acclimatise John Firth +44 1636 812868 [email protected] UK Climate Impacts Programme Chris West
+44 1865 285717 [email protected]
Carbon Disclosure Project (CDP) Paul Dickinson
+44 7958 772864
The adaptation tipping point:
are UK businesses climate-proof?
“Most people who have
taken climate risks into account have
only considered half the picture…”
Acclimatise and UKCIP gratefully acknowledge the advice and contributions of Malcolm Dowden (Charles Russell, LLP). We would also like to thank Yara Chakhtoura, who undertook the analysis of FTSE 350 responses to the CDP4 request for information.
Design by Stephanie Ferguson, UKCIP.
This report should be referenced as:
Firth, J, and Colley, M (2006) The Adaptation Tipping Point: Are UK Businesses Climate Proof? Acclimatise and UKCIP, Oxford.
ISBN 0-9544830-9-X
Further copies of this report can be downloaded from www.acclimatise.uk.com and www.ukcip.org.uk
Hard copies of the report are available from:
UK Climate Impacts Programme
Oxford University Centre for the Environment Dyson Perrins Building
South Parks Road Oxford OX1 3QY
Tel: +44 (0)1865 285717 Fax: +44 (0)1865 285710 Email: [email protected]
“Most people who have
taken climate risks into
account have only
considered half the picture.”
Chris West, Director, UKCIP
Foreword
Our climate is changing, and we are faced with many years of continuing unavoidable change. Even if we make a significant reduction in greenhouse gas emissions tomorrow, the lag in the climate system means that we will need to cope with a changing climate for the next 40 plus years, due to emissions we have already put into the atmosphere. Businesses and the financial markets need to grasp the reality we face – that we have to both reduce our emissions, and adapt to inevitable climate change.
There is no choice between mitigation and adaptation – we have to pursue complementary actions on both.
The report explores why adaptation is and will become an increasingly important issue for businesses, investors and the financial markets, in addition to the already urgent mitigation agenda.
This report provides a concise explanation of the scale of the adaptation agenda and the implications for business. It establishes a milestone against which future actions will be measured by investors, employees, customers and communities.
All CEOs, Finance Directors, non-Executive Directors and all those engaged in providing business, legal and financial advice will greatly benefit by reading this report and reflecting on the consequences for their companies and clients if they fail to take action – now.
Foreword
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Chris West John Firth
Director, Managing Director,
UK Climate Impacts Programme acclimatise
Executive summary
Our climate is changing.
We are already faced with many years of continuing unavoidable change. Even if we make a significant reduction in greenhouse gas emissions tomorrow, we will need to cope with a changing climate for the next 40 plus years, due to emissions we have already put into the atmosphere. The future climate is already set over this time period and the
consequences can not be ignored. Businesses and the financial markets need to grasp the reality we face – that we have to both reduce our emissions and adapt to inevitable climate change. There is no choice between mitigation and adaptation – we have to pursue complementary actions on both – now.
The implications for businesses, and to their investors, customers and workforce, through failure to assess and manage climate risks are significant.
• Value, return and growth will reach a tipping-point when an increasing awareness and understanding of the realities of climate change challenges previous expectations.
• Decisions taken by directors and professional advisers may be open to legal challenge.
• The tipping points on value, return and growth are likely to trigger credit rating revisions and increases in the costs of capital.
• Customer expectations, preferences and needs will change as the impacts of climate change become apparent. • Governments are likely to resort to
prescriptive regulation if businesses do not respond with adaptive action. This report has analysed the Carbon Disclosure Project responses of
businesses in the UK FTSE 350 to explore their understanding of the need for adaptation. These are the key findings. • Despite an increasing realisation of
climate risks, this is not reflected in the risk management strategies of the majority of the FTSE 350. Only 10% of the FTSE 100 reported that they considered the impacts of climate change pose a high risk to their business operations.
• Adaptation is not as well understood as mitigation.
• The number of good responses, with a rich description of climate risks, is low. • Within some sectors, there are a small
number of companies that have demonstrated an understanding of climate risks. These companies are setting the pace and will become the benchmarks.
• This contrasts markedly with other companies in the same sectors
appearing not to recognise that they face any climate risks.
• Although the potential direct impacts of extreme events are recognised, there is less appreciation of the impacts, both direct and indirect, arising from changes in longer-term average conditions and seasonal variation in temperature, precipitation etc.
In addition to analysing the adaptation results from the CDP4 survey, this report also provides a primer for directors, investors, fund managers and their professional advisers on the adaptation agenda and the need for action.
Businesses can respond to build resilience and climate-proof their interests.
Uncertainty about the future is not a reason for inaction.
There is sufficient information to enable the impacts of a changing climate over the next 40 years to be embedded in decision-making at strategic and project levels. Adaptive management is feasible. Changing markets, customer needs and investor expectations will present significant opportunities for those companies that take action to climate-proof their businesses.
Taking adaptive action early may be cost-effective when compared with the costs associated with remedial action at a later date. When analysing potential action, companies should consider their fiduciary responsibilities.
Businesses should review their climate risk management strategies and check that they are responding to both the mitigation and the adaptation agendas. Action is required on both – now.
Table of contents
Introduction 4
Why adaptation matters 5
to business
A changing climate — what is the 6
science telling us?
Significant business risks 7
Value, return and growth at the 7 tipping point
Litigation 8
Brand and reputation 9
Credit rating 10
Growing government action on 10 adaptation
TTaabbllee ooff ccoonntteennttss
Sector summaries 11
Aerospace and defence 12
Automobiles and machinery 12
Banks 13
Chemicals 13
Construction and building 14 materials
Food-related industry 14
General retailers 15
Hotel and leisure 16
Insurance 16
Media and entertainment 17
Mining, steel and other materials 17
Oil, gas and electricity 18
Pharmaceuticals and 19
biotechnology
Real estate 19
Software and computer 20
services
Specialty and other finance 20
Support services 21
Telecommunications services 21
Tobacco and beverages 22
Transport 22
Utilities 23
What can business do? 24
Appendices 25
Appendix 1: References 25
Appendix 2: About the Carbon 26 Disclosure Project Appendix 3: CDP4 questionnaire 27 Appendix 4: CDP4 signatories 28 Appendix 5: Companies’ 30 responses to the CDP4 questionnaire
Introduction
"We are not talking any more about
what climate models say might
happen in the future. We are
experiencing dangerous human
disruption of the global climate and
we are going to experience more."
John Holdren, President, American Association for the Advancement of Science
This report focuses on the climate risks to business from inevitable climate change.
