Analysis of internal and external benefits of adaptation measures for companies.

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Internal and External Benefits of Adaptation Measures
for Companies
Luciana S. Maulida, April 2023.
Overview of IPCC’s Sixth Assessment Report
The Intergovernmental Panel on Climate Change (IPCC) recently released its Sixth
Assessment Report, which states that global surface temperatures have surpassed pre-
industrial levels by 1.1°C.1 This increase in temperature can trigger extreme weather
events, leading to severe business consequences such as operational and financial
disruptions. Although reducing greenhouse gas emissions through mitigation is
crucial, it is insufficient to address the challenges posed by climate change. As key
drivers of innovation and economic growth, businesses are well-positioned to play a
critical role in building resilience by adopting adaptation measures to prepare for the
unavoidable impacts of climate change.2
On adaptation measures and finance, the IPCC found that:3
- The imperative to address climate change demands a substantial increase in
both adaptation and mitigation financing.
- Global capital is available and global tracked climate finance has increased in
recent years, but current financial flows for adaptation, including both public
and private sources, remain inadequate, thus impeding the implementation of
necessary adaptation measures.
- Public and private finance flows for fossil fuels remain higher than those for
climate adaptation and mitigation.
1 “Synthesis Report of the IPCC Sixth Assessment Report (AR6)” Intergovernmental Panel on Climate
Change (‘IPCC’), 2023. <https://report.ipcc.ch/ar6syr/pdf/IPCC_AR6_SYR_LongerReport.pdf>
2 Wu, Jennifer., et al. “Adapting to a warmer planet: Why climate change investing isn’t just about
decarbonisation” J.P. Morgan Asset Management, 2023.
<https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/sustainable-investing/climate-
adaptation.pdf>; “Accelerating Business Action on Climate Change Adaptation” World Economic
Forum (‘WEF’), 2023.
<https://www.pwc.com/gx/en/services/sustainability/assets/cop27/accelerating-business-action-on-
climate-change-adaptation.pdf>
3 IPCC (n 1).

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- The private sector can advance its commitment to climate adaptation by
establishing business cases, ensuring accountability and transparency
mechanisms, and monitoring progress.
Adaptation is necessary for global climate actions and for businesses to build resilience
and sustain long-term growth. Moreover, adaptation can generate internal and
external benefits for companies which will be explored in the next section.
Internal Benefits
A Enhance Resilience
The impact of climate change on businesses can vary depending on several factors,
such as the sector, location, and size.4 Developing adaptation strategies is crucial to
prevent the associated risks and financial losses and ensure business continuity.5
Resilience in business refers to being less exposed to climate impacts and being able
to recover quickly after extreme climate events. To enhance business resilience, several
enabling actions are necessary. These include assessing and managing climate risks
through disclosures and incorporating adaptation and risk considerations into
business decision-making.
1 Assessing and managing Risks
Effective management of climate risks by businesses requires assessing their
exposure to the impacts and risks of climate change.6 Disclosure is a valuable
tool that helps companies identify and assess the associated risks so
companies can improve their resilience and manage, prepare, avoid, and
4 “Business Case for Adaptation” United Nations Framework Convention on Climate Change,
Adaptation Committee (‘UNFCCC’), 2019.
<https://unfccc.int/sites/default/files/resource/businesscase.pdf>
5 WEF (n 2); “Business and Climate Change Adaptation: Toward Resilient Companies and
Communities” United Nations Global Compact and United Nations Environment Programme (‘UN
Global Compact and UNEP’), 2012.
<https://www.iccr.org/sites/default/files/resources_attachments/businessandclimatechangeadaptati
on.pdf>
6 “Why investing in resilience is good for business” Global Center on Adaptation (‘GCA’), 2020.
<https://gca.org/why-investing-in-resilience-is-good-for-business/>

