The United Nations calls it “one of the major challenges of our time” that is “global in scope and unprecedented in scale”. Climate change is a subject that’s often contentious and combative – and rarely agreed upon. However, its potential environmental, social, political and economic repercussions cannot be ignored.
There is debate among many people across the world about global warming – the gradual increase in the average temperature of the Earth’s atmosphere and its oceans, and its link to the Earth’s changing climate. Some call it nonsense. And yet, the planet’s average surface temperature has risen about 1.1 degrees Celsius (2 degrees Fahrenheit) since the late 19th century, according to NASA. What’s more, it claims 2016 was the warmest year on record.
The Paris climate agreement has now set out a global action plan to limit global warming to well below 2 degrees Celsius. But why is all this relevant to businesses? Well, global warming may trigger rising sea levels due to the melting polar ice caps, as well as increase the frequency and severity of storms, and other severe weather events. Extreme and unpredictable weather conditions all have direct implications for commerce globally. And in meteorologist John Hammond’s opinion, these events may become more commonplace in the future.
“The weather has always seen peaks and troughs. Extremes have happened all through history. We are very short-sighted in terms of our perspectives on extreme weather. We can be fooled by the near-term, without having an adequate long-term perspective,” says Hammond. He adds, “Extreme weather has always happened. The role of climate change is a complex one. The science indicates that extreme weather will become more prevalent.”
In 2017, extreme weather has certainly felt more prevalent than before. Hurricane Harvey – and the subsequent Atlantic storms – saw major upheaval to global supply chains. The biggest storm to hit Texas in 50 years disrupted one of the most important economic crossroads in the United States and the heart of its oil industry. Ports, railways and highways were closed – blocking the movement of the key parts of the U.S. manufacturing supply chain, according to Reuters news agency.
Commercial property insurer, FM Global, is no stranger to the importance of understanding supply chain risk. And that expertise is gleaned from years analysing the impact of extreme weather events across the world.
“If we look back over the last seven years, I think everyone will remember 2011 as a year that was typified by a number of events, particularly a clash event, where we saw a large earthquake that led to a tsunami. That saw a lot of damage in Japan. 6% of GDP for Japan was impacted. The numbers people talk about is in excess of $300 billion of property loss in that zone,” says Tom Roche, a Senior Consultant at FM Global.
The lesson here is, even if your business is not directly affected by extreme weather events, it is possible that your suppliers or customer base may be. Organisations need to gain the full measure of the potential effect of natural disasters and weather events and above all, according to Russ Kirby, FM Global Senior Account Manager, how to mitigate.
“Understand where in the world your key assets reside, what exposes them and where are you vulnerable. If you take that basic approach, you can work out things you can do to look after your own interests and protect yourselves. So, it’s a case of identifying the risks, quantifying what is my worst-case scenario and then looking at mitigation strategies,” says Kirby.
Although FM Global says there is no definitive scientific evidence that climate change will increase the severity or frequency of natural catastrophes, it does believe there is a greater risk of coastal flooding in the future, due to rising sea levels.
It warns that property loss from natural catastrophes is extremely costly and will increasingly be so, due to: the rise in the world’s population and associated value risk; a surge in vulnerability due to globalisation of businesses and growth of outsourcing; and the rapid development of emerging markets that are less resilient. Especially, as some predict, if the weather becomes more erratic in the future.
“I expect that in the decade ahead there will be an unknown unknown. Something will happen in the world of weather that will have such a huge impact, hopefully on parts of the world where policy is made up, that will jolt policy-makers into awareness of what’s happening globally with our weather systems,” says meteorologist John Hammond.
Extreme weather events are also a jolt to global businesses – especially fragile ones. And while the climate change debate continues, there are concrete steps all organisations can take now, to protect all their commercial assets and prepare for the unknown.