The CDP4 questionnaire included a very specific question (number 3) which, together with responses to other parts of the questionnaire, was designed to assess the understanding of the UK’s major companies of the risks they face from a changing climate – rising temperatures, rising sea levels, changing rainfall patterns, and extreme events – and the adaptation measures currently being used to safeguard assets and operations. The question asks:
“How are your operations affected by extreme weather events, changes in weather patterns, rising temperatures, sea level rise and other related phenomena both now and in the future? What actions are you taking to adapt to these risks, and what are the associated financial
implications?”
The analysis in this report sits within the context of growing engagement in recent years by both businesses and their advisers in developing an understanding of climate change, and of calls from investors for greater disclosure in forward-looking risk management statements.
The report explores why adaptation is and will become an increasingly important issue for businesses, investors and the financial markets. Exposure areas are described and the key risks including litigation, brand and reputation, credit rating, regulation and financial
performance are discussed. Summaries are provided for each of the main business sectors.
Finally, the report considers the actions that can be taken to embed climate risk management into decision-making, to build resilience and climate-proof businesses. These actions will allow risks to be assessed and managed, and significant market opportunities to be identified.
Why adaptation matters to business
We face two climate change challenges, not just one.
Any conceivable emissions reductions policies, even if successful, cannot have a perceptible impact on the climate for some decades – some change is already ‘locked in’ by historic emissions and by inertia in the climate system. Global temperatures will continue to increase for the next 30-40 years and sea level will rise for many centuries, and we must develop strategies to address these climatic changes. This is not a reason to be complacent about emissions reductions. Adaptation and mitigation are two sides of the same coin: we must mitigate emissions in order to limit future climate change, and we must adapt in order to deliver a sustainable economy in the face of current and future climate change. These are not alternative strategies.
Climate change is happening – the process is already underway. It is having an effect on business now. There is no quick fix as these effects will stay with us for decades to come. Business has paid increasing attention to the mitigation agenda, but has not yet grasped the significant emerging risks posed directly by climate change and variability. Investors and businesses alike must recognise that the past climate is no longer a sound basis upon which to plan for the future.
Uncertainty is no excuse for inaction. Uncertainty over climate change is often cited as justification for delay or inaction. Yet there is greater consensus in the scientific community that man-made climate change is underway than on almost any other issue. We have more knowledge and understanding about how our climate is changing than we have about demographic change, interest rate movements, currency fluctuations, or market variations, and yet every day businesses are prepared to take decisions which are affected by these uncertain drivers. While there are still uncertainties about the precise impacts of these climatic changes at individual locations, there is sufficient information now to enable businesses to incorporate climate risks into decision-making. Uncertainties can be better understood by using climate change scenarios and by identifying thresholds and sensitivities.
The sophistication of climate modelling improves year on year. In the UK, the UKCIP02 climate change scenarios (produced by the Hadley Centre for Climate Prediction and Research and the Tyndall Centre for Climate Change Research) currently provide the best information on how the UK’s climate is expected to change over coming decades. The next UKCIP climate change
information package, due to be released in 2008, will incorporate probabilistic climate information, and provide a useful tool for risk-based decision-making.
A business will only flourish if its leaders are adept at weighing risks and making robust decisions in the face of uncertainty. The successful business of the future is taking climate risks into account today, and is developing adaptive strategies and actions to manage the uncertainties.
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A changing climate — what is the science telling us?
The result is climate change. Global average temperature has risen by about 0.6°C since the beginning of the twentieth century, with about 0.4°C of this warming occurring since the 1970s. The
Intergovernmental Panel on Climate Change (IPCC) has attributed most of the observed warming of the last 50 years to human activities.
The summer of 2003 was an unusually hot one over large parts of Europe, with August temperatures 3°C higher than the long-term average. This caused major business disruptions and over 20,000 excess deaths directly attributable to the high temperatures. In the UK there were an estimated 2,000 excess deaths. The Met Office estimates with high probability that the risk of such anomalously high European temperatures has already doubled due to the effects of GHG emissions.
In the absence of any human modification of climate, temperatures such as those seen in Europe in 2003 are estimated to be a 1-in-1,000 year event. A simulation using the Hadley Centre’s global climate model (Figure 1, red line) of summer warming until 2100 over southern Europe shows that by the 2040s a 2003-type summer is predicted to be about average, and by the 2060s it would typically be the coolest summer of the decade.
Under continuing climate change, in the UK we can expect:
• increasing climatic variability, • rising temperatures,
• increasing risk of heat waves,
• changing patterns of rainfall, with wetter winters and drier summers,
• increasing risk of drought and flood, • rising sea level,
• increased frequency and severity of sea storm surges,
• possible increased storm intensity and frequency.
There is also mounting evidence that tropical cyclones (known as hurricanes in the North Atlantic) will become more intense in a warmer world. The devastating impacts of Hurricanes Katrina and Rita in 2005 demonstrate the kinds of risks that could become more common.
The Gulf Stream will continue to exert a very important influence on UK climate. Although its strength may weaken in future, perhaps by as much as 25% by the end of the century, it is unlikely that this would lead to a cooling of UK climate since warming from GHGs will more than offset any cooling from a weakening of the Gulf Stream.
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1900 1950 2000 2050 2100 −2 0 2 4 6 8 T e m p e ra tu re c h a n g e ( o C ) Observations Medium−High Emissions Year
Figure 1: European 2003 summer temperatures could be normal by the 2040s; cool by 2060s [Source: Hadley Centre, 2005]
The rising concentration of carbon
dioxide (CO
2) and other greenhouse
gases (GHGs) in the atmosphere is
changing its composition and
preventing heat from escaping the
earth’s surface. Man-made
emissions have already increased
CO
2concentrations by one third
compared to the start of the
industrial era and, by
mid-century, concentrations are
expected to be twice
pre-industrial levels.
Significant business risks
“The direct risks arising from climate
change – rising sea levels, more
extreme weather events, alterations
to rainfall patterns – will affect
operational costs for many
businesses as they adapt sites and
processes to mitigate them.”
Tom Burke, Visiting professor at Imperial and University Colleges London,
Environmental Policy Advisor to Rio Tinto
"Integrating… climate change into
investment analysis is simply
common sense…
The carbon intensity of profits is an
approach that needs to be
adopted… Climate change is a
problem that’s not going to be
solved by politicians… Politicians
have an important role to play; but
the underlying reality is going to
have its effects on the market,
regardless of public opinion and
government action.”
