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Adapting To An Uncertain Climate
 

Adapting To An Uncertain Climate

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Adapting to an uncertain climate: A world of ...

Adapting to an uncertain climate: A world of
commercial opportunities is a UK Trade & Investment
(UKTI) report commissioned from the Economist
Intelligence Unit. The report seeks to examine the
potential business opportunities, and risks, involved
in adapting to anticipated changes in the global
climate, such as changing rainfall patterns, rising
numbers of extreme weather events and so on. In
particular, it examines four key sectors: financial
services; infrastructure and construction; professional
services and consulting; and agriculture and life
sciences. It does not consider business opportunities
relating to efforts to stop change occurring in the
climate (that is, efforts to mitigate the severity
of climate change by reducing greenhouse gas
emissions), but rather examines new emerging
markets for goods and services as businesses seek
to adapt to the realities of an uncertain climate.

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    Adapting To An Uncertain Climate Adapting To An Uncertain Climate Document Transcript

    • ACCESSING INTERNATIONAL MARKETSADAPTING TO AN UNCERTAIN CLIMATE:A WORLD OF COMMERCIAL OPPORTUNITIES
    • About this reportAdapting to an uncertain climate: A world of All graphs and tables in this report are sourced fromcommercial opportunities is a UK Trade & Investment the Economist Intelligence Unit’s global survey.(UKTI) report commissioned from the EconomistIntelligence Unit. The report seeks to examine the To complement the survey findings, thepotential business opportunities, and risks, involved Economist Intelligence Unit also conducted wide-in adapting to anticipated changes in the global ranging desk research and in-depth interviewsclimate, such as changing rainfall patterns, rising with a range of organisations. Our thanks are duenumbers of extreme weather events and so on. In to the following for their time and insight (listedparticular, it examines four key sectors: financial alphabetically, by organisation):services; infrastructure and construction; professionalservices and consulting; and agriculture and life Andrew Brown, climate change andsciences. It does not consider business opportunities environmental performance manager,relating to efforts to stop change occurring in the Anglian Waterclimate (that is, efforts to mitigate the severity Denise Dewar, executive director for plantof climate change by reducing greenhouse gas biotechnology, CropLife Internationalemissions), but rather examines new emergingmarkets for goods and services as businesses seek Paul Jayson, head of sustainability, DLA Piperto adapt to the realities of an uncertain climate. Fernando Moreiro, CEO, HSBC Insurance BrazilTo quantify this, the Economist Intelligence Unit Michael Riley, deputy portfolio manager for theconducted a survey of 705 companies globally, Energy and Climate Funds, SAMrepresenting a range of business sectors, during Noel Morrin, senior vice-president forJanuary and February 2011. The survey attempts to sustainability and green support, Skanskaafford even representation to the following regions: David Symons, director,Middle East and Africa; Western Europe; Asia Pacific; WSP Environment & EnergyNorth America; and Latin America. In line with thespecific sectoral focus outlined above, nearly half(46 per cent) of the survey sample was focused onthese key sectors; the balance covered a range ofother industries. All company sizes were represented:41 per cent of firms polled had annual revenue ofless than US$500 million, while 44 per cent hadrevenue of at least US$1 billion. All respondentsheld management positions, with just over half(53 per cent) representing the C-suite or board. Adapting to an uncertain climate: A world of commercial opportunities 1
    • EXECUTIVE SUMMARYClimate uncertainty is likely to increase in the Although most businesses are aware of the While risks abound, executives see greater Emerging markets are viewed as the primarydecade ahead. In the past few months alone, images need to respond to climate change, few are opportunity. Adaptation involves both risk business growth opportunity, especially withinof flooding across Australia, Brazil, Sri Lanka, yet actively adjusting. Only three in ten firms management (protecting offices and operations, Asia. The unfortunate reality is that many ofPakistan and South Africa have filled news channels. are already actively planning and making or bolstering supply chains) and opportunity today’s less developed markets are also mostOrganisations such as the UN suggest that tens of changes within their businesses and one in ten (developing new crop insurance products, or likely to shoulder some of the largest forecastbillions of dollars will be needed annually in the firms still thinks that no changes are required at helping to design more resilient structures). climate impacts. Accordingly, 60 per cent ofcoming decades to help countries adapt to the all. Nearly all others recognize the importance of Slightly more firms (64 per cent) see opportunity executives polled point to emerging marketsrealities of a changing climate. Accordingly, this is the issue, but say it is not yet a pressing concern. here, rather than risk (53 per cent), although as the number one source of business growthan apt time to consider the business risks, as well as Urgency is greatest in Asia, perhaps reflecting one in three overall thinks it encompasses both. relating to adaptation, ahead of those whothe commercial opportunities in adapting to a more the high climate risks faced there. In contrast, Around one in five (19 per cent) firms has already look to developed markets (43 per cent). Asia inunpredictable climate. concern is lowest in North America, most likely generated new revenue from such opportunities. particular is singled out, with North America and reflecting divided opinion over climate risks. Of the four sectors profiled in greater depth in then Europe the next contenders.This UK Trade & Investment report, commissioned from this report, professional services and consultingthe Economist Intelligence Unit, seeks to outline these Around nine in every ten firms have suffered stands out: 24 per cent of firms in this sector say Limited awareness about adaptation andemerging opportunities for business. In particular, it climate impacts in the past three years. More they have already generated revenue from such a shortage of skills are the main obstaclesconsiders four key sectors in detail: financial services; than half (55 per cent) of firms polled have work, compared with 19 per cent in infrastructure hindering further development. Severalinfrastructure and construction; consulting and reported an increase in weather-related impacts and construction and 15 per cent in financial executives interviewed for this report noted theprofessional services; and agriculture and life sciences. over the past three years; just 9 per cent say their services. Far more see growth ahead, some in the limited