Existing Private Sector Approaches for Identifying, Assessing and Managing Physical Climate Risks
Despite a growing number of companies assessing and managing the potential physical impacts of climate change on their business operations, action is not at the scale, degree, or urgency warranted. This situation has been compounded by the lack of structured approaches to support business on their climate resilience journey, although this is also changing (Box 1).
|Box 1. General and sector specific guidance for companies on physical climate risk management
Across the various private sector climate resilience frameworks and approaches (Box 1), there are a number of common expectations and requirements, including:
- The need to evaluate climate risk in the context of vulnerability. Failure to assess the vulnerability of people and assets amplifies the climate and disaster risk threatening a business.
- The importance of using the best available climate data and information, covering (at a minimum) the lifespan of the asset, in order to adequately evaluate the associated risk and opportunity.
- The importance of ensuring the scope of climate-related vulnerability assessment goes beyond the direct operational and facility boundary and considers the value chain, community and enabling infrastructure, such as ports and railways.
- Acknowledgment that the baseline weather and climate conditions previously used for business planning and decision-making purposes almost certainly have changed and will do so further.
- The critical importance of obtaining multi-functional input (i.e. beyond simply environmental function) to ensure an assessment takes a broad perspective. Relevant business departments are likely to include finance, planning, procurement, human resources, community, asset management, engineering, infrastructure and health/safety.
- The value of integrating resilience into existing company’s processes, such as those for planning, risk management, investment and capital evaluation, rather than being a “bolt on” exercise or process.
- Consideration of partnerships as a means for implementing climate resilience strategies.
Building Resilience: Leading Corporate Case Examples
A growing number of companies have started to assess and respond to water-related climate risks by developing mitigation and adaptation strategies at a number of organizational levels. Below are case examples of adaptive strategies within direct operations, local catchments, value chains and surrounding communities to build resilience, the areas where climate change impacts are felt by companies (see Figure 1).
Once climate-related hazards are understood, companies often focus on actions such as enhancing water-use efficiency, ensuring appropriate water pollution controls are in place, and undertaking flood mapping exercises to protect key on-site infrastructure.
- L’Oreal, a beauty company, has a global climate change risk map representing all activities and business areas. The list of risks is prioritized based on the level of impact and control by L’Oreal. Physical risks from climate change disrupt L’Oreal’s operations due to increased severity and frequency of weather events. To mitigate their physical risk, L’Oreal has a business continuity plan (BCP) for crisis management and recovery to minimize the impact on their revenues. The site’s supply chain manager or environmental health and safety manager implements, updates and tests the BCP. The supply chain technical directors ensure that the BCP is deployed and the corporate supply chain managers centralize the information. In parallel, L’Oreal has a natural hazard insurance program which assesses the vulnerability of their production sites to extreme weather events to inform the prioritization of prevention actions. Operating losses over one month from interruption of a factory from extreme weather events are largely covered. Insurance is implemented if damage to a production plant occurs despite the prevention actions.8
- Olam, a global agribusiness company, recognized water as a business risk to its operations in California, especially after the 2012-2017 drought. To address this risk, Olam developed a selective breeding program to produce onions with higher solid content and lower water content in order to optimize irrigation. In collaboration with growers, Olam saved 9.7 billion litres of water, 280 tons of nitrogen, 20,000 tons of greenhouse gases and 4.6 million kwh of power since 2009.9
Many companies have come to understand that even the most water-efficient operations with well-managed effluent discharge are not insulated from water-related climate risks if the water resources in the catchment they depend on are under threat. Accordingly, supporting the protection and restoration of wetlands, upland forests and other crucial ecosystems are critical to ensuring reliable water supplies and reducing flood risks in a changing climate.10 Furthermore, these nature-based solutions can result in multiple benefits, such as improved water quality, carbon sequestration and enhanced biodiversity.