Al Gore The impacts of increasing climate
variability and a changing climate for business will be far reaching. Our current economic structures and social and cultural support systems have developed over many years partly in response to relatively stable climatic conditions. The stability to which we have become accustomed has allowed a measure of predictability based on the analysis of historic climate data. In a changing world these systems and structures are increasingly exposed to extreme weather conditions and changing long term average climate conditions. Decisions based on a historic analysis of climate data are no longer future-proof. Awareness of climate risks is growing across all areas of government, business and society. There are a number of driving forces that are increasing the visibility of climate risks and the market opportunities: • the climate is changing,
• the frequency and intensity of severe weather events is increasing, • there is increased interest in scientific
information about the climate and a consensus within the scientific community on climate change, • there is also increasing interest from the
legal profession and recent cases of litigation on climate change in the US, • governments and others in the public
sector are beginning to create guidance, legislation and regulation to address changing climate risks,
• public awareness of climate change is very high and is linked to brand value, • the insurance and investment
communities have awakened to the risks, and are highlighting their concerns, • there is increasing importance attached
to business continuity,
• corporate governance interest in director-level risk management is growing fast,
• society is becomingly increasingly risk-averse.
It is clear that few businesses have yet to recognise the new and unfamiliar threats arising from a changing climate. Fewer still have begun to assess the risks and opportunities and to develop risk management processes and actions to meet the challenges. Impacts will be felt by every business irrespective of their size, location, markets, products and services, and will affect:
• natural resources and raw materials, • supply chains and logistics, • fixed asset design and construction, • asset operation, performance and
maintenance, • processes, • asset values, • markets,
• products and services, • workforces.
In this report we discuss some of the risks companies will face to, for example, financial performance, litigation, brand and reputation, credit rating and regulation. Those that fail to respond will be unable to take advantage of the opportunities.
Value, return and growth at the tipping point
The perception and realisation by the financial markets and investors of the risks to value, growth and return are emerging. The insurance industry in particular, is already acutely aware of the potential impacts and has had first hand experience of the costs arising from events driven by climate change.
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Hurricane Katrina has been widely recognised as a tipping point for the insurance industry in the USA. In the UK and Europe insurers have been at the forefront of business sector activity in analysing the potential impacts. The Association of British Insurers assessed the financial risks of climate change and warned of the risk of increasing tropical storm activity and its impact on insurance and economies prior to Hurricanes Katrina and Rita. Lloyd’s this year warned of the challenges the industry and its clients faced and the threats to long-term solvency. Aviva, Allianz and Axa have been active in understanding the risks to their businesses; Swiss Re and Munich Re have been at the forefront of raising the profile of climate change as a business risk rather than an environmental issue.
Figure 2 shows that the costs, risks and impacts of climate change will increase over time. There will be a point (the tipping point) driven by either a financial shock (for example, an extreme event) or by an increasing awareness and understanding of the reality of climate change, when these costs, risks and impacts challenge expectations for value, return and growth. At this point the financial markets, analysts, credit rating agencies, investors, fund managers etc., are likely to review the risks and their expectations of value, return and growth figures. Although for some sectors there are perhaps 20+ years before the impacts of climate change have a significant effect, the tipping-point will occur earlier, as investors review their portfolios and assess their investment liabilities.
Directors are being challenged by investors to demonstrate their corporate governance credentials. The spotlight on financial management and reporting is now also focusing on wider strategic risk management issues. Over the next few years we will see a greater awareness and understanding of the impacts of a changing climate. The importance of this for businesses is that their adaptation strategies and actions need to be in place, that is businesses must become climate-proofed, before the tipping point and well before the direct effects of a changing climate are felt.
Litigation
The interest in climate change from the legal profession has for the most part been restricted to the emerging markets in carbon trading and emissions. There has been limited attention to the issue of adaptation. As the financial impacts of climate change and adaptation begin to be recognised we are likely to see the use of litigation as a means to recover costs. The legal costs and reputational damage associated with defending climate change actions could be enormous.
A recent report by Freshfields Bruckhaus Deringer has challenged the traditional narrow interpretation of fiduciary duty. The report identifies the impact of climate change as a risk which may affect any investment; failure to assess the risks may result in claims of neglect of fiduciary duty by beneficiaries.
“The potential results of climate
change including changing weather
patterns, rising temperatures and
sea level rises would affect Sky (in
the same way as any business) in
the long term in many ways.”
British Sky Broadcasting, FTSE 100
“We expect climate change not only
to produce extreme capital
damaging events but also to
increase uncertainty around
corporate business plans and
potentially reduce asset values.”
Lloyd’s of London
“Sudden financial shocks could still
pose a threat to financial stability.
Such shocks can take a variety of
forms, such as natural disasters
(possibly driven by climate
change)…”
Financial Services Authority
“While some companies have
begun to treat climate change as a
fundamental strategic issue, many
more are not disclosing their climate
risks or plans to address it, creating
uncertainty for investors and
difficulty assessing the true
longer-term value of our portfolios.”
Institutional investors at the Investor Summit, May 2005
“Climate change could be the next
legal battlefield: compensation
claims for man-made environmental
damages would make the tobacco
sector payouts look small.”
Financial Times, 14 July 2003 Significant business risks
C lim a te c h a n g e i m p a c ts M e a s u re s o f b u s in e s s s u c c e s s
2006 Tipping point Significant impacts
increasing impacts, risk and cost
Current value, return and growth expectations
Reduced value, return and growth
Significant business risks
Lawyers are beginning to acknowledge that there is now sufficient information available on climate change for companies to take it into account in both strategic and project level decision-making. All
decisions taken by directors and professional advisers that do not take climate change into account may be open to legal challenge. In the future the courts will examine claims and may decide that it was reasonable, at the time the decision was made or advice given, to have foreseen the impacts of climate change, based on the information available in the public domain.
The issue for the courts will be deciding if there were any ‘knowledge points’ from which it may have been reasonable to consider that the impacts of a changing climate should have been known. Potential knowledge points may include documents produced by governments, regulatory agencies, professional institutions, sector organisations and advisory bodies setting out the impacts of climate change and actions that may be necessary, relevant or advised.
These knowledge points already exist. There is generic information, for instance, reports produced by the Intergovernmental Panel on Climate Change (IPCC) and also sector-specific information . Some examples of these knowledge points are given in the sector summaries in later sections of this report.
Figure 3 identifies the effect of knowledge points on decision-making and litigation risks. All decisions made and advice given since the dates of the knowledge points have an accrued litigation liability. The accrued litigation liability will continue to increase through continuing failures to build climate change into decision-making. Reasonable forseeability of climate change and the risk of litigation should be on the radar screens of all companies in their corporate risk assessment procedures.
Brand and reputation
Consumer preferences and needs will change as the impacts of climate change become apparent. To take a simple example, southern European holiday destinations may become less attractive in summer, due to increasingly hot
temperatures.