awareness from clients when pitchingIts key findings include the following: companies have not been affected. Impacts have short term (25 per cent), but more in the longer- adaptation-related products and services. been varied: most are simply disrupted by staff term (36 per cent). Furthermore, the subject of climate change itself not being able to make it into work, but many remains contentious in many markets. In general, have had supply chains disrupted, or have lost Much work is already underway in terms of a lack of awareness of the opportunities is the revenue. Nearly one in five (17 per cent) have developing relevant new products and services. primary barrier cited for slow development in this suffered damage to buildings or equipment. Although adaptation remains a relatively niche area, along with a shortage of related skills. Seed Accordingly, a number of businesses plan to invest area today, a growing market is expected to biotechnologists, engineers, climate modellers, in measures to cope with such impacts over the emerge over the coming decade. Nearly four in and flood planners are just some of the jobs that next few years. For example, around one in four ten (39 per cent) of respondents say players in will likely be in demand in the decade ahead. plans to protect some of their assets through their industry are grabbing competitive advantage weather-proofing (27 per cent) or upgrading their from helping clients adapt to climate change. insurance policies (26 per cent). Most efforts will And close to half of firms polled (46 per cent),Around nine in be handled in-house, but a significant proportion will turn to external consultants or vendors, are conducting related research already. Given the sometimes blurred line between mitigationevery ten firms have driving new demand. and adaptation, there are clear synergies and crossovers that will be reflected in this report.suffered climateimpacts in the pastthree years Emerging markets are viewed as the primary business growth opportunity2 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 3
    • INTRODUCTION: THE NEED FOR ADAPTATION During the past decade, a huge global industry Accordingly, regardless of what efforts are taken REGIONAL VARIANCES catering to rising concerns about energy and climate to mitigate the severity of climate change, some change has emerged. The most obvious aspect of adaptation will also be necessary to cope with that this has been the boom in production of renewable change which is already unavoidable. Such efforts Given that climate impacts vary widely across Businesses in the Middle East and across Africa fall energies, but related businesses span sectors as are not always carried out in isolation, however: different regions and countries, the urgency of right on the global average, although 39 per cent of diverse as consulting, education, construction and for example, when building new structures, engineers responses to the issue vary widely too. respondents from the UAE in particular are actively manufacturing. Much of this activity relates to are increasingly considering not only how to reduce engaged. There, concerns centre largely on water mitigation — efforts to cut the amount of emissions the climate impact of such work (mitigation), but In North America, which faces lower risks than some issues. This is perhaps not surprising; in January 2010 produced by power stations, buildings, vehicles, also how to make it more resilient against an adverse other countries, active responses from business the UAE issued a three-volume report detailing the agriculture, and other sources. Accordingly, there climate (adaptation). have been many studies looking at what role lag other regions: 22 per cent of those polled are likely impacts of climate change among its member business can play here. Rather fewer have considered For businesses, climate change raises clear risks, both making an active response in terms of planning or Emirates and the need for adaptation. Work has how industries will cope with the consequences directly and indirectly. This is especially so for those adapting —below the global average of 31 per cent. long been underway on a range of projects, from of unavoidable changes in the climate through operating in areas that could be affected, whether In contrast, Asia, which faces clearer climate risks, desalination plants to the huge Masdar City project. adaptation or how they will best take advantage of from increased exposure to flooding, disruptions is well above average, at 37 per cent. In particular, related commercial opportunities. to supply chains, or direct impact on their core Australia’s regular climate extremes are reflected Latin American firms are slightly above the business. Accordingly, increased attention to business in its responses: 45 per cent of Australian firms average, at 34 per cent, with Mexico, fresh from In the years ahead, greater emphasis will need to be resilience and risk management will be important polled are actively working on the issue. Europe, hosting the latest UN Climate Change Summit, placed on adaptation. Regardless of personal opinion here. But adaptation also creates new opportunities, about the causes and severity of global climate as industries respond to such changes by creating meanwhile, sits close to the average, at 33 per cent. at 36 per cent, ahead of the US, at 25 per cent. change, the broad scientific consensus is that it is new products and services that help individuals, During the Summit, Mexico, along with the UN happening. The fourth assessment report from the businesses, cities and governments cope. Development Programme (UNDP), announced UN’s Intergovernmental Panel on Climate Change a medium-term adaptation plan for the country, (IPCC)1 details a wide range of impacts that have which it billed as a world first. already been observed. These include more frequent hot days and heat waves, an increase in hurricane intensity in the North Atlantic, and increases of both drought and heavy rainfall events. Such trends are forecast to continue, with dry regions getting drier, wet regions getting wetter, more droughts and floods, and coastlines exposed to increased erosion. Impacts vary widely between regions, although many poorer countries are expected to be at greater risk.Given that climate impacts vary For businesses, climatewidely across different regions and change raises clearcountries, the urgency of responses risks, but also newto the issue vary widely too opportunities4 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 5
