6 steps to managing your company's physical climate risks

Editor's note: This is the first post in a new regular series featuring extracts from The DōShorts Sustainable Business Collection, short books that offer practical and expert solutions to emerging sustainability challenges.

This article is extracted from the book "Adapting to Climate Change: 2.0 Enterprise Risk Management" by Dr. Mark Trexler and Laura Kosloff. (Dō Sustainability, March 2013)

Developing a climate change adaptation strategy does not mean having to "climate proof" a company's operations against conditions that might not appear for decades into the future. But it does suggest that near-term decisions consider future climate risk in order to minimize future stranded investments, and to hedge against potentially accelerating climate change. Expanding one's perspective to climate change should generate several benefits:

  • The massive amount of "noise" associated with today's weather patterns complicates the process of figuring out what you are adapting to; clear conclusions can be hard to find. Taking a longer-term view as part of a climate change adaptation strategy can help in interpreting near-term trends as well.
  • Adapting to the weather, done at the local level by operational staff, can result in a patchwork of responses to changing climatic conditions that confuses stakeholders and complicates corporatewide investment decisions. A coherent climate change adaptation response will be based on corporatewide risk management principles, helping avoid such confusion.
  • Focusing only on "the weather" may leave game-changing risks and opportunities unidentified. What if a company's entire business model is at risk over the next 20 to 40 years due to "high confidence" climate forecasts? Shouldn't that information find its way to the C-suite before it finds its way to investors, allowing the company to consider and manage both climate and brand risks?

When decisionmakers suggest that they're doing as much as they can, and can't go further in addressing climate risks, they are implicitly answering either the "Is it worth it?" or "Can I do it?" questions in the negative. For companies with long-term assets, or with vulnerable operations and supply chains, understanding and managing climate change risks is prudent enterprise risk management. Many companies are likely failing this prudency test, simply because they're not asking the right risk management questions.

If a company does decide to expand its risk management horizons from today's weather to future climate change, the remaining question really is: How can a company develop an approach to reducing business uncertainty around future climate change that is both practical and cost-effective in the short term, and which continues to learn over time from better information that can further reduce uncertainty.

Next page: Nate Silver's take on climate adaptation