- Volkswagen, a car manufacturer, has a production plant in the Puebla Tlaxcala Valley, a region of Mexico where water supply was insufficient to meet the growing city of Puebla and local industry. The company partnered with experts from the Comisión Nacional de Áreas Naturales Protegidas and Free University of Mexico City. Since groundwater recharge was dependent on restoring ecosystems on the volcanic slopes of Popocatépetl and Iztaccíhuatl, Volkswagen replanted 300,000 Hartweg’s Pines, dug 21,000 pits, and developed 100 earthen banks to retain rainwater and infiltrate water into deeper soil layers. Approximately 1.3 million cubic meters of groundwater per year were recharged back into the aquifer. Additional biomass sequestered CO2 and improved conditions for native fauna. The additional groundwater supply will support Volkswagen’s long-term operations and benefit local communities.11
- LafargeHolcim, a building materials company, faced increased flooding near their operations due to climate change and deforestation. Through careful review of hydrologic and hydrogeological studies of river systems, LafargeHolcim gained experience managing river flow and converting their quarries into water retention basins to mitigate flood risk. In addition, one quarry in Bellegarde, France, in partnership with the local municipality, regulators, and other stakeholders (NGOs, residents and farmers), was converted into a stormwater reservoir with constructed wetlands, flood control gates, piping and channels. When the water level rises, the system releases water from the river to the rehabilitated quarries, reducing flood risk to LafargeHolcim and the local community. The created wetland habitats increased biodiversity and developed recreational areas for the local community.12
A growing number of companies are realizing that their supply chains are more vulnerable than in the past due, for example, to just-in-time processes and physical distances between locations. Interdependencies, such as extreme events at one remote location, can bring the supply chain to a halt. Companies with a large supply chain can build resilience through disaster risk management plans.
- Nestlé’s subsidiary companies, Nescafé and Nespresso, depend on Colombian suppliers for raw materials, many of which are smallholder farmers. Nestlé partnered with other organizations to formulate an Intelligent Water Management (IWM) plan–the Manos al Agua framework—to make the Colombia coffee sector more resilient to the impacts of climate change through improved environmental performance at the farm and watershed levels. The IWM focused on four areas: clean technology transfer (water conservation/treatment post-coffee washing process), healthy ecosystems (agroforestry and bioengineering to minimize soil erosion and conserve important water areas), knowledge generation (a water and climate monitoring system and preventing crop damage due to extreme weather), and cooperation and participation (collective action). So far, 10 water reuse systems have been constructed, 160 sites selected for reforestation and agroforestry, and 27 local community participation groups set up to train farmers implementing actions in 25 river basins to build climate resilience.13
- Illovo, a subsidiary company of Associated British Foods, is mostly made up of independent sugar cane farmers in Africa. The threat of water scarcity led Illovo to fund the Sustainable Sugarcane Farm Management System (SUSFARMS) with three fundamental environmental principles: conserving natural assets, maintaining critical ecosystems’ services, and using agricultural resources sustainably. SUSFARMS reduced impacts to biodiversity and ecosystem health with expected savings of US$6.8 million annually.14
The private sector has an important role to play in strengthening the adaptative capacity of their surrounding communities to climate change. The innovations, products, services, political influence, capacity to shape behavior and investments the private sector could contribute are essential for enhancing the resilience of vulnerable communities across the world. More specifically, the private sector can support community responses to water-related climate risks by:
- Involving communities in climate risk and resilience discussions.
- Considering how the company may be a source of increased risk for local and wider communities’ water access under different climate scenarios.
- Ensuring maladaptation does not result from climate resilient measures for projects (i.e. where carbon mitigation and/or adaptation causes deleterious flow-on water impacts that may be detrimental to the environment and local communities).
- Supporting enhanced awareness of climate change and its water-related impacts within local communities.
- Supporting the development of local community adaptation plans that factor in water resources which will enable them to access funding.
- Supporting the development of climate-resilient livelihoods and associated skills.15
The humanitarian community is a logical partner for the private sector considering their experience and track record in supporting communities throughout the world to build their climate resilience over many years.
