business strategies
The majority (89%, 79 out of 89 companies) report that climate change is integrated into their business strategy, however only 17% (15) of companies specifically mention an adaptation strategy. Looking more closely at the responses, however, reveals a further 29% (26) of companies that mention adaptation related strategies without specifically referring to them as “adaptation”. This indicates two things:(i) that companies are not necessarily identifying with the term “adaptation” and are not clearly identifying
adaptation practices as separate from their overall climate change responses;
(ii) evidence of incorporating
adaptation related strategies into the overall business strategy is present in less than half (46%) of the responses. It should also be noted, however, that distinguishing between actions taken to adapt to physical risks of climate change, and action taken to mitigate, can be difficult and a degree of subjectivity by the analyst is inevitable. The figure below presents distribution of companies that reported adaptation strategies with regards to integration of climate issues into their overall business strategies.
Figure 18: Company responses showing integration of adaptation strategies
Not integrated
Clear adaption strategy integrated Adaption type strategies integrated
Other climate change related strategies integrated 11%
17%
29% 43%
Sectors with a high dependence on high-valued assets and facilities, such as the Materials, Energy and Industrials (in part), sectors generally have a risk management process in place for their facilities. However, in most instances, they do not label their processes as ‘adaptation’. They have been managing physical risks in their facilities already and this is not necessarily seen as directly linked with climate change. However, they do show high levels of awareness of possible impacts of physical changes to climate.
As an example, Royal Dutch Shell has a detailed risk analysis for their assets and is planning for a strategy for adaptation, although this is yet to be integrated into their overall business strategy. This illustrates how companies are just beginning to get to grips with adaptation:
“The world’s climate is changing with, albeit still poorly understood, implications for Shell. Basing decisions on historical climate information is no longer robust. The changes, some of which are already starting to be observed, are expected to include changes in prevailing weather patterns as well as changes in extreme weather events. At present the full technology required to understand all impacts of climate change on our assets or new projects in all regions is not available, but good information is available in some regions and it is planned to use this as a pilot to investigate how climate change adaptation will be undertaken in the future. In parallel, capacity in climate change and adaptation are planned to be built into this area to ensure that the skills, techniques and data are available to develop these types of criteria routinely for all new projects. We are planning to undertake screening of existing assets and new assets and estimation of their exposure to physical climate change and associated cost of adaptation.
This work is expected to be completed over the next few years at the end of which we will have a clearer understanding of the costs associated with adaptation.”
Royal Dutch Shell
Sectors that are heavily dependent on their supply chains or agricultural production (i.e. Consumer
Discretionary and Consumer Staples), show high awareness to risks from potential disruptions to their supply chain and/or production facilities. Most companies, however, fail to label their activities as
‘adaptation’. The following quote from Marks & Spencer, stands out among the others as they do mention adaptation specifically when describing their business strategy. “The process is as described under 2.1a and has identified risks of cost, asset protection, business continuity and supply chain continuity. This resulted (outcomes) in the setting of climate change targets in 2007 which were updated in 2010 and include commitments to: Have carbon neutral operations by 2012; Improve energy efficiency by 25% by 2012 and 35% by 2015; Improve fuel efficiency by 20% by 2012 and 35% by 2015; Trial a range on on- site renewable technologies and procure 100% renewable electricity; Test and develop low carbon delivery vehicle technologies; Conduct climate change adaptation reviews of our retail operations and supply chains; Develop new low carbon products and business opportunities; Distribute free home energy
monitors and home insulation to all employees; Use new refrigeration technologies to reduce resultant emissions by 50% by 2015; Develop supply sustainability frameworks including climate change key performance indicators (KPIs).”
Marks & Spencer
“RB is exposed to anticipated physical impacts of climate change; we currently consider these to have a reasonable potential (in aggregate) to present potentially material financial &/or non-financial risks and opportunities (R/O), in terms of likely impact on our net revenue. Identified R/O relate specifically to changes in precipitation patterns, frequency of extreme weather events, and in the availability and costs of goods & services .These aspects therefore influence our strategy and climate change programmes.”
Reckitt Benckiser
“Tobacco growing is strongly influenced by the availability of water, as well as access to well managed land. We have 19 in- house leaf supply operations, a sample includes: Mexico, Brazil, and Cambodia. Climate change will modify rainfall, evaporation, runoff, and soil moisture storage and this could have an impact on the tobacco growing cycle. The demand for water for irrigation is projected to rise in warmer climates, bringing increased competition and potential tension between agriculture and urban, as well as other industrial users in proximity to our tobacco growing areas. Water is one of our key environmental performance indicators due to our dependency on water in tobacco leaf growing and processing, as well as for cigarette manufacturing. The Group’s water use in 2010 was down by 5.9% from 2009 to 4.15 cubic meters per million cigarettes produced, exceeding our 2012 reduction target of 4.20. This improvement in efficiency was contributed in part to conservation measures (water reuse). In 2010 we hosted a stakeholder dialogue session attended by external experts and BAT employees, on the challenges posed by water; and the techniques required to address them.”
British American Tobacco Not integrated
Clear adaption strategy integrated Adaption type strategies integrated
Note: Sectors that have low company numbers and therefore are less reliable include: Information Technology, Telecommunication Services and Health Care. The UK Utilities sector is particularly
interesting in the context of adaptation as most of the UK companies in this sample were invited to report to Defra under the Adaptation Reporting Power. All of the companies in this sector show high levels of awareness to adaptation, covering all essential areas for their businesses. It is also important to note that the Utilities sector has the strongest tendency to label its strategies as adaptation in responses; this may be a sign of a positive impact of Defra’s reporting request on company awareness levels.
Within the Financial sector, adaptation awareness is observed with regard to its impact on determining insurance premiums, and their assets management. Telecommunication services companies highlight their business strategies to promote new services aimed to ease adaptation.