Those sectors and individual businesses that do not respond will find their reputations suffer significant damage. Correspondingly those that recognise the opportunities will become sector leaders. Research commissioned by the Carbon Trust demonstrates that there are high levels of public awareness of climate change in the UK, and that it may not be long until it becomes a mainstream consumer issue.
Accrued liabilities for decisions which are not climate-proof
Accumulating liabilities C lim a te c h a n g e i m p a c ts 1990 Generic
knowledge point Now
Future Increasing impacts, risk and cost
IPCC First Assessment Report
“The effects of climate change can
now be regarded as being
reasonably foreseeable at every
stage – it must be incumbent upon
professional advisors to ensure that
appropriate steps have been
taken.”
Malcolm Dowden, Charles Russell LLP
“It is prudent to plan for a
substantial change in consumer
behaviour on climate change.”
The Carbon Trust
Significant business risks
These are the conclusions from the research.
• The public today are aware of the prospect of climate change. Two thirds of Britons say they know ‘a great deal’ or ‘a fair amount’ about it.
• In banking, the mostly likely exposure to climate risks arises from a bank’s investment and lending exposure. A bank’s position on decisions such as mortgage conditions on properties exposed to increasing flood risk may cause a negative response from consumers.
• In some sectors, the lead time for action could be several years, leaving
unprepared companies at risk.
• There is an opportunity for differentiation against competitors. Forward-looking companies need to assess the risks, to avoid falling behind on such a
mainstream consumer issue.
This research is confirmed by further work recently commissioned by BSkyB, which found that 81% of UK consumers are "strongly concerned" by climate change or “recognise it as important”, demonstrating a significant latent demand.
The insurance sector is showing leadership in this area recognising that consumer preferences and needs will be different. A recent report commissioned by CERES explores the opportunities for new products and services.
Credit rating
Credit ratings and the cost of capital will change in response to the actual and the perceived impacts of climate change. The tipping points on value, return and growth are likely to trigger rating revisions and increases in the costs of capital. We are already seeing these movements in the insurance industry.
The increasing frequency and intensity of climate-related catastrophes has exposed a number of insurers and reinsurers who had underestimated their catastrophe exposures. Credit rating agencies around the world have been reassessing the exposures of the industry and adjusting credit ratings accordingly. Increasing storm activity and intensity and the impact of more frequent droughts, heatwaves, fires, subsidence and heave, together with the effect on business continuity and increasing director and officer liabilities will increase the pressure on the insurance industry.
Other sectors will be similarly affected with changes to credit ratings and higher costs of capital as they reach their own tipping points.
Growing government action on adaptation
The response by governments in Europe to inevitable climate change has so far been patchy. In the UK we have seen a tightening of building regulations and planning policy controlling the use of land and construction standards in response to concerns over increasing flood risk and subsidence risk due to climate change. The EU is currently considering a floods directive and an adaptation strategy with calls for greater controls on spatial planning.
Government action on adaptation is not confined to flooding. A new Planning Policy Statement, PPS26, focused specifically on climate change, will be published towards the end of 2006. All sectors could be affected by changes in government policy and regulations. There are already, for example, calls for the introduction of ‘maximum workplace temperatures’ for factories, offices, schools, hospitals and public buildings. If such standards were introduced, there could be significant financial impacts arising from the increased capital and maintenance costs necessary to adapt buildings.
It is inevitable that legislation and regulations will change, as will supporting guidance, codes of practice and standards in response to the impacts of climate change. This will impose future liabilities which may require remedial action. Climate-proofing strategies and projects now is a sensible adaptation action. The longer the delay by business in responding to inevitable climate change, the more likely we are to see governments respond and act more aggressively with
prescriptive regulation on adaptation.
“The insurance industry has to
respond to customer and
shareholder needs. Both will
increasingly look to the industry to
provide effective responses to the
threats caused by climate change.”
Evan Mills, Staff Scientist, Lawrence Berkeley National Lab
“Increased losses could raise the
cost of capital and increase the
volatility of insurance markets.”
Sector summaries
Vulnerability to climate change varies significantly from sector to sector, and from company to company. This variation depends on the individual business or sector’s ability to manage the physical, litigation, financial, reputational and market risks of future climate change.
The following analysis is not intended as a comprehensive examination of the climate impacts on individual business sectors. It is based on the responses received from the CDP4 information request,
supplemented by our comments. It highlights the likely risks and
demonstrates the potential scale of the impacts if businesses fail to take account of climate change as a business risk. A complementary report has been prepared for the Carbon Disclosure Project by Trucost, which analyses the responses in the context of greenhouse gas emissions. CDP4 questionnaire response rates for the FTSE 100 differ considerably from the response rates of the smaller companies that make up the FTSE 250, as shown in Figure 4. Whereas 83% of FTSE 100 companies answered the questionnaire, only 36% of FTSE 250 did so. The proportion of companies that provided information in place of a questionnaire response was similar: 10% for the FTSE 100 and 15% for the FTSE 250. Only 7% of the FTSE 100 companies declined to participate or did not provide a response. By contrast, half of the FTSE 250
companies (49%) declined to participate in the CDP4 process or provided no
response. A list of the companies in the FTSE 100 and FTSE 250 is provided in Appendix 5.
Responses to Q3 (and, to some extent, Q1) of the CDP4 questionnaire described the level of understanding and concern about the risks posed to companies by the impacts of climate change. Our analysis shows that, of the 165 UK companies that responded to the CDP4 information request, 13% are highly concerned about
exposure to climate risks, 32% expressed a medium level of concern, 46%
expressed a small amount of concern, and 9% were not concerned at all.
Figure 5 shows the level of concern over climate risks expressed by CDP4 respondents, by sector and as a total. The highest proportion of ‘highly
concerned’ respondents were found in the following sectors: Utilities (50%), Banks (43%), Chemicals (33%), and Mining, steel and other metals (29%).
The highest proportion of respondents who expressed little or no concern were drawn from the following sectors: Software and computer services (100%), Media and entertainment (91%), Real estate (89%), Pharmaceuticals and biotechnology (80%), Automobiles and machinery (80%), Leisure and hotels (75%), Aerospace and defence (67%), Chemicals (67%), and General retailers (67%).
A modified version of the Financial Times sector classification system was used for this analysis. Because of the large number of sectors and the low response rate in some sectors, we merged some sector categories on the basis of similar climate risks. As an example, we combined the ‘Mining’ sector with the ‘Steel and other metals’ sector to create a new ‘Mining, steel and other metals’ category. In the following sector summaries we provide a very brief outline of FTSE 350 respondents’ perception of the climate risks faced by their company,
accompanied by quotes drawn from company responses. We have included some quotes from the FT 500 responses, though these are not included in the analysis. This is followed by our expert analysis of each sector’s exposure to climate risks, and case studies of impacts that are already being felt.