    • CLIMATE IMPACTS:ADVERSITY AND OPPORTUNITYOver the past few years, climate-related impacts have Businesses have also felt the impact of all this. Investing in new protectionrarely been out of the headlines. Record heat waves Executives polled for this report say they have been In response, many firms are investing better toblighted Russia last summer, while severe drought has battling with a higher incidence of adverse weather protect themselves. Much of this takes the form ofparched China more recently. The resulting crop losses over the past three years. More than half report an dusting off business continuity plans, or upgradingin both countries have raised concerns about global increase in weather-related impacts, while just one in risk trackers (see Table 2). But around one in fourfood supply, adding to already rapid price inflation. ten say that they have been unaffected (see Table 1). firms is either upgrading their existing physical assets,Australia’s farming community was similarly affected, Much of the impact, especially in developed markets, for example by weather-proofing buildings, or areshortly before the country experienced its worst has been in the form of staff being unable to work. taking out new insurance policies. Around one in fiveflooding in decades, during December and January But around one in three (31 per cent) has had goods plans to adapt their operations better to deal with2010. In Brazil, the worst floods and mudslides in stranded in their supply chains, or lost revenue as such changes, such as adopting new crop varieties orseveral decades inflicted great damage upon large a result. And one in five have suffered damage or more water-efficient facilities.swathes of the country. Less damaging, but still loss of stock, while 17 per cent have had damage tosignificant blizzards and other inclement weather buildings or equipment. Asian and Latin Americanin North America and Europe during November and firms have felt this most, especially in terms of supplyDecember have been blamed for disrupting commerce chain disruptions and lost revenue. Table 2and stalling economic growth. Q Which of the following actions will be pursued within your organisation over the coming 2-3 years (including any that already apply), as a proactive defence against changing weather and extremeTable 1 weather events? Q Over the past 2-3 years, what change has there been to the levels of extreme and unexpected weather events that have had a direct impact on your business? Creating or updating a relevant business continuity plan 41% Upgrading physical assets to better cope with weather 27% events (eg, weather-proofing buildings) Significant increase 14% Adding or enhancing weather-related 27% risks to your internal risk tracking Conducting an investigation into likely Slight increase 41% 27% impact of weather events on business Adding or upgrading insurance policies to 26% No change 23% protect against extreme weather events Adapting operations to cope with changing climate 19% (eg, new crop varieties, water-efficient facilities) Slight decrease 9% Seeking safer/less vulnerable locations for 18% main company operations (eg, offices, stores) Significant decrease 2% Building greater resilience into supply chain 17% (eg, moving away from just-in-time or lean practices)Our business has not been affected Actively working to monitor and address 9% 13% by any adverse weather events water supply issues across business Seeking safer/less vulnerable locations for supply 13% 0 10 20 30 40 50 60 70 80 90 100 chain operations (eg, farms, manufacturing facilities) Other, please specify 3% 0 10 20 30 40 50 60 70 80 90 1006 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 7
    • In turn, new products and services are emerging. As a result, business leans towards an optimisticExecutives cite examples ranging from climate- viewpoint on adaptation. While clearly climate ADAPTATION: A WORLD OF EMERGING OPPORTUNITIESproofing technologies to consulting and risk change holds great risks — around half (53 permanagement services (see Box: Adaptation: A world cent) cite this as a prime concern — an even greaterof emerging opportunities). Four in ten respondents proportion (64 per cent) see it as an opportunity. A selection of responses from executives polled for Climate-related insurance offerings, fromagreed that firms in their sector are already creating Of these, one in three see it as an equal risk and this report, regarding the opportunities emerging building damage to crop losses, and cover forcompetitive advantage by helping others deal with a opportunity (see Table 3). from climate adaptation. perishable goods.changing climate, while just 23 per cent disagreed. Seeds and crops: “New crop varieties, or selling Other financial products, from simple loans to existing varieties in new geographical markets.” help others pay for adaptation work, to climate derivatives and investment funds.Table 3 More effective water treatment facilities, and aQ Regarding any potential changes your firm might make with regards to planning for and/or adapting to range of other water-related efforts, including Advisory, legal and consulting services. recycling and technologies to reduce use. an uncertain or changing climate, would these be focussed primarily on risk management or exploiting Risk management services. new commercial opportunities? City and town planning, from revising existing Weather and other information services. designs to planning wholly new cities. Primarily risk management (eg, sourcing Public relations and lobbying: “Offering media and Various climate-proofing products, such asnew locations for operations, diversifying 20% public relations management services to deal with suppliers, weather-proofing buildings. improved roofing and insulation. Protecting water supplies etc) the situations presented by changing climate.” Software applications: “Consumer software Primarily commercial opportunities Training and education. (eg, providing new, or enhanced, 31% applications and enterprise software products/services that help others Medicines and healthcare: “Change in the deal with a changing climate) applications on mobile devices concerning climate-related services.” demand driven by new geography for diseases that are tropical or sub-tropical, such as dengue Both of these 33% Flood and other disaster-response services, from in South America.” replacement of damaged equipment to clearing up affected areas. Supplying alternative raw materials for those Don’t know 7% that are at risk from climate change. Flood mitigation and relocation, including adapting coastal defences, levees and other infrastructure for sea-level rises. Not applicable 9% New construction materials, technologies and processes, as well as new approaches to design 0 10 20 30 40 50 60 70 80 90 100 and planning.8 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 9