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prevent exposure to climate change risks.7 While the risks may differ for each
company, there are overarching climate change risks that affect business as
a whole.8 These risks are:
- Physical risks: Impacts of climate change on infrastructure and assets
from extreme weather events (e.g. floods, wildfires, and hurricanes) and
slow onset impacts (e.g. temperature and sea level rise), leading to
financial consequences for companies.
- Regulation risks: Potential impact of government action to address
climate change, including new regulations or removal of subsidies,
requiring businesses to adapt to changing policies.
- Price risks: Impact of climate change on prices of raw materials and
commodities, leading to pressure on companies to cope with uncertainty
around inputs to production, energy, transport, and insurance.
- Product risks: Possibility of unsellable core products due to climate
change, causing shifts in consumer preferences, regulation changes, and
increased production costs.
- Reputation risks: Arise when the public perceives a company or
industry's actions as harmful or inadequate in the context of climate
change, potentially leading to financial losses and decreased appeal to
customers, investors, and employees.
2 Incorporating adaptation and risks considerations into business
decision-making
To effectively manage risks, companies must proactively anticipate and
incorporate them into their decision-making process while integrating
adaptation strategies into their corporate framework.9 These measures,
which involve changes to processes, practices, and structures, can mitigate
damage and explore opportunities associated with climate change, ensuring
business continuity and resilience in the face of evolving market and
environmental conditions.10 However, despite the need for adaptation plans,
7 WEF (n 2).
8 UNFCCC (n 4).
9 Wu, et al. (n 2).
10 UNFCCC (n 4).

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research shows that less than a quarter of firms have established concrete
strategies, partly due to difficulty assessing precise risks and vulnerabilities.11
Yet, uncertainties should not impede companies from taking proactive steps
towards adaptation, recognizing its ongoing importance as climate change
continues to impact businesses.12
B Increase Revenue and Cost Savings
The private sector can seize upon adaptation actions to drive positive outcomes for
their business.13 By proactively identifying the potential impacts of climate change,
companies can unlock opportunities for resilience, growth, and cost savings. In
addition, this approach allows for a more comprehensive understanding of how
businesses can thrive in an evolving climate and capitalize on emerging trends and
opportunities.
1 Cost savings
Adaptation measures offer businesses the potential to circumvent current
and future losses by taking proactive steps towards managing climate change
risks. For example, such measures could involve relocating a data centre
from frequently flooded areas, devising strategies to minimize lost working
hours during disasters or adhering to stricter building codes.14 Notably, these
measures can translate into significant future savings, while disregarding
adaptation initiatives can result in rising insurance premiums or repair
expenses, ultimately increasing costs for business.
11 “ESG and Climate Trends to Watch for 2023” MSCI ESG Research (‘MSCI’), 2022.
<https://www.msci.com/research-and-insights/2023-esg-climate-trends-to-watch>: Li, Xia.
“Physical Climate Risk and Firms’ Adaptation Strategy” SSRN, 2022.
12 Randall, Timothy., et al. “Private investment for climate change adaptation—difficult to finance or
difficult to see the finance?” London School of Economics and Political Science, Grantham Research
Institute on Climate Change and the Environment, 2023.
<https://www.lse.ac.uk/granthaminstitute/news/private-investment-for-climate-change-adaptation-
difficult-to-finance-or-difficult-to-see-the-finance/>
13 UNFCCC (n 4).
14 Muth, Louise. “Climate Adaptation: It’s Everybody’s Business” International Finance Corporation,
World Bank Group, 2022.
<https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and
+events/news/impact-stories/climate-adaption-everybodys-business>

