Natural event risks are normally handled by management. These are the usual short-term incidents like fire, flood and storm, most of the time well within the normal run of the mill events that take up two minutes in the nightly news. But they can take days or even weeks to recover from.
The increased risks caused by climate change are something corporate boards need to turn their minds to. The magnitude and frequency of natural disasters are increasing rapidly as well as the expansion of the traditional locations of such disasters. As an example, demonstrating the problem of both increased intensity and expanded geographic risk, is that Brisbane, Australia, is seeing cyclone activity moving south and approaching its coastline more often.
This threat is something Corporate Boards should be adding to their risk assessments. In this editorial I’m not talking about the direct impact on a company’s warehouse, factories or crops (although this is very important). The larger issues of basic needs such as power, raw materials, data storage, staff, logistics and cashflow.
A long-term strategic plan needs to be put in place, let me give you some facts:-
Cyclones will increase in intensity as sea surface temperatures rise and the facts are that the strongest cyclones are getting stronger.
Temperature increases are fueling more intense and longer fire seasons. Heat waves are affecting the elderly and children as well as straining the power grid for longer than previously occurred.
The extremes of flood and drought result often in vulnerabilities to your supply chain.
Directors need to consider the big picture, let me ask a few real-life questions that have recently been posed in hindsight.
- You own a very lucrative winery producing award quality wines, your vines are in an area with large fire buffer zone around them and you have invested in your own fire trucks for your staff, who are trained, to protect the vines. The increased frequency of wildfires and the longer duration of the fire season results in smoke tainting your vintage every year. Do I continue planting vines or move?
- You get your raw materials from northern Australia which has been hit by two consecutive cyclones, supplies are not being produced, what supply there is are not getting through the floods, where the floods are receding the roads are washed away and impassable. It could take months before supply is back again. Do you have a plan B?
- The floods are at the highest level in recorded history, fortunately the factory and warehouse are situated on high ground, the back up generators are working well, and you have Christmas orders to fill. Nobody has turned up for work, all the staff live in the lower section of town that has been devastated by flood. Their priority is cleaning up and finding a place for their family to stay, those who can are also volunteering to assist neighbours. Experience from similar incidents show it will be many weeks before you have your staff back. Who is going to forfill the Christmas orders?
- You are about to build a new wharf facility in the Philippines, you are expecting to use the facility for the next 25 years and then sell it on, will this plan be affected by sea level and storm surge changes?
These are real life events that could make or break your company and in most cases the risk was not recognised by the board. I have only touched on a few case studies, I find it hard to visualize any organisation that will not be impacted by climate change.
Even the fire service. Consider a world that has limited water supply for extinguishing fires, a real-life example was Cape Town last year. Limited numbers of volunteer firefighters and the pressure on extended fire seasons makes it difficult to send them interstate to assist. It may even get to the point where fossil fuelled trucks are restricted. So we have a fire service with no water, no people and no trucks in a world that is having larger and more fires.
If you haven’t stared considering these risks at the highest level now you could be too late.
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