Global businesses are ill prepared for climate change risks

In a not-so-surprising revelation of global corporations’ nonchalant attitude towards climate change, a new report by the Economist Intelligence Unit clearly shows a basic disconnect in senior executives’ perspective on the potential risk of global warming to their businesses.

The report, Risk 2018 – Planning for an unpredictable decade, was based on a survey conducted among 600 senior executives, including 200 CEOs, from companies of a variety of sizes and from a wide range of industries. The research explores the potential risk environment and the changing roles and responsibilities of the risk management function over the coming decade. The report is sponsored by BT.

The respondents identified twelve “Tier One” risks in the next ten years to their business, and evaluated their companies’ preparedness in managing those risks. While climate change was included on the list, its potential risk to business was not seen as particularly severe nor likely, with respondents admitting that their companies are not well prepared for it.

The research shows that ‘climate change’ was deemed the second least severe and likely risk to impact business, coming in with a score of roughly 2.2 out of a possible 6 (0 = very low and 6 = extremely high). Only the risk from ‘increased industrial pollution’ – a related topic in the road to sustainable development, was deemed less severe in its potential impact to businesses.

Source: Economist Intelligence Unit 2008

At the same time, ‘climate change’ also scored second last on a similar scale measuring companies’ preparedness for the risk with a rating of about 0.9. Only ‘instability in the Middle East’ scored a less preparedness rating.

“Environmental risks generally come fairly low on the priority list for respondents. Despite the huge amount of attention devoted to climate change among the media, pressure groups and, increasingly, governments, the issue is not seen as one that is especially severe or likely to cause an impact over the next ten years,” the report said. “Respondents also exhibit relatