Strategy and the Sustainable Enterprise

P D Jose
Managing Climate Risks

To continue from where we left off before, let's pick up two sustainability risks—a warmer planet and
a water-stressed one. Let's look at a warmer planet or climate change first. To recap, climate change
can lead to a host of problems including rise in sea levels, flooding, higher temperatures, extreme
weather events, food shortages, famine, eco-migration, social unrest, loss of biodiversity or other
rapid, catastrophic climate-induced change.
Here is a beautiful representation of our total carbon emissions over the last 800, 1000 years. This
concentration has never exceeded 300 parts per million before the industrial age. But in the last 100
years, it has increased to a level exceeding 400 parts per million. We are going to try and analyse these
trends as well as the potential impacts using this wonderful tool that's available on the net. I urge you
to go to the website of the Global Carbon Project and explore this yourselves. The impacts of a rising
CO2 concentration in the atmosphere are pretty dramatic. At a two to three degree rise in
temperature, the sea level rises several feet and oceans increasingly turn acidic, disrupting the food
chain. At three to four degrees, global food production is significantly hit by draughts and freshwater
supplies are depleted because of glacier melts. At four to five degrees, all the sea ice is gone from both
the poles and draught and heat render much human habitation in subtropics unviable. At five degrees,
the global average temperature is higher than the last 50 million years. At this stage, sea level rises
force many coastal cities to be abandoned. Many regions in the tropics, subtropics and low mid-
altitudes become too hot to be habitable. And beyond six, there's runaway warming beyond human
influence.
What are the implications of climate change for corporates? First, a changing weather pattern can
create shifts in demand-supply patterns. Second, it can lead to potential regulatory changes. Third, it
can create increased public pressure on businesses that are contributing to the problem. Fourth, it
may create new market opportunities. It may create new sources of capital. What are the implications
of this? For instance, some of your long-term assets could turn into climate-dependent assets. The
insurance industry, pharma, biotech, agro firms—all of these are concerned with the climate
dependency of their assets. New regulations may reduce asset value as in the case of oil and gas
industries or automotive sector. Climate change may also improve acceptance and increase the value
of substitutes as in the case of clean energy firms. Some estimates have placed the total losses in 2013
in North America to be in excess of 37.5 billion U.S. dollars due to climate-related events. In the case
of Europe and Asia, these numbers are 22.5 billion and 60 billion, respectively. Compare that with the
mean for the last 22 years, 80 to 2012. You find that in the case of Europe, these numbers have gone
up from 17 to 22.5 billion, and in Asia, it has gone up from 47 to 60 billion.
In summary, the economic challenges posed by climate-related events are huge for corporates and
governments and these cannot be ignored. We recently did a study of our 320 global ICT companies
using the carbon disclosure project data. We tried to map the top risks faced by ICT companies. They
categorize risk from climate change as arising as regulatory, physical or other climate-related, you
know, developments that can impact market access and profitability. From these companies'
perspective, the highest levels of risk from climate change arise by way of loss of reputation, increase
in energy prices and changing regulations, and many of these firms have initiated steps–have created
organisational structures to manage these changes. You can read more about it in our report.

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