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Seeccttoorr ssuum
mm
maarriieess
Figure 4: Response rates to the CDP4 information request from the FTSE 100 (top) and FTSE 250 (bottom). Answered questionnaire Provided information No response Declined to participate 83% 10% 5% 2% FTSE 100 FTSE 250 11% 36% 15% 38%
“At the moment we do not
anticipate major threats to our key
facilities due to climate change.”
Rolls-Royce, FTSE 100
“Every individual is exposed to the
effects of extreme climatic events
and changes.”
BMW, FT 500
“The potential effects of climate
change include a combination of
physical and material damage as
well as operational losses. Other
possibilities are image risk,
third-party liability and, in certain cases,
market risk. To date, there have
been no tangible or visible effects in
our operations.”
Renault, FT 500
Aerospace and defence
Despite the significant potential climate risks in this sector, most aerospace and defence respondents (67%) show little or no concern about the impacts of climate change on their business.
• Like all high technology and engineering industries, the aerospace and defence sector is vulnerable to any disruption in supply chain or manufacturing processes. Both incremental changes and extremes of climate can interrupt engineering operations. Just-in-time manufacturing and delivery systems can exacerbate the vulnerability of supply chains and operations.
• Climate variability and change can also have knock-on impacts on quality, timeliness, precision and performance in manufacturing.
• The climate risks to global security are potentially enormous. Climate change will likely trigger severe disruptions with significant consequences for local, regional, and global security. These events could exacerbate existing tensions, prompting diplomatic and trade disputes. In the worst case, extreme events have the potential to destabilise the global economy and geopolitical balance, and incite conflict. The market repercussions for the aerospace and defence industries are considerable. • This sector is heavily reliant on both water
and energy. Climate-related reductions in
the availability, or disruptions to the supply, of either resource will affect sector performance.
• This industry is also reliant on production line and factory workers, whose comfort and productivity can be compromised by warmer working conditions.
Automobiles and machinery
CDP respondents in this sector do not yet appear to have experienced losses or increased costs due to climate risks. These industries are most vulnerable where businesses are dependent on climate-sensitive resources, or where their supply and operations are affected through consumer behaviour or transport disruption. Of those who provided a response to the CDP questionnaire, 80% expressed little or no concern about climate risks.
• Climate variability and change can cause significant supply chain interruptions to intensive production schedules, with subsequent cost implications. Transport systems, on which the global supply chain depends, are also vulnerable to climate impacts. The high value of finished stock in transport or port storage is vulnerable unless the ports and shipping risks are managed.
• The complexity of this sector’s production network makes it vulnerable to
interruption. The automobile and machinery sector should review the climate risks to supply chains and logistics, particularly where extreme Sector summaries None Small Medium High 100% 80% 60% 40% 20% 0% P e rc e n ta g e o f re s p o n d e n ts Util ities Ban ks Che mic als Min ing, ste el & oth er m etal s Insu ranc e Spe cial ty & oth er fi nanc e Pha rmac eutic als & bi otec hnol ogy Con stru ctio n & build ing mat eria ls Toba cco & be vera ges Food rela ted indu stry Oil & ga s, e lect ricity Tran spor t Sup port ser vice s Tele com mun icat ion serv ices Aer ospa ce & def ence Gen eral reta ilers Hot els & le isur e Aut om obile s & mac hine ry Rea l est ate Med ia & ent erta inm ent Sof twar e & com pute r ser vice s All se ctor s Level of concern over climate change risks
Sector summaries
events have the potential to cause significant disruption.
• Higher indoor temperatures, when combined with the heat of process environments, will result in more uncomfortable working conditions. This has the potential to reduce productivity and increase workforce health risks, respiratory problems and absenteeism. Any adaptation strategy will need to weigh up these productivity costs against, for example, costs of improving building ventilation.
• Process environments will become hotter with increased need for cooling. Any additional cooling must be low carbon, in line with climate change mitigation objectives. Increased humidity will increase drying time for painted products. Some product components and testing regimes may need to be adapted to cope with climate change.
• Regulatory risks include the possible introduction of maximum working temperatures in manufacturing and process environments.
Banks
Respondents in the banks sector show a high level of awareness of the risks they face from the impacts climate change. Over 85% of companies who responded to the CDP4 questionnaire in this sector expressed a high or medium level of concern about the vulnerability and exposure.
• The banking sector faces a potentially high level of risk if investments are made in assets that are vulnerable to climate change. Climate risk management strategies should incorporate a risk screening for assets and investments. • Fund managers face potential risks and
opportunities associated with climate change. These include risks to equities, debt (both corporate and governmental), and real estate. Impacts will vary between sectors, companies, and the countries in which particular assets are based. • Corporate investment decisions made
now should take into account the potential physical impacts of a changing climate. Where possible, adaptation strategies should ensure that they are appropriate to future climate risks. • As climate change will affect shareholder
value now and in the future, fund managers should be taking appropriate steps to ensure that the risks and
opportunities associated with climate change are actively considered within investment processes.
• The office-based banking industry also faces business risks from decreased employee productivity in buildings that are not designed to cope with higher temperatures.
• Much of the discussion on climate risks and vulnerability for the insurance sector is relevant to the wider financial service sector because of the inter-linking of insurance and capital markets.
• A proactive stance on dealing with climate change could enhance the reputation of individual banks and the financial sector.
Chemicals
One third of CDP4 respondents in this sector are highly concerned about their exposure to climate risks.
• Rising ambient air temperatures, variations in water quality, and the availability of cooling water will all have an effect on chemical processes. These must be considered thoroughly, as they will have knock-on impacts across all activities in this sector.
• Low river flows during hot, dry summers can lead to restrictions on water abstractions, with consequences for cooling processes when the need for cooling is highest. Low flows also mean restrictions on the volume of high temperature water that companies are allowed to discharge to rivers and streams, with impacts on production. Finally, low river flows are less able to dilute pollutants, leading to tightened restrictions on effluent discharge. • Changes to chemical processes,
particularly under extremes of high temperature, will affect process operations and corrosion rates.
• Volatile chemical storage procedures will need to take account of rising
temperatures and the impacts on tank pressure. The stability and performance of some chemical formulations are
temperature dependent.
