How business can manage climate risk in Southeast Asia
The World Economic Forum reports that the leading threats to businesses today are extreme weather events, natural disasters and the failure to mitigate and adapt to climate change. Businesses and society in Southeast Asia in particular — one of the most vulnerable regions in the world to climate change — face unprecedented climate risks. The Asian Development Bank finds (PDF) it likely will experience larger economic losses than any other area in the world.
Because of the existing and projected impacts from climate change, it is imperative for businesses in Southeast Asia to prepare for today’s climate reality. In two new reports, we outline why and how businesses across countries and industries can act now to build climate resilience.
As the world’s fourth-largest economy, the region has seen rapid economic growth and urbanization over the last decade. By 2050, the population of Southeast Asia is expected to reach 760 million people. Many of these people live in cities concentrated in low-lying coastal areas, which puts communities and industries at risk. For instance, Indonesia has the world’s second largest coastline, exposing nearly 60 percent of its population and 80 percent of business production to sea-level rise, storm surge and inundation. And Indonesia is urbanizing rapidly — second only in the world to China — but has an infrastructure gap of $1.5 trillion compared to other emerging economies. Land subsidence and poor infrastructure are causing the country’s capital of Jakarta to sink faster than any other big city in the world.
Businesses are being affected today. In Thailand, the Asian Disaster Preparedness Center found (PDF) that small and medium-sized enterprises (SMEs) — which comprise 99.7 percent of all businesses in the country and 78 percent of its labor force — experienced several impacts on their business from recent weather and climate-related events. About 37 percent of businesses surveyed said employees were unable to get to work; 26 percent were unable to deliver products; 22 percent experienced damage to facilities and equipment; 20 percent received damaged raw materials; and 17 percent were unable to receive materials or services from suppliers.
To prepare for climate change, businesses in the region need to build resilience, defined as the ability to anticipate, absorb, accommodate and recover from the impacts of climate change. Building resilience can help a business protect its valuable assets, maintain productivity and reduce costs. The benefits to building resilience can extend beyond business continuity — resilience links a company to its broader community and operating context. Every business relies on basic resources and infrastructure to function, but it also needs a thriving economic community to support its operations with essential human, natural and financial assets. Resilience can create multiple business benefits, ranging from a consistent source of raw materials to healthy and safe employees.
However, to get started, a company needs to understand its risk. Assessing climate risks requires a company to identify its exposure to climate hazards — such as heatwaves, more frequent extreme weather events and drought — throughout operations, the supply chain and in the community. Moreover, understanding the vulnerabilities, or underlying weaknesses, that can exacerbate risk is essential. Vulnerabilities include, for example, inadequate infrastructure in which a manufacturing facility floods after heavy rainfall, or the distribution of goods and serves is disrupted due to damaged roads and seaports. In short, climate risk can affect business strategy and impact finances, operations, human resources, compliance, and sales and marketing.
Businesses can take five steps to start building climate resilience:
- Develop a governance structure.
- Assess climate risk throughout operations, the supply chain and communities.
- Build a resilience strategy leveraging the company’s capital assets.
- Partner with others to scale up resilience.
- Disclose risks and report on progress.
The private sector in Southeast Asia must pursue efforts to enhance climate resilience with both urgency and ambition.
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