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2 Exploring and developing new products or services
The urgency of actions to face the challenges of climate change allows
businesses to capitalize on adaptation-related opportunities. Companies can
develop products, services, and business models that respond to the
changing climate.15 These opportunities have the potential to generate value
for both businesses and society while also considering the co-benefits of
adaptation solutions.16 As the effects of climate change will create a profound
opportunity in many industries, companies that act swiftly to create new
value for both business and society will gain significant benefits in the new
climate economy.
3 Investing in adaptation-related projects
Private sector investment in climate adaptation is an increasingly profitable
business opportunity.17 The Global Commission on Adaptation's 2019 report
found that investing in climate adaptation initiatives, such as resilient
infrastructure and early warning systems, can yield a return of between two
and ten dollars for every dollar invested.18 J.P. Morgan Asset Management
views climate adaptation as a business model and investing in climate-
resilient regions and projects as opportunities to generate higher returns.19
Climate Disclosure Project's survey indicates that half of the world's largest
companies believe climate adaptation solutions could increase revenue by
$236 billion.20 These investments provide long-term returns for investors
and come in various forms.21 Banks can strengthen their portfolios by
financing climate-ready infrastructure, while insurers can market insurance
products with incentives for greater climate resilience.22 Agricultural and
15 WEF (n 2).
16 Ibid.
17 Randall, et al. (n 12).
18 Wu, et al. (n 2).
19 Ibid.
20 “The next challenge for business: adapting to climate change” Global Environment Facility (‘GEF’),
2019. <https://www.thegef.org/blog/next-challenge-business-adapting-climate-change>
21 Wu, et al. (n 2).
22 GEF (n 20)

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industrial companies can ensure their supply chains and operations can
withstand extreme weather.23
External Benefits
A Contribute to global adaptation measures and strengthen
cooperation
The Adaptation Gap report from UNEP highlights insufficient investments in crucial
technologies and interventions that support adaptation efforts, resulting in a
significant adaptation finance gap estimated to reach $340 billion annually by 2030.24
As private finance holds a substantial role in the global financing environment,
governments recognize the necessity of promoting private investment.25 Furthermore,
the Adaptation Gap report highlights the need for increased funding to support
adaptation in key sectors such as infrastructure, agriculture, and health.26 Innovation
in products and services is a crucial driver of economic growth and can support
adaptation efforts.27 For example, floating urban areas, heat-resistant building
materials, digital technologies for disaster risk prevention, and new insurance
schemes are examples of how private companies can contribute to climate
adaptation.28 Financing is critical in enabling private sector investment in adaptation,
and collaboration with governments can facilitate access to funds such as loans, equity,
or public-private partnerships.29
Partnerships between the private sector, government, and communities are crucial in
promoting action on adaptation. Multistakeholder efforts can identify scalable
adaptation solutions that benefit both the private sector and society.30 Moreover,
governments can work with private actors to support their national adaptation plans
23 Ibid.
24 “Adaptation Gap Report 2022” United Nations Environment Programme (‘UNEP’), 2022.
<https://www.unep.org/resources/adaptation-gap-report-2022>
25 Ibid.
26 Wu, et al. (n 2).
27 GCA (n 6).
28 Ibid.
29 Randall, et al. (n 12).
30 WEF (n 2).

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and meet their commitments under their Nationally Determined Contributions
(NDCs), creating a collaborative approach that enables effective adaptation measures.
B Building a resilient future for all
Investing in climate adaptation allows businesses to actively contribute to global
adaptation measures while building societal resilience and providing a social license
to operate. Companies can help vulnerable countries and communities adapt to
climate risks and impacts by creating products and services that facilitate adaptation.31
They can also engage with governments, communities, and other stakeholders to
adopt policies and practices that promote long-term resilience.32
Private sector investment in adaptation measures can yield economic benefits, such as
creating new markets and job opportunities. These benefits, in turn, can support
sustainable economic growth and social welfare, making private sector involvement in
climate adaptation positively contribute to society and build a climate-resilient future.
31 Ibid.
32 UN Global Compact and UNEP (n 5).

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Figure 1. Internal and External Benefits of Adaptation Measures for Companies.
Conclusion
Climate adaptation is becoming a pressing imperative for businesses to ensure long-
term growth in a changing climate landscape. Companies can enhance resilience,
increase revenue and cost savings, become key stakeholders in global climate action,
and contribute to building resilience for all by undertaking adaptation measures.