Drawing on the results of a 2010 survey of corporate signatories to the United Nations Global Compact and the United Nations Environment Programme Caring for Climate initiative, as well as on existing literature, this report makes the business case for private sector adaptation to climate change in ways that build the resilience of vulnerable communities in developing countries. It then offers actions that companies and policymakers can pursue to catalyze and scale up private sector action on adaptation. It is ultimately the responsibility of the public sector to meet the critical climate change adaptation needs of the poor and vulnerable; thus private sector engagement cannot substitute for critically needed public investment and policies. However, private sector investment can serve as a pivotal part of a comprehensive governmentled approach to addressing climate impacts.
This report is a resource for companies with a national, regional or global reach that are interested in increasing their strategic focus on adaptation in developing countries where they have operations, supply chains, employees and current or potential customers.
While many companies are focused on climate change mitigation — slowing the rate of climate change through reduction of greenhouse gas emissions and other strategies — most have yet to develop strategies for dealing with the immediate to long-term consequences of climate change. This report is also aimed at national and international policymakers involved in climate change and sustainable development dialogues and decision-making, including those who will participate in the United Nations Conference on Sustainable Development in 2012 (Rio+20). It is hoped that the report’s findings will be useful for a much wider range of actors as well, including small, local businesses in developing countries that are on the front line of climate impacts; civil society organizations seeking to strengthen their work around climate change and sustainable development; and subnational policymakers, who are in a key position to shape a productive interface among government, communities and businesses.
Private Sector Adaptation, Sustainable Development and the Green Economy
The challenges that communities in developing countries face as a result of climate change — such as more frequent and intense storms, water scarcity, declining agricultural productivity and poor health — also pose serious challenges for businesses. Community risks are business risks. Both local and global companies depend on community members as suppliers, customers and employees. They also depend on local resources, services and infrastructure to be able to operate. It is difficult to separate community well-being from companies’ viability and, in turn, overall economic growth.
Businesses that make these connections and adapt to climate change with community needs in mind can gain a competitive edge. Businesses that respond to climate change in ways that undermine communities’ efforts to adapt may face reputational and brand risks, and they may even lose their ability to operate in certain locations. Through responsible, strategic approaches to addressing climate change risks and opportunities, in consultation with people in affected communities, companies can:
- Avoid costs, manage liabilities and build resilience to climate change impacts by addressing climate risks throughout their operations and value chains, while at the same time increasing community resilience.
- Expand market share and create wealth in communities by developing and deploying new products and services that help people adapt.
- Access new opportunities to collaborate with the public sector, as developing country governments seek corporate partners who can effectively deliver goods and services that support high-priority climate change adaptation efforts.
- Build corporate reputation and exercise good corporate citizenship by showing commitment to decreasing climate vulnerability and promoting long-term resilience in places where it is needed most.
Investment or other private sector actions taken to adapt to climate change can also have the benefit of promoting a transition to a “green economy”, which has been identified by governments as one of the anchoring themes of Rio+20. In its simplest expression, a green economy is one that is low-carbon, resource-efficient and socially inclusive. In a green economy, growth in income and employment can be generated by strategic public and private investments in developed and developing countries that reduce greenhouse gas (GHG) emissions, improve resource efficiency and prevent the loss of biodiversity and ecosystem services (that is, the benefits of nature to people). Businesses can accelerate the transition to a green economy by taking advantage of the natural synergies that exist between green economy initiatives and climate change adaptation opportunities. When businesses work with communities to restore mangrove forests as natural barriers against storms, or develop affordable drip irrigation equipment that can be used by small-scale farmers facing water scarcity, they are also greening the economy.
Business Perspectives and Action on Adaptation
The Caring for Climate survey revealed that 83 percent of 72 responding companies believe that climate change impacts pose a risk to their products or services. A slightly higher percentage of companies (86 percent) think that responding to climate change risks, or investing in adaptation solutions, poses a business opportunity for their company. Many Caring for Climate companies surveyed have employees and operations in developing countries, which are disproportionately vulnerable to climate change and have limited resources with which to adapt. Not only are companies that operate in, have markets in or source in developing countries exposed to risk, but they can also play a critical role in building climate resilience in these countries.
However, beyond planning for the most obvious or immediate threats — increasingly unreliable access to key inputs like water and energy, for example, or damage to assets from flooding — most companies are not yet taking concrete steps to address climate change risks and to respond to new opportunities in a comprehensive, integrated way.