    • A major global market emerging Moreover, these figures may well be understated, But challenges remain North American firms were least likely to consider especially within poorer countries. A 2010 World Bank this issue a priority (see Box: Regional variancesAlthough climate adaptation is viewed by most as Who, though, will pay? Emerging markets’ access to consultation report3 estimates the cost of adapting to on page 4). A shortage of skills is the second keya longer-term opportunity, it is clear that the scale capital varies widely: across Asia, countries such as climate change at US$75-100 billion annually between concern, a point highlighted by a recent UK reportof investment will need to grow substantially. In the Japan, China, South Korea and Singapore are all able 2010 and 2050, for developing countries alone. on climate change adaptation by the Royal Academycoming decades, homes, offices, cities, coastlines, to invest heavily. Others will struggle, although they (Other earlier studies forecast annual costs ranging of Engineering5, which flags the need to developwater systems, agriculture and all manner of physical may be aided by a new “green climate fund”, agreed from as little as US$4 billion to US$109 billion relevant skills and awareness.infrastructure and industries will need to be upgraded at the UN’s climate change meeting in Cancún, per year, over the period 2010-15, indicating theand adapted. A study from the UN Framework which promises around US$100 billion annually by wide degree of variance in this field4). Within this, Naturally, both the scale of the challenges andConvention on Climate Change (UNFCCC)2 forecasts 2020 to assist poorer countries in both mitigation infrastructure (urban drainage, paved roads, public the opportunities vary widely from industry tothat US$49-171 billion will be required annually by and adaptation. buildings, and so on) accounts for the largest industry. Some may feel little of either, while others2030, spanning both developed and emerging markets. proportion of costs. will face greater risks, as well as greater potentialAll this is far less than the total projected spending There are other challenges beyond funding. The opportunities. The next four chapters of this reportrequired for mitigation, which is US$355 billion by largest relates to awareness, especially in terms Given this, it is hardly surprising that six in every review key sectors that are likely to be at the2030, but is nonetheless significant. of seeing the opportunities (see Table 5). Several ten firms see emerging markets as the largest single forefront of adaptation to climate change. executives interviewed for this report note the lack source of growth, ahead of those focusing on of awareness of clients when discussing adaptation developed markets (see Table 4). When it comes to issues. And in some markets, such as the US, climate assessing where business opportunities lie, businesses change remains a controversial topic; in our survey, are largely focused on their own region. Globally, though, Asia is the top region of interest overall.Table 4 Table 5Q Which of the following regions and/or types of markets present the greatest opportunity for your Q What are the primary barriers to exploiting potential commercial opportunities within your industry? industry, if any? Lack of awareness of opportunities 29% Emerging markets 60% Limited availability of skills/expertise 29% Developed markets 43% Other business priorities too pressing 28% Asia-Pacific 33% Insufficient demand 27% North America 28% High cost of necessary product development 24% Europe 24% It is simply too early for business to develop 23% these products/servicesMiddle East and North Africa 22% Limited availability of capital 21% Central and South America 19% Lack of relevant policy/regulations 20% Africa 17% Necessary technologies/tools not yet 19% available/sufficiently developed Perceived first mover disadvantage in 0 10 20 30 40 50 60 70 80 90 100 8% the short- to medium-term Other, please specify 4% 0 10 20 30 40 50 60 70 80 90 10010 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 11
    • SECTOR PROFILE:FINANCIAL SERVICESIn major economic development, the financial According to insurance firm Swiss Re, insured losses Investing in adaptation CASE STUDYservices sector is usually a crucial component. Climate alone from weather-related disasters have jumped from Other parts of the financial services sector are interested HSBC – risk and returnadaptation is no different, whether in terms of direct US$5.1 billion annually in 1970-89, to US$27 billion in climate adaptation too. SAM, a Swiss investmentlending to finance projects, funds that invest in the annually over the last two decades. In 2005 Hurricane HSBC, a global financial services firm group that focuses on sustainability-related investments,sector and provide crucial capital, or insurance products Katrina pushed the annual cost to over US$100 billion headquartered in the UK, has developed a already allocates nearly 15 per cent of its €118 millionthat help individuals and businesses manage their in that year. Allianz, a German insurance and financial range of responses relating to climate (US$164 million) climate fund to adaptation-relatedexposure to climate risk. services group, in 2007 forecasted US$80-120 billion of adaptation, from both a risk perspective and equities, and expects this proportion to grow quickly. annual damage globally from weather-related disasters in terms of opportunity. On the risk front, it “Strategically, adaptation and response should beA small, but significant, minority (15 per cent) of firms over the period 2010-19. It has also noted that the released a report in 2009, focused on the G20, around 35 per cent of the fund, with adaptation takingin the financial services sector are already marketing number and size of catastrophe bonds has increased which assesses the risk to different countries most of that share,” says Michael Riley, deputy portfolioadaptation-related products and services to their clients. sharply in recent years. It is already providing a range of from expected climate impacts, in terms of manager for the firm’s energy and climate funds. He isThis is roughly the same size as the group that see insurance offerings, such as a crop insurance product food losses, water stress, and rising healthcare specifically interested in areas such as water and coastalshort-term opportunities for their business, while far in Brazil, launched in 2009 in partnership with HSBC, costs. This assessment is intended to advise infrastructure, building infrastructure, agriculturalmore — one in four — sees longer-term opportunities. which offers farmers protection against extreme weather both the bank and its clients on looming risks, systems, and knowledge and warning systems. OneMuch of this comes from existing markets: more events, including strong winds, hail, frost and excessive but can also help to shape future products. example is Aecom Technologies, a US firm thatfinancial services firms see growth opportunities within rain. It is now following this up with other targeted One clear example is the bank’s entry into the specialises in coastal and water infrastructure.their current markets than by entering new ones, unlike insurance products (see Case Study on page 13). crop insurance market, developing, togetherthe other three sectors profiled in this report (see Chart: with Allianz, a German insurance and financial Funds such as SAM’s are attracting interest fromNew growth; sector comparisons). Executives polled for services group, an offering for Brazilian farmers, institutional investors that are seeking to access thethis report offered a wide array of examples of work to help them deal with climate-related losses. kind of long-term investment opportunities thatin which they are involved, from financing relevant adaptation can provide. “We see increasing demand inprojects to running funds that invest in such areas, Later this year, HSBC’s Brazilian insurance terms of assets under management and also from anto specific