• Vulnerability of supply chains may lead to an increased disruption to supply. This may mean that providing additional materials storage capacity may be desirable to provide greater resilience. • There are considerable regulatory risks to
consider, as handling, transmission and storage safety standards may be compromised.
“Barclays considers adaptation to
be an important issue which society
must start to address in order to
face the future impacts of climate
change.”
Barclays, FTSE 100
“The impact of climate change on
the costs of extreme weather
events is of major concern to
HBOS, particularly as we are the
UK’s leading mortgage lender and
home insurer.”
HBOS, FTSE 100
“Climate change, climate policy and
adaptation processes create risks
as well as opportunities for Bayer.”
Sector summaries
Construction and building materials
As buildings generally have an expected lifetime of between 20 and 100 years, it is important that we take the impacts of climate change into account when designing or retrofitting our built
environment. Despite this, more than 40% of companies in this sector expressed low levels or no concern over their vulnerability in the face of a changing climate.
• Many non-domestic buildings such as offices and shops have high internal heat gains and therefore require cooling in all except cold winter weather. Temperature increases will significantly increase cooling loads in new and existing building stock. It is vital that any new cooling is low-carbon, in line with emissions reductions targets. Warmer winters will also reduce heating requirements.
• In order to meet comfort criteria for a present-day ‘hot’ summer, several features can be included in building design to manage indoor temperatures. Examples are high thermal mass, shading, and natural (windows open) or mechanical (fans) night-time ventilation. These features may be lacking in existing buildings, and are expensive, difficult or sometimes impossible to retrofit.
• The vulnerability of housing and commercial developments to floods is partly a function of design and the materials used. Modern housing is more vulnerable to flood damage because of the greater use of chipboard floors, dry wall plasterboard, cavity insulation, and design features such as lower door thresholds to improve access.
• Building design should take full account of future potential water constraints, through use of ‘grey water’ recycling and other water conservation practices. • Climate change adaptation and
mitigation are closely related for the built environment; many single measures will have effects on both. For example planting trees reduces summer temperatures (adaptation) and cooling loads (mitigation).
“No direct physical risks today or
expected for the future.”
Saint-Gobain, FT 500
“Climate change impacts on our
business in several areas, e.g.
design of buildings, infrastructure
and support services, transport,
biodiversity, through our supply
chain and through all our
atmospheric impacts (energy and
fuel consumption).”
Carillion PLC, FTSE 250
“Sainsbury’s is potentially affected
by these symptoms of climate
change both directly (in so far as
store operations, warehousing and
distribution could be affected having
a direct effect on product
availability) and indirectly (in so far
as our global supply chain could be
affected by events further afield
which in turn could potentially
compromise product availability).”
J. Sainsbury, FTSE 100
Figure 6: Knowledge points for construction and building materials sector
Adapting to climate change: lessons for London
London Climate Change Partnership
Beating the heat: keeping UK buildings cool in a warming climate
Arup and UKCIP
Climate change and the indoor environment: impacts and adaptation CIBSE TM36
Adapting to climate change: a checklist for development
Three Regions Climate Change Group
Climate change risks in building – an introduction CIRIA
Building knowledge for a changing climate EPSRC and UKCIP
2006
2005
Sector summaries
Food-related industry
Because of its reliance on agricultural production, stable energy supplies and distribution systems, the food-related industry is exposed to climate risks across all activities. CDP respondents in this sector as a whole have not grasped the sector’s vulnerability to climate risks, with only 12.5% of companies expressing a high level of concern about the impacts of climate change, though a few market leaders are taking this issue very seriously. • As part of a wider global market, the
UK’s food-related industry is vulnerable to the complex impacts of climate change on competitors and customers. • Higher temperatures, changing patterns
of rainfall, and knock-on impacts on pests, diseases and competing plants all mean that crops may no longer be economically viable in current locations under future climate conditions. Crops that remain workable may be of reduced quality.
• Current production methods and market standards (e.g. supermarket washed produce) are water and energy intensive, and may become increasingly
expensive.
• Diversification into new crops with which they have little experience growing exposes producers to vulnerability. In addition, investment in equipment constrains producers to specific crops until the capital is repaid, making it difficult to diversify.
• As temperatures increase, suppliers and distributors will be increasingly forced to rely on refrigerated/cooled systems for produce and livestock. Any new refrigeration or cooling systems should be low-emission and low-carbon, in line with emissions reductions targets. • During hot, dry summers there will be an
increasing risk of interruption of water supply to irrigation systems.
• Staff may need training in new skills associated with new crops, new technologies and new approaches to land management. A largely outdoor agricultural workforce is at increased risk of heatstroke and skin cancer.
General retailers
It is clear that the weather plays a significant part in affecting consumer preferences, and the complex distribution systems of general retailers can make this sector vulnerable to the impacts of climate change. Despite this, none of the general retailers who responded to the CDP4 questionnaire expressed a high level of concern. More than two thirds of respondents expressed low levels or no concern over their vulnerability in the face of a changing climate.
• General retailers are less exposed to the direct impacts of climate change than, for example, the agricultural or manufacturing sectors, but they face knock-on impacts in terms of supply chains and distribution, premises, and changing structures of market demand. • All premises and transport systems are
vulnerable to weather-related events like floods, storms, subsidence.
Infrastructure for transport and utilities is particularly vulnerable, and therefore places at risk wholesale and retail trade businesses.
• Retailers with global markets or suppliers will be affected by climate change impacts in other countries. • People tend to consume different kinds
of products in different weather conditions and in different seasons. Market opportunities may result from climate change.
• The impacts of temperature, rainfall and wind upon the buildings in which retail business is conducted are important. Working conditions in such buildings could become adversely affected in high summer temperatures, reducing morale and productivity, whilst driving rains could necessitate higher levels of routine maintenance. Additional cooling may be required to alleviate higher working temperatures, and this must be achieved without jeopardising emissions
reductions targets.
Buy now while stocks last (The Indepedent, 31 May 2006) • GlaxoSmithKline, the company that
owns Ribena and buys 95% of the UK blackcurrant harvest, is
concerned that production of the fruit will suffer in milder winters.
• The pharmaceutical group has asked scientists to cross-breed varieties that are less reliant on harsh winters and heavy frosts.
• Growers of UK blackcurrants have noted that crops, currently worth about £10 million annually, have declined in recent years.
A weather eye on the bottom line (The Observer, 6 August 2000) • Weather has a strong effect on
consumer preferences, and retailers stand to benefit by taking this into account for supply planning. • The Observer reports that sales of
canned lemonade rise as temperatures exceed 18°C, but decline again on very hot days when consumers prefer water to quench their thirst.
• Banana sales slump during cold months and also perform badly during the hottest months. • Understanding the impact on
customer demand can be the difference between a good and a bad trading statement.