There is not yet widespread understanding among Caring for Climate signatories of what climate adaptation is and what it means for them or for the markets they serve. Uncertainties about the location, magnitude, potential timing and consequences of climate change impacts make it risky for them to tackle adaptation on their own, and few good tools exist to help businesses assess climate risks and opportunities. The survey revealed that companies find it difficult to incorporate scientific climate change data, which typically cover a large geographic area and span a long-term time frame, into practical business decision-making, which tends to be shorterterm in nature and location-specific. Information about the full range of adaptation costs and benefits is often not available as an input to companies’ investment analyses. Companies may see few economic and policy incentives to make significant up-front investments that bolster long-term climate resilience, for the company and for communities that will be most affected by climate change impacts.
These factors can make it difficult for businesses to make adaptation a strategic priority. Even if key internal stakeholders have prioritized adaptation, it can be hard for them to find the capacity to consult and communicate with a wide range of key external stakeholders, including suppliers and customers. Few Caring for Climate signatories are engaging with suppliers around the issue of climate risk, and few are exploring how their customers’ needs may change as a result of climate change impacts, and what the corresponding business implications — and possible missed opportunities — may be of shifting demands and preferences. Companies also reported challenges in analyzing the connection between their own adaptation needs and community needs; only half of the companies that responded to the Caring for Climate survey said that they have recognized the possible social consequences (positive or negative) of their adaptation strategies. In the end, very few Caring for Climate signatories have been able to design comprehensive adaptation goals with corresponding business indicators to track economic performance and progress towards those goals.
Although business adaptation to climate change is clearly at a nascent stage, approximately one-third of companies surveyed reported having a strong emphasis on addressing climate risks, and about the same percentage reported a strong emphasis on responding to adaptation opportunities.
The survey revealed some emerging best practices in how companies are responding to complex climate change challenges and opportunities while contributing to sustainable development. This report provides several case studies that not only serve as models for other companies, but also provide evidence that private sector adaptation at the nexus of company needs and the needs of vulnerable communities in developing countries makes good business sense.
Strategic private sector adaptation to climate change must be a purposeful process: It will not happen by chance. Companies must prioritize adaptation and take action to address risks and pursue opportunities. Governments can assist companies to overcome barriers to investment and harness the resources and innovation of the private sector to contribute to the public good.
Practical Measures for Companies
Companies will find that addressing the impacts of climate change necessitates a departure from business as usual; traditional approaches are insufficient. Adaptation champions within the company will want to focus their colleagues’ attention on three key questions: 1) What does climate resilience mean for the company? 2) What will position the company to navigate risks and lead markets in a warming world? and 3) How will the company engage partners to minimize risks and seize opportunities? Effective, comprehensive responses to these questions will require companies to…
- Connect climate “adaptation” and “resilience” to the company and corporate culture, building on existing mitigation initiatives.
- Integrate climate adaptation into core strategic business planning processes.
- Align business objectives with adaptation priorities.
- Build a portfolio of climate-resilient goods and services.
- Build mutually beneficial strategies with stakeholders; build communication channels.
- Partner with internal and external decision-makers.
- Practical Measures for Policymakers
Governments have a central role to play in catalyzing private sector provision of goods and services that support climate change adaptation and in encouraging climate-resilient business practices. Some public sector efforts to incentivize business contributions to adaptation must be developed and implemented through agreements at the international level. Policy focus at the national and local level, however, is essential, because adaptation challenges and solutions are specific to each locality, and business barriers and opportunities will be countryspecific. To create a facilitating environment for private sector investment in climate change adaptation, policymakers can…
- Demonstrate policy and finance commitment to adaptation.
- Engage businesses as stakeholders in planning and implementation.
- Stimulate the market for adaptation through financial and risk-reduction incentives.
- Develop policy and regulatory frameworks to guide corporate practices.
- Provide businesses with the information and tools they need to make investments that support climate resilience in vulnerable communities.
- Consider new forms of public-private partnerships to tackle the most complex challenges to sustainable development and climate resilience.
Addressing the adaptation needs of vulnerable communities at the scale that is necessary will require unprecedented levels of cooperation, collaboration and resource mobilization among governments, businesses, civil society groups and communities themselves. The private sector has much to contribute to the development and implementation of climate change adaptation solutions, including sectorspecific expertise, technology, significant levels of financing, efficiency and an entrepreneurial spirit. The key is to find the nexus of shared interest where business incentives align with communities’ adaptation needs. Companies that rigorously assess climate change risks and opportunities and implement creative solutions that build long-term resilience will create business value while making important contributions to sustainable development and equitable green growth.