insurance products. Some are specifically arm will introduce a new climate offering: increasing number of institutional investors searchingopportunistic, such as efforts that focus on acquiring an insurance product for individuals that for a way to incorporate climate change into theirdistressed assets and debts. will provide cover to clean and repair homes investment strategies,” says Mr Riley. One investment challenge in this sector is that there are few firms and cars that are affected by weather events. focusing solely on adaptation; instead, much of the The product also provides warnings and activity comes from established firms that are moving information to consumers, says FernandoNew growth; sector comparisons (per cent of those polled) into this market, especially within infrastructure. Moreiro, the CEO of HSBC Insurance Brazil. “It’s basically a 24-hour service that gives Professional Financial Agriculture Infrastructure But the global opportunity is clear: “Climate information about climate and risks of services & services and life sciences and construction change impacts essentially every geography, so flooding. And if you’ve been flooded, then we consulting would clean your home or car.” Mr Moreiro adaptation investment will need to occur on a global basis,” notes Mr Riley. This spans both developed plans to sell this in conjunction with financeWe see potential for new 39 42 38 43 products offered by the bank and believes itgrowth/revenue within our markets, which have massive assets to protect, and developing markets, which are often more at risk. will create a huge new market. “If you askedexisting market Accordingly, many finance executives polled for this me about the biggest impact, it’s more about report highlight emerging markets as key targets, in homes and businesses; the real impact in termsWe see potential for new 40 37 41 49growth/revenue within new particular the Middle East. of changing consumer culture, it’s much moreproduct/service markets on the people side. What we are planning will Overall, however, it is clear that climate adaptation really go to the next level.” remains a niche area of interest. Opinions are about evenly divided as to whether adaptation holds scope for competitive advantage for the financial services sector, or whether it is simply too small at present. The clear reason is that there is simply insufficient demand, as well as a general lack of awareness. It remains to be seen how quickly interest will accelerate.12 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 13
    • SECTOR PROFILE: INFRASTRUCTUREAND CONSTRUCTIONAll elements of infrastructure are built to withstand a Such considerations go well beyond utility firms. Infrastructure opportunity He argues that infrastructure investments thatcertain amount of variance in the weather, from cold Cities, especially coastal ones, face considerable do not factor in future climate impacts — and But what is a risk for city planners, utility firms,and wet winters to hot and dry summers. As weather climate-related risks. In the US, New Orleans may be future regulatory demands in terms of the energy businesses and homes, is in turn an opportunity forpatterns start to change, however, infrastructure the most visible example of such risks, but others, efficiency and carbon impact of structures — will those who build and maintain such assets. Fromand construction firms need to start adapting their such as New York, are actively considering how rises find themselves facing increased risks, both with flood defences and more robust office building,projections and build with greater sensitivity to likely in sea level and more frequent storms will impact regard to climate and finance, over the lifecycle of to reservoirs needing reinforcement. Accordingly,impacts down the line. it. The city plans to become the first major US that structure. “The future has to be deep green, 38 per cent of infrastructure and construction city comprehensively to assess the risks, costs and future-proof buildings and infrastructure,” argues Mr companies polled see only opportunity resultingSuch changes in climate need not be major to alter potential solutions for adapting to climate change, Morrin. “You have to ask how do we future-proof from an uncertain climate — slightly more thanbusinesses’ planning assumptions. Take Anglian along with updating its 100-year floodplain maps these assets, because, if you don’t, then the value of professional services firms (see Chart: Risk versusWater, a British utility firm, for example. By fiscal and amending its building code. In California, city the asset declines.” opportunity, by sector) and the highest of the fouryear 2006/07 (April-March), it noted that more planners at Newport Beach are expecting to raise sectors profiled. Another 32 per cent see risk andthan 85 per cent of the incidents managed by its seawalls, while foundations of new homes are being Skanska goes as far as it can in terms of advising its opportunity in equal measure, making a total ofwastewater incident team were weather-related, built substantially higher than in the past to protect clients on how to plan for such future changes. Its seven in ten firms that see scope to profit. Onefar more than in previous years. It is now actively against flooding. In some markets, such as the UAE standard lifecycle analysis looks at climate impacts, in three believes it holds immediate short-terminvesting in order to start adapting its infrastructure and China, wholly new cities such as Masdar and including what temperatures might be expected in potential, again the highest of the four sectors(see Case Study on page 16). More broadly, such Tianjin Eco-City are being built that incorporate 15-20 years time, which are now included as default profiled, with a further 43 per cent that seechanges are prompting all kinds of utility firms detailed consideration of future climate impacts. in its private finance initiative (PFI) projects. This long-term opportunity.to invest in increased capacity and improved encompasses everything from the energy efficiency ofdistribution. Fortum, an electricity utility operating In practice, however, it is difficult to segregate a building and its ability to capture rainwater, to how Skanska, a Swedish development and constructionin the Nordic countries, has identified not only risks mitigation and adaptation in infrastructure. When robust it is in the face of changing weather patterns. company that operates internationally, sees bothto its power generating ability, but also fines it may constructing a new office tower, firms consider how One example is a school development it is involved short- and longer-term opportunity. Noel Morrin,incur as a result of lengthy power outages relating to improve overall energy efficiency — a mitigation- with in Bristol in the UK. “Part of the initiative looks the firm’s senior vice-president for sustainability andto climate impacts. As such, it is investing to increase related measure — but also think about how robust at the usability and access of classrooms, so we have green support, says the firm is pinning its long-termthe capacity and resilience of both its generating the structure will need to be to endure future climate had to model the climate impact of classrooms and future on becoming a “deep green” developer andassets and transmission network. impacts — an adaptation-related measure. This even ensure that classes are neither too hot nor too cold,” construction partner, which it believes will bolster its goes down to a materials level: Cemex, a Mexican says Mr Morrin. competitive advantage over time. cement maker, does extensive research into how to reduce the energy required to manufacture its cement, but also looks at how its cement can be used to help make structures more resilient to extreme weather. Risk versus opportunity, by sector (per cent of those polled) Professional Financial Agriculture and Infrastructure services services life sciences and construction Primarily risk management 21 23 28 17 Primarily commercial opportunities 34 26 20 38In practice, it is difficult to Both of these 31 29 35 32segregate mitigation andadaptation in infrastructure14 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 15