- In 2014, the mining company Rio Tinto Minera Peru commenced a community adaptation project at its La Granja copper site in Peru, where the surrounding communities are facing climate-related impacts.16 The primary objective of the adaptation project was to support identification of both current and future risks to the livelihoods of local communities and to build capacity for adapting to those risks. Using the CRiSTAL tool17 and CARE International’s Climate Vulnerability and Capacity Analysis (CVCA) framework18, an inclusive and participatory approach was taken to ensure effective community consultation and ownership of the project’s results. The project improved knowledge and understanding of the local climate-related hazards, their impact on community livelihoods, and the coping strategies of the La Granja community. Rio Tinto Minera Peru also came away with actionable recommendations for supporting community resilience.
Continue on with this Guide
- The Task Force on Climate-related Financial Disclosures, The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities, 2019. https://www.tcfdhub.org/scenario-analysis/.
- European Bank for Reconstruction and Development and the Global Centre of Excellence on Climate Adaptation, Advancing TCFD Guidance on Physical Climate Risks and Opportunities, 2019. https://www.physicalclimaterisk.com/media/EBRD-GCECA_draft_final_report_full.pdf.
- World Business Council on Sustainable Development, Building Resilience in Global Supply Chains, 2015. https://www.wbcsd.org/contentwbc/download/442/4590.
- BSR, Resilient Business, Resilient World: A Research Framework for Private-Sector Leadership on Climate Adaptation, 2018. https://www.bsr.org/reports/BSR_Resilient_Business_Resilient_World_A_Research_Framework_for_Private_Sector_Leadership_on_Climate_Adaptation.pdf.
- AECOM, Becoming Climate Resilient: An executive business case for climate resilience, 2015. https://www.aecom.com/wp-content/uploads/2016/08/Becoming_Climate_Resilient_NOV2015.pdf.
- BSR, Adapting to Climate Change: A Guide for the Mining Industry. https://www.bsr.org/reports/BSR_Climate_Adaptation_Issue_Brief_Mining.pdf.
- International Hydropower Association, Hydropower Sector Climate Resilience Guide, 2019. https://www.hydropower.org/download/file/nojs/21346.
- L’Oreal’s Climate Change CDP response, 2019.
- We Mean Business, Survival of the driest – Olam’s innovative onion breeding program, 2017. https://www.wemeanbusinesscoalition.org/wp-content/uploads/2017/08/Case-Study-OLAM.pdf.
- Global Commission on Adaptation, 2019. Adapt now: A global call for leadership on climate resilience, 2019. https://cdn.gca.org/assets/2019-09/GlobalCommission_Report_FINAL.pdf
- Volkswagen, Replenishing groundwater through reforestation in Mexico, 2011. https://www.cbd.int/doc/books/2011/B-03740.pdf.
- WBCSD, Natural Infrastructure Case Study: Water Management and Flood Prevention in France, 2015. https://www.naturalinfrastructureforbusiness.org/wp-content/uploads/2015/11/LafargeHolcim_NI4BizCaseStudy_WaterManagementFloodPrevention.pdf.
- Manos as Agua-Intelligent Water Management, A Nestle Case Study. https://ceowatermandate.org/wp-content/uploads/2017/11/BAFWAC_-_Nestle_11.4.pdf.
- Corporate Citizenship, The Impact of Illovo in Africa, 2017. https://www.illovosugarafrica.com/UserContent/Documents/Illovo-Impact-Report-Group-Dec17.pdf.
- Red Cross Red Crescent Climate Centre, Companies and Climate Resilience: Mobilizing the power of the private sector to address climate risks, 2019. https://reliefweb.int/report/world/companies-and-climate-resilience-mobilizing-power-private-sector-address-climate-risks.
- International Council on Metals and Mining (ICMM), Rio Tinto Minera Peru: La Granja Project, 2016. https://www.icmm.com/website/case-studies/2016_la-granja-case-study.pdf.
- Community-based Risk Screening Tool – Adaptation and Livelihoods (CRiSTAL). https://www.iisd.org/cristaltool/
- Care International, Climate Vulnerability and Capacity Analysis Handbook. https://careclimatechange.org/cvca/