europe, look for purchase opportunities near the waters of the Arctic Circle," whose disappearing icebergs could open lanes for shipping and other commerce.
Perhaps. Easterbrook knows as well as anyone that this is all so much conjecture, a bit of a parlor game for now. And whoever the real "winners" and "losers" turn out to be isn't really the point. What's significant -- at least for the time being -- is to ponder such questions. Doing so is the best chance we have of moving the climate conversation into the many arenas in which it needs to take place: beyond the birds and the trees and into the realm of people, their communities, and the economic systems on which we all rely.
And that's what's in it for us.
Originally posted on Joel Makower : Two Steps Forward