    • SECTOR PROFILE: PROFESSIONAL SERVICES AND CONSULTINGThis is despite the often-bemused looks from CASE STUDY As with any major transition faced by business, In December 2010 it issued a report advising theclients that greet its engineers when raising climate governments or individuals, help and advice will be private sector to act on adaptation, not only toadaptation issues. As with other sectors, awareness Anglian Water – adapting to new sought: from engineering, planning and design to climate-proof their operations, but also to accesscould certainly be higher: “There’s a big need for realities architecture, legal and management consulting. For new business opportunities. Dr Celine Herweijer, theeducation in some of our markets,” notes Mr Morrin. many, this will be in terms of risk assessments and director of PWC’s sustainability and climate change In 2005 the penny dropped for Anglian WaterThis is reflected more widely: around one in three considering how to enhance business resilience. For practice, noted at the time that adaptation is not in terms of the need properly to assess looming(34 per cent) of firms polled note that limited some, it could be in terms of helping to develop new simply a defensive play, but is about “capitalising on climate impacts. Its CEO instigated a full reviewawareness is a key barrier to exploiting potential products and services. new opportunities, innovations and markets. That’s of the implications, which are wide-ranging,commercial opportunity. the often forgotten story”. especially as much of its business is low-lying Take PricewaterhouseCoopers (PWC), a UK- and operates along an extensive coastline. “TheOf course, awareness will increase as adaptation- headquartered professional services firm. It works with In general, consultants and professional services firms implications cover almost every element of ourrelated projects start to proliferate. The EU has its clients on a wide range of sustainability-related will help other businesses both to understand the risks business,” says Andrew Brown, the firm’s climateconducted a detailed study into the European services, including specific consultation on adaptation. and to capitalise on the opportunities. Work is already change and environmental performance manager.environment and what will need to be adapted, while In the private sector, this is largely focused on risk underway: around one in four companies in the sector The company’s latest strategic direction statementa number of countries have started to review the management: helping firms to identify vulnerabilities, (24 per cent) has already generated revenue relating to outlines climate change as one of the two keychanges that will be required. As a result, awareness priority risks and cost implications across their business climate uncertainty — the highest of the four sectors challenges faced.is slowly spreading. “In engineering, there’s a growing and supply chains, as well as mapping climate risks profiled in this report (see Chart: Firms that have alreadyawareness of how climate impacts on day-to-day for investors. A wider range of services is aimed generated growth/revenue from such opportunities; To better understand this, the firm worked withdesign work that engineers are doing,” says David at the public sector, from risk assessments to the sector comparison). And nearly one in three (30 per cent) the UK Climate Impacts Programme, and theSymons, a director at the environment and energy development of adaptation plans. overall sees short-term potential for their business. A high Tyndall Centre, a UK climate change researchdivision of WSP a British engineering consultancy. proportion of firms here say they are already creating agency, to map out the specific impacts faced.“As an industry, we’re on a journey with this, with competitive advantage through new services (39 per cent). It expects wetter winters and drier summerslots of talk and work, but certainly more that needs to reduce the availability and quality of waterto be done.” resources, while more intense rainstorms will increase the risk of flooded drains, sewers and treatment works. Longer-term, many of its Firms that have already generated growth/ pumping stations and major coastal infrastructure revenue from such opportunities; sector assets face a threat from rising sea levels. comparison (per cent of those polled) To deal with these, it has set out three Professional services 24 adaptation priorities: immediate (managing risk of flooding and weather-related incidents); Infrastructure and construction 19 imminent (dealing with seasonal changes, for example by increasing winter storage); and “on Financial services 15 the horizon” (designing resilient infrastructure for the long term). It has identified 20 water Agriculture and life sciences 14 treatment sites for priority flood prevention work and is investing “tens of millions” in enhancing the resilience of its water supply network, as part of its ongoing capital investment. This spending is a small fraction of its overall annual spending of several hundred million pounds, but represents an important shift in planning focus for the longer-term.16 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 17
