\nhectares of pinot noir grapes in the Spanish Pyrenees, 3,300 feet above sea
\nlevel. It’s cold up there and not much good for grapes—at least not these
\ndays. But Torres, the head of one of Spain’s foremost wine families, knows that the climate is changing<\/a>.<\/p>\n
<\/p>\n
His company’s scientists reckon that the Rioja wine
\nregion could be unviable within 40 to 70 years, as temperatures increase and
\nEurope’s wine belt moves north by up to 25 miles per decade. Other winemakers
\nare talking about growing grapes as far north as Scandinavia and southern
\nEngland.<\/p>\n
<\/p>\n
Torres’ Pyrenees vineyards are a hedge and may
\nnot be necessary. But if climate change redraws the map of Europe’s wine world,
\nhe will be prepared. And his company will be one of a very few taking steps to
\nadapt to the future effects of climate change.<\/p>\n
<\/p>\n
<\/a>How companies are preparing for these changes is a <\/p>\n The idea was that my readers and other bloggers <\/p>\n Most companies seem to focus solely on mitigating <\/p>\n The U.S. government is trying to create <\/p>\n There are, to be sure, a few examples of <\/p>\n But those are at the margins. In the mainstream <\/p>\n Start with the superficial: Adaptation strategies <\/p>\n Then there is the mismatch of time horizons<\/strong>. Climate change takes place over decades, <\/p>\n It’s easy to talk about how hotel companies with <\/p>\n “There are very difficult models to develop, <\/p>\n Finally, even if the effects of climate change <\/p>\n Say you’re an electronics manufacturer who is <\/p>\n A classic business hedging strategy is to buy <\/p>\n But insurance <\/p>\n To put it another way, insurance is a highly <\/p>\n The behavioral economist Dan Ariely, author of “Predictably <\/p>\n Companies too tend to behave in predictably <\/p>\n <\/a><\/p>\n Related Links:<\/strong><\/p>\n Betting on change<\/a><\/p>\n Will an SEC ruling convert short-term greed into long-term sustainability?<\/a><\/p>\n
\npressing topic, but when I agreed to write this piece I knew I was no expert. I
\nset out to educate myself by posting open requests on my finance blog at
\nReuters<\/a>, asking my eager-to-comment audience of business wonks to
\ntell me stories of how big corporations are getting ready.<\/p>\n
\nwould cheerfully provide me with examples of how companies are preparing for
\nthe downsides—not to mention the opportunities—of climate change. I braced
\nmyself for the inevitable barrage of responses; what I got was a shocking lack
\nof evidence that the corporate sector is doing much of anything.<\/p>\n
\nchanges to the climate: reducing carbon emissions, improving environmental
\nsustainability, and striving to be an enlightened steward of the planet.
\nAdaptation is the opposite, more pessimistic approach: It is about ensuring
\nsurvival in the exceedingly likely event that climate change occurs.<\/p>\n
\nincentives for businesses and their investors to plan ahead. Newly issued SEC regulations<\/a> mandate that any material risk
\nconnected to climate change has to be revealed, in an attempt to bring these
\nissues out into the open and to allow investors to compare the ways that
\ncompanies see climate risks and adapt their strategies accordingly.<\/p>\n
\ncorporations that are treating climate change as an ominous reality, or even as
\nan opportunity. The biggest funders of Brazilian agricultural projects, state-owned
\nbanks BNDES and Banco do Brasil, are looking carefully at whether it makes
\nsense to support projects which might not be viable in 20 or 30 years’ time. Agribusiness
\ngiants like Cargill and Monsanto are developing hardier crops, global shipping firms
\nare planning for an ice-free Arctic passage [Clive link TK], and power company TransAlta
\nhas scrapped potential new plants in the American West because it couldn’t
\nensure that water rights would be available for the next 40 years.<\/p>\n
\nbusiness world, climate change adaptation strategies are scant. The reasons for
\ninaction are sometimes simple, but also counter-intuitively complex.<\/p>\n
\nhave essentially zero PR value<\/strong>. They
\nhave nothing to do with saving the planet. Instead, they’re all about trying to
\nthrive if and when the planet starts to fall apart. That’s not something any
\nsavvy company wants to trumpet to the world.<\/p>\n
\nand corporate timescales generally max out in the five to seven year range. Businesses
\ntypically won’t spend significant money planning beyond that period, especially
\nbecause the effects on business models and future profitability are so
\ndifficult to predict.<\/p>\n
\ncoastal property might have to face more hurricanes, or rising sea levels. But
\nit’s quite hard to know what is going to happen to any given beachfront resort with
\na sufficiently high degree of certainty<\/strong>.
\nGiven the enormous amount of variability in any complex model, if a company
\nspent a lot of money carefully mitigating the risk of X, it could end up
\ngetting blindsided by Y instead.<\/p>\n
\nwith more rain here, less rain there,” says Andy Hoffman, associate director of
\nthe Erb Institute for Global Sustainable Enterprise at the University of
\nMichigan.<\/p>\n
\nare foreseeable, they can be impossible
\nto hedge<\/strong>.<\/p>\n
\npretty sure that climate change is going to wallop Bolivia, resulting in political
\nunrest and a spike in the price of lithium. All your devices run on lithium
\nbatteries, so this is a serious risk, but it’s far from obvious what you can do
\nabout it. It’s silly to start stockpiling lithium, and you can’t even bet on
\nrising lithium prices 10 years from now, since it’s not a metal that is heavily
\ntraded in the futures markets. Essentially all that you can do is be very clear
\nabout the risk in your SEC filings, and go about your business as normal. And identifying
\na risk is not the same thing as being able to negate it.<\/p>\n
\ninsurance. Reinsurance companies have expensive and sophisticated
\nclimate-change models. Pricing such risk is what they do. In many cases, they
\nwill make more money as the effects of climate change become increasingly
\nvisible and expensive, since they’ll simply raise premiums on everybody while
\nrefusing to insure the most vulnerable at any price.<\/p>\n
\ndoesn’t work very well as an adaptation strategy<\/strong>. Policies only last for
\none year, or at most two. The insurance companies don’t need to charge higher
\nrates now if they see big and nasty things happening to the global climate in
\n20 years’ time—they can continue more or less as they are for the time
\nbeing. It’s easy to forget that if you’re simply renewing an insurance policy
\nevery year: the existence of the insurance market gives companies a sense of
\nfalse security that their risks are hedged.<\/p>\n
\nimperfect hedge for climate change, because it can go away or rise in cost very
\nsuddenly. After the Bhopal disaster in 1984, pollution liability insurance
\nfirst disappeared entirely, and then, when it came back, cost ten times as
\nmuch. The risk of rising insurance costs—or insurance becoming impossible to
\nbuy at any price—is something so inherently difficult to protect against, most
\ncompanies don’t even bother trying.<\/p>\n
\nIrrational,” likes to say that climate change is a problem that is perfectly designed to make people do
\nnothing<\/a>: It happens far in the future; its effects will be felt most
\ngreatly by other people; and the efforts of any one individual are minuscule.<\/p>\n
\nirrational ways. Executives should try to imagine their companies 30 years down
\nthe line, struggling with the deleterious effects of climate change on
\nprofitability and corporate survival. But they don’t. That’s a job for the next
\nCEO’s successor’s successor. Right now there are a million other things that seem
\nmuch more urgent, starting with this quarter’s earnings.<\/p>\n