Climate change adaptation is a crucial step for corporate sustainability. Adaptation does not entail improving short-term coping strategies in response to a disaster, relocating subsidiaries, or choosing suppliers from areas less susceptible to climate change. So, what does it mean?
What Is Climate Change Adaptation?
Climate change adaptation means understanding the impact of climate change on various locations relevant to a specific company and how these factors coordinate with company activities such as purchasing, production, supply chain, and other operating procedures. Then, based on that understanding, make data-driven decisions.
The ability of corporations to withstand the effects of climate change is a vital component of their competitiveness. To protect their profits and preserve market shares, many companies have strengthened their crisis management departments and enhanced their abilities to cope with climate-caused disruptions.
However, these efforts commonly focus on isolated aspects of business procedures such as purchasing, inventory management, or supply chains, leaving companies previously unaffected by weather-related disruptions blindsided when an event occurs. This myopic approach to adaptation severely limits the company’s ability to instill and cultivate adaptive procedures in all aspects of its processes, thus hindering long-term adaptation.
Limitations of Current Adaptation Strategies
Through predictive tools, companies can anticipate how the world may be affected by various temperature-rise scenarios and pinpoint regions expected to do well in the most probable scenario. Then, based on those findings, relocate operations to areas perceived as less risky.
However, this strategy fails to address the complete threat climate change presents to corporations. Tragically, no area of the world will be exempt from climate catastrophes. Therefore, relying on such results lulls companies into a false sense of safety and sustainability.
For example, corporations in Belgium and Germany are perceived as having the necessary resources for appropriate disaster preparedness and response, yet they registered massive losses following the flooding in July 2021. Although meteorological services detected and anticipated this flooding several days before, companies failed to implement necessary countermeasures, leading to $81bn in industry losses.
Relocation: A Stepping Stone – Not a Destination
While relocation can be economically justified and help preserve the bottom line in the short term, corporations must identify, measure, and manage their climate vulnerabilities regardless of location. Companies should carefully consider this before relocating operations to another region.
Additionally, climate change is not the only variable to consider when finding a host country or selecting a first-tier supplier. For instance, the recent Russian war on Ukraine has once again cast a shadow over the attractiveness of Europe as a haven for foreign direct investment.
Therefore, relocation or other short-term coping strategies should be viewed as stepping stones toward climate change adaptation, not as the destination.
A Way Forward
The journey to adaptation requires understanding how climate change interferes with operations, questioning accepted procedures, and redefining roles and responsibilities within and without the organization. Businesses must have a 360° view of the possible effects of climate change on their operations and develop a corporate-level adaptive strategy taking advantage of their market position to establish regional adaptive capacities.
In short, to preserve their competitive standing and protect their bottom line in a climate-changed world, corporations need to conduct business differently than they do during times of stability.