    • Emerging services The legal sector is also finding new demand from As DLA Piper’s example suggests, being able One example comes from Willis Research Network, adaptation. DLA Piper, a global law firm with offices to source and tap into appropriate skills is a a subsidiary of Willis Group, a global insurance andMuch of this opportunity lies in straightforward in 29 countries, is advising private sector clients on key challenge for consultants and professional reinsurance broker, which already collaborates withconsulting services: advising businesses on how issues ranging from real estate portfolio management services firms. To cope, firms will need to invest in various universities to deepen its research effortsto adapt their operating, financial and strategic to compliance, while also working with public sector training: helping their engineers, risk managers and into climate modelling. It ensures a supply ofpractices. A lot of effort will go into sharpening clients on adaptation-related policy creation and consultants develop appropriate experience relating appropriate skills and applies them to its business;risk management practices and devising business implementation. One example relates to flood risk, to climate issues. Along with this, demand for new it specifically funds PhD students and postdoctoralcontinuity plans. But there is also a wide range to help assess the risk and ensure that appropriate and more specialist skills will also rise. research fellowships.of more specific consulting and services, such as measures have been taken in a given situation. “Wedeveloping software to help analyse the impact of often get situations, such as big public procurementnatural disasters and other specialised climate services projects, where the idea is to back up the risk that(see Box: Emerging climate services). underpins the deal,” explains Paul Jayson, the firm’sMuch attention within the consulting industry is head of sustainability. “We look at who can bear that EMERGING CLIMATE SERVICES risk, and then deal with insurers to get insurance, orgiven to how to deal with the impacts of weather reinsurance, to back it up.”on physical assets, such as offices, cities, factories A range of new services is emerging in Other firms already provide specialist climate-and farms. WSP Group has developed a wide- To deal with such challenges, DLA Piper taps into response to new, or expected, demands relating modelling services, especially for insurers andranging business on the back of climate-change- its expertise across the globe in order to bring it to climate services. In the US, Earth Networks, reinsurance firms, to support risk or catastropherelated services. In terms of adaptation specifically, to bear on all kinds of climate scenarios. “It’s a a company that specialises in providing modelling. For example, AIR Worldwide, athis involves “quite a lot of hard engineering,” says question of how one innovates and applies that toMr Symons of the firm’s environment and energy weather data, announced in January that it US-based provider of risk modelling and similar, but different situations,” says Mr Jayson. “Fordivision. “Designing flood defences, re-engineering would invest US$25 million in new equipment in consulting services, helps insurers calculate example, our offices in the Gulf of Mexico may dealgas pipelines, and so on. It’s not necessarily sexy, order to monitor and sell data on greenhouse the likely impacts of floods, storms and other with issues of flooding, but then in the Middle Eastbut these are the biggest opportunities for the gases, such as carbon dioxide and methane, to weather events. In 2009 it collaborated with the they’re handling issues of drought, but using theengineering business resulting from climate change.” same principles.” governments and business, the first commercial UK’s Meteorological Office to produce a reportSuch work in turn requires collaboration with venture of its kind. detailing the financial risks of climate change,architects, cost consultants, programme managersand management consultancies, among others. For from flooding in the UK to typhoons in China.example, WSP Group worked with Foster + Partners,a UK-based architecture firm, to help developsustainable infrastructure strategies for Masdar City, anew city being created in Abu Dhabi, UAE, that aimsto be the world’s first operationally zero-carbon andzero-waste development. Much attention within the consulting industry is given to how to deal with the impacts of weather on physical assets, such as offices, cities, factories and farms18 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 19
    • SECTOR PROFILE: AGRICULTUREAND LIFE SCIENCESAlthough adapting to an uncertain climate is a A recently released plant biotechnology pipeline Healthy business? Challenges aheadrelatively new concept for many industries, it from CropLife shows a range of crops, encompassing Another area that will face new pressures and Across the life sciences and agriculture sector as ahas essentially been a reality for farmers since corn, cotton, rice, eggplant and tomato, which potential opportunities, relates to healthcare and whole, nearly half (46 per cent) of firms polled arefarming first existed. “Agriculture has always been have new water stress-tolerant traits currently in life sciences. Research from HSBC6 suggests that currently conducting R&D to develop new products,adapting to climate change, that’s the nature of development. “More of these traits are coming, with climate change is currently the cause of less than or enhance existing ones (see Chart: Companiesfarming,” says Denise Dewar, executive director a greater variety of crops coming to the market,” says one per cent of the global disease burden, less currently conducting research and development;of plant biotechnology at CropLife International, Ms Dewar. Other efforts in the sector cover related than half of which is felt within the G20 countries, sector comparison). For example Nestlé, a Swissan industry association headquartered in Brussels, processes: Jain Irrigation, an Indian firm specialising but that health-related productivity losses could food group, has opened an R&D centre in the IvoryBelgium. “We’ve been constantly adapting and in irrigation systems, has developed various products double by 2020, with healthcare costs owing to Coast to help improve cocoa production in extremeincreasing yields.” that reduce water wastage, from drip systems to flooding increasing by 500 per cent. The World weather conditions. water filtration. Health Organisation (WHO) notes that diseases suchNow, in addition to that the need to feed a rapidly as malaria and dengue could spread as rainfall and But given the complexities of much of the work,expanding global population, there is a recognition Given the seriousness of the issue, along with rising temperature patterns change. In 2007 Italy reported especially that related to drug development, one ofof the need to overcome greater and more frequent pressures on world food supply, both governments an outbreak of chikungunya, a tropical virus spread the top challenges identified by respondents is thatclimate shocks. “Things are going to become more and academia are closely involved. Last August, a by mosquitoes, the first incidence of the disease of the high cost of product development — secondunpredictable in future. We’re trying to find ways to team of UK researchers released the first sequence noted in Europe, which was blamed on unusually only to the challenging business environment andfind a food supply that is more stable, yields that are coverage of the wheat genome, as part of efforts to warm weather. More starkly, increased incidences of on a par with insufficient demand. Another issuemore stable, so that we can survive more shocks in deepen understanding of wheat genes and to help drought and flooding will lead to more malnutrition for drug companies is on the demand side; asthe system,” says Ms Dewar. develop new varieties that are better able to cope and diarrhoea, resulting from