Sales suffer after hot summer (Financial Times, 8 September 1995) • The long hot summer of 1995
affected seasonal consumer purchasing patterns, with customers uninterested in autumn and winter clothing while temperatures remained high.
• Many retailers postponed acceptance of, and payment for, autumn/winter orders, causing share prices in some clothing manufacturers to suffer. It s too hot to shop as records tumble (Daily Telegraph, 27 July 2006) • Continuing hot weather is causing
problems for shops with sales down 5%.
• Department stores reported that trade was down 7.3%.
Climate change & insurance Chartered Insurance Institute
Climate change: adapt or bust Lloyd’s
Availability and affordability of insurance under climate change: a growing challenge for the US CERES
Financial risks of climate change Association of British Insurers
A changing climate for insurance Association of British Insurers
Climate risk to global economy UNEP Financial Initiatives
Climate change and insurance Chartered Insurance Institute
The implications of climate change for the insurance industry
Building Research Establishment
The impact of changing weather patterns on property insurance
Chartered Insurance Institute
2006 2005 2004 2002 2001 1994 Sector summaries
Hotels and leisure
The global nature of the hotel and leisure industry makes this sector particularly vulnerable to climate risks worldwide. It will be affected by market shifts in the UK, as well as changes to global competitors and international consumer preference. Despite this, none of the CDP respondents indicated that they were highly concerned about their exposure to climate risks. Three-quarters of the leisure and hotel respondents expressed a low or no level of concern.
• Southern Europe and other traditional destinations may become less attractive for summer holidays due to increasingly hot temperatures and the potential for water availability problems and loss of beaches to sea level rise.
• Though this may result in increased visits to British and other northern European destinations, in order to exploit this potential opportunity operators and managers must maintain a high quality environment, efficient transport systems and sufficient capacity to cope with a rise in tourist numbers, all of which will be vulnerable to climate risks.
• Sea level rise, coupled with an increased frequency and severity of sea storm surges will contribute to the loss of UK beaches.
• Hotels and other leisure developments must be built with the future climate in mind. Many hotels, cafes, restaurants, and visitor attractions in the UK do not have air conditioning at present. Low-carbon cooling of indoor environments may be necessary to meet customer expectations.
• Riverside locations may become less attractive with increased risk of flooding. Sports and recreational fishing could suffer in dry summers, and there may be insufficient water to maintain inland canal navigation. Maintaining water quality will be critical during hot, dry summers with low stream flows. This could also affect the attractiveness of waterside commercial leisure developments.
Insurance
The insurance industry has considered adaptation more thoroughly and for longer than most other sectors. Most major insurance organisations globally are beginning to ask questions and produce guidance on management of climate risks. More than half of the respondents in this sector expressed a high or medium level of concern about climate change impacts, reflecting the fact that this industry is gaining a clear understanding of the complexity of this as a business issue.
Figure 7: Knowledge points for insurance sector
Breton tourism boosted by the heat wave (AFP, 14 June 2004) • Tourism professionals in Brittany
attributed one million additional visitor nights in last minute reservations or lengthened stays to the heatwave of August 2003. • Visitors keen to flee the strong heat of
the south or centre of France found refuge on the moderate Finistère coast of Brittany.
Global warming to wash away beaches, warns Spanish study (The Guardian, 11 September 2006) • Spain’s beaches are expected to
decrease by an average of 15 metres by 2050, according to a Spanish environment ministry report that highlights the effects of rising sea levels and stronger waves and currents on the country’s coasts. • Holiday homes on unprotected
beaches are directly at risk of flooding.
• The report’s coordinator, Professor Raúl Medina, said that property in areas currently popular with British holiday home buyers is an increasingly bad long-term investment.
Scotland s ski industry balances precariously (Financial Times, 10 January 2006)
• The number of skier days across Scotland fell to just under 150,000 in the 2005-06 season, down from over 650,000 in 1987-88, according to Visit Scotland.
• The impact of climate change on the already unpredictable winter sports season has influenced managers to market ski resorts as all-year destinations. This follows the example of Whistler in Canada, a centre for skiing in winter and mountain biking and walking in the summer.
Sector summaries
• The insurance sector is highly sensitive to weather and climate risks, and the industry has developed wide experience and understanding of the impacts of climate on its operations. These include claims associated with short term extreme events like flash flooding, and longer term events such as hot, dry spells which can lead to increased subsidence. • Insurance markets have significant
overseas exposures to climate change risks around the world.
• Typically, weather damage accounts for one quarter of total property insurance claims in the UK, but this may rise to between one third and one half of total claims in event years such as 1990 and 2000. The severe storms in 1990 in the UK led to property claims of more than £2.4 bn, while the floods in autumn 2000 resulted in insured costs of £1 bn (both 2004 prices).
• Climate change could significantly increase the costs of storm damage, flooding and subsidence, and climate risks in other sectors of the economy could have further implications for financial markets.
• Life and pensions products typically lock-in assumptions (on lock-investment returns, mortality, morbidity, policyholder behaviour etc) for very long periods, often 20-30 years and beyond.
• Because the insurance industry is so vulnerable to climate risks, the sector can be seen as a useful barometer of the financial impacts of climate change.
Media and entertainment
CDP4 respondents in the media and entertainment sector have not considered the impact of climate change on their business. Over 90% of companies who answered the questionnaire expressed little or no concern about the climate risks they face.
• Workers in the media and entertainment sector are highly office-based, and may experience working conditions beyond acceptable thresholds in buildings designed for the current, rather than the future, climate.
• Nearly all businesses make use of premises, transport systems, and utilities, all of which are vulnerable to weather-related events like floods, storms, subsidence. Disruption to electricity supplies, water supply and sewerage as a result of extreme events will have
significant impacts on businesses. Transport and delivery systems for goods and services are also vulnerable to climate risks.
• Premises affected by flooding can severely damage business profitability through costly refurbishment, temporary lack of access, and disruption to trading.
Mining, steel and other metals
Several CDP4 respondents in the mining, steel and other metals sectors referred to the risks they face due to inevitable climate change. A third of the companies who responded to the questionnaire expressed a high level of concern, while another third expressed a medium level of concern. • Mining and metals are energy and water
intensive industries, already susceptible to varying climatic patterns. The availability and maintenance of these two climate-sensitive resources is essential to the success of the sector’s operations.
• Mining operations today are conscious of the risks of heavy rains and of high flood potential, and these risks will increase in the future.
• Increased rainfall and risk of flooding creates a higher risk of overflow of storage reservoirs and of holding ponds containing contaminants. If released into the surrounding environment,
contaminants can pollute soils, plants and surface and groundwater supplies. • Refineries and smelters use large
volumes of water for processing and cooling. Metal and mining metal processes cannot proceed efficiently when low rainfall produces too little water. Plant discharge water and drainage infiltrating through refinery and smelter wastes can become
contaminated. During long hot summers, low stream and river flows may
necessitate tighter discharge regulations.
• Global impacts of warming on, for example, permafrost, sea lanes, and flying weather could significantly improve or reduce the efficiency of resource extraction.
• As the mining and metals industries play an important and often central role in many rural economies, climate affects community livelihoods as well as productivity.
“In general insurance Aviva currently
incurs several hundred million
pounds worth of claims per annum
from weather based events across
our European and Canadian
businesses.”
Aviva, FTSE 100
“Weather is an important
operational aspect for Rio Tinto
operations. Many Rio Tinto
operations are in areas where there
is competition for water. Some
operations are in storm (cyclone)
prone areas. Shipping is vital to the
transport of our bulk commodities,
particularly from Australia. Some
operations have unusual
dependence upon climate eg
Diavik diamond mine in Canada’s
Northwest Territories is mostly
supplied in winter using an
ice road.”
Rio Tinto, FTSE 100
“Potential changes in weather
patterns including the intensity and
frequency of storm activity and
rainfall patterns will impact some
sites directly.”
Sector summaries
Oil, gas and electricity
This sector is highly exposed to climate risks across all industry activities, from electricity generation, oil and gas
extraction, energy distribution and trading. Despite these significant risks, only 10% of CDP respondents expressed a high level of concern about climate change impacts on their business. Almost half (40%) of respondents expressed little or no concern.
• Many of the UK’s coal- and gas-fired power stations are cooled by river water. Hot dry summers and decreased stream flow increase the risk that river water volumes will be insufficient to dilute cooling water effluent. In these cases power stations are forced to reduce output in order to meet regulatory pollution control standards. Significantly, these episodes usually coincide with peak demand for energy for cooling. • Many of the UK’s coal, oil and gas (and
all nuclear) power stations are located along the coast, and are significantly exposed to flooding and erosion risks due to sea level rise and increased storm-surge height.
• The observed shift in demand, from energy for heating in winter towards cooling and refrigeration in summer, will be exacerbated by rising summer temperatures. Summer peak demand will be amplified in cities through the Urban Heat Island effect.
• Output from many forms of generation, particularly gas-fired, is lower in hot weather due to reduced turbine efficiency. In a hot 2003-type summer, for example, output could be reduced by 10%. By the 2040s, summers like the one experienced in 2003 will become the norm.
• Extreme weather events, like Hurricanes Rita and Katrina, can mean losses in oil refining capacity and consequent oil price rises.
• As facilities age, and as more demand is put on them, they are more likely to fail under extreme events and incremental climate change.
Hot summer topic: Why heat waves spur electricity blackouts
(ScienceDaily, 24 August 2006) • Very high temperatures in the
northeastern United States during August 2006 saw ISO New England, the company that operates the region’s electrical grid, introduce innovative measures to deal with record power demands.
• To ease pressure on the power grid, the company reimbursed businesses willing to curtail daytime usage of electricity, redirected excess power from other parts of its network, and purchased additional power from Canada.
• By contrast, California suffered a longer heatwave and blackouts, caused mainly by failed distribution equipment.
• The majority of blackouts are not caused by power shortages. In fact, about 90% of blackouts in the region are the result of equipment failure on ageing and overloaded distribution networks.
Air-conditioners spark power shortage fear (The Daily Telegraph, 27 July 2006)
• The National Grid urged companies to increase generation capacity for the second time in a week to avoid a shortage.
• Demand has increased above traditional summer figures due to the increase in use of air conditioning during the heatwave.
• During summer months the generating companies switch-off some of their power stations to carry out maintenance. More warnings from the National Grid are possible if the heatwave continues during the period when generators seek to carry out maintenance work.
• The spot price of electricity jumped 73%.The electricity supplier said it had suffered four separate network failures, aggravated by high demand for air conditioning in the unusually hot weather.
“Only last year in 2005 the integrity
of our operations was severely
challenged by the two hurricanes
Katrina and Rita that struck some of
our US assets.”
Sector summaries
Pharmaceuticals and biotechnology
CDP respondents in this sector do not yet appear to have considered their
vulnerability to climate risks. Of those who provided a response to the CDP
questionnaire, 80% expressed little or no concern about climate risks.
• This sector is heavily reliant on both water and energy. Climate-related disruption to the supply of either resource will affect sector performance. • This industry is also reliant on production
line and factory workers, whose comfort and productivity can be compromised by warmer working conditions.
• Higher indoor temperatures can compromise high technology and precision engineering processes. This can have knock-on impacts on performance conditions and quality standards for production processes. • Changes to chemical processes,
particularly under extremes of high temperature, will affect process operations, corrosion rates, storage materials and times. Vulnerability of supply chains may lead to an increased disruption to supply. This may mean that providing additional storage capacity may be desirable to provide greater resilience.
• Changes to chemical processes and storage may also contribute to an increased potential for contamination. There are considerable regulatory risks to consider, as handling, transmission and storage safety standards may be compromised.
• Factory, lab and storage premises are generally vulnerable to extremes of wind, summer heat, driving rain. It is difficult to adapt existing buildings to future climatic conditions, and new facilities should be designed with climate change in mind. • There are significant opportunities for
delivering new products and treatments to meet the challenges of new diseases and health issues.
Real estate
Buildings, developments and their locations will be affected by climate change, through changes to structural integrity, or increased vulnerability of external fabric, internal environment and service infrastructure. Despite these risks, almost 90% of respondents in this sector expressed little or no concern about their exposure.
• Property has a high level of exposure to the physical impacts of climate change. The main risks include increased incidence of overheating, flooding, and subsidence.
• Analysis of both location and design will be important aspects of climate-proofing property investments. Meeting demand for building comfort (e.g. requirements for cooling under hotter summer conditions) will complicate the situation still further. These demands must increasingly be met through innovative building techniques and thermally efficient properties, rather than energy dependent devices such as air-conditioners.
• Consumers and regulatory bodies may require better performance from buildings as climatic conditions change, providing an opportunity for early movers to gain competitive advantage. • The changing climate poses additional
risks, including delays to construction and maintenance programmes, poor internal environment and mould growth, slope instability, damage to building fabric and cladding, and structural damage from wind and precipitation events. Unless these risks are managed this sector may be vulnerable to reputational, litigation and regulatory risks in the future.