reduced sanitation and many of the impacts, such as malaria, will likely with drought, salinity, or to deliver higher yields. dirty water. be felt disproportionately within poorer countries,In turn, such efforts are feeding a wide range of Similarly, the Scottish Crop Research Institute has pharmaceutical firms may need carefully to considerR&D efforts to help the sector. One prime partnered with Ribena, a UK beverage company, to Accordingly, developing new healthcare approaches how they approach this. GlaxoSmithKline, a UK-basedconsideration is dealing with rising patterns of water develop new varieties of blackcurrants that are more or drugs to cater for changing risks will be another drug company, has already agreed to cut prices onstress and associated rises in soil saline content. resilient and resistant to climate change. area of increased attention. As one healthcare its patented medicines in 50 of the least developedFirms such as Pioneer (a technology subsidiary of executive polled for this report puts it “Pathogens countries, to a maximum of one-quarter of prices inUS-based DuPont) and Syngenta, a Swiss agricultural and diseases are affecting different areas as a result developed countries, in response.biotechnology firm, have been working for years to of climate change. Areas previously arid or temperatecreate new products that cater to such concerns. are becoming wet or tropical, resulting in different Overall, this was the only sector of the four profiledBoth firms have recently announced new seeds for insects and diseases. These are opportunities and in this report where more respondents see risksdrought-tolerant corn, as part of a rising level of threats regarding the provision of healthcare and to their business than opportunities: 28 per centcompetition in the industry for such products. pharmaceutical services.” saw only risks, versus 20 per cent who saw only opportunity (a further 35 per cent saw both risk and opportunity in roughly equal measure). Companies currently conducting research and development; sector comparison (per cent of those polled)One prime agricultural Agree or disagree: we are currently conducting R&D Professional services and consulting Financial services Agriculture and life sciences Infrastructure and constructionconsideration is dealing with to create/enhance related products/servicesrising patterns of water stress Agree 47 44 46 39 Neutral 33 33 27 40 Disagree 20 19 24 1820 Adapting to an uncertain climate: A world of commercial opportunities Adapting to an uncertain climate: A world of commercial opportunities 21
    • CONCLUSION: TAKING THE NEXT STEPSAs new issues gain prominence, new markets spring Some of the key steps businesses should consider are Referencesup in response. This process is getting underway listed below. (Page 05)in terms of adapting to uncertain future climate 1 Fourth Assessment Report: Impacts, adaptation andimpacts, although it remains at an early stage — Get buy-in from senior management. Anglian vulnerability, Intergovernmental Panel on Climateespecially in terms of awareness. Many of the Water, for example, only got moving on the issue of Change, 2007.forecast effects of climate change will be long-term adaptation once its chief executive got involved in (Page 10)considerations, so it is understandably currently low the issue. 2 Investment and financial flows to address climateon many firms’ radars. Nevertheless, rising climate Assess the potential risks and vulnerabilities change, United Nations Framework Convention onunpredictability, coupled with increasingly globalised relating to climate impacts. This should Climate Change, 2007.businesses and supply chains sensitive to such encompass both direct impacts (flood risks, storm 3 The cost to developing countries of adaptingchanges, means firms would be well advised to put exposure, etc) and indirect ones (supply chain to climate change: New methods and estimatesclimate risks, and related adaptation opportunities, disruptions, insurance costs, etc). (consultation draft), The World Bank, 2010.on their agenda. Keep alert as to new opportunities that might 4 Adapting to climate change: Assessing the costs, be emerging. As awareness of the need to adapt Martin Parry, Nigel Arnell, et al, in Environment grows, both new government regulations and Magazine, November/December 2009. increased business and consumer demands will (Page 11) stimulate the emergence of new markets. 5 Infrastructure, engineering and climate change Tap into external information. Firms can adaptation — ensuring services in an uncertain use related research, such as country-level future, Royal Academy of Engineering on behalf of assessments of likely impacts, to aid internal Engineering the Future, February 2011. efforts. Many insurers, for example, are (Page 21) tapping into a range of agencies and academic 6 Too close for comfort: The HSBC Climate institutions to help develop risk models. Vulnerability Assessment — mapping risks for the Where applicable, develop and refine an G20 in 2020, HSBC Research, December 2009. adaptation strategy. Set out shorter-term priorities, as well as longer-term aspirations.22 Adapting to an uncertain climate: A world of commercial opportunities 23
    • UK Trade & Investment The Economist Intelligence UnitUK Trade & Investment is the Government The Economist Intelligence Unit is the businessdepartment that helps UK-based companies succeed information arm of The Economist Group, publisherin the global economy. of The Economist. Through our global network of 700 analysts, we continuously assess and forecastWe also help overseas companies bring their high political, economic and business conditions in nearlyquality investment to the UK’s dynamic economy — 200 countries. As the world’s leading provider ofacknowledged as Europe’s best place from which to country intelligence, we help executives make bettersucceed in global business. business decisions by providing timely, reliable and impartial analysis on worldwide market trends andUK Trade & Investment offers expertise and contacts business strategies.through its extensive network of specialists in the UK,and in British embassies and other diplomatic offices For more information please visit www.eiu.comaround the world. We provide companies with the toolsthey require to be competitive on the world stage.For further informationplease visit www.ukti.gov.ukor telephone +44 (0)20 7215 8000© Crown Copyright 2011You may reuse this information (not including logos, graphics andimages) free of charge in any format or medium, under the termsof the Open Government Licence. To view this licence, visitwww.nationalarchives.gov.uk/doc/open-government-licenceor write to the Information Policy Team, The National Archives,Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.ukAny enquiries regarding this publication should be sent to ourEnquiry Service by email: enquiries@ukti.gsi.gov.uk or telephone:+44 (0)20 7215 8000 (Monday – Friday 09.00-17.00).This publication is also available from our website at www.ukti.gov.uk24 Adapting to an uncertain climate: A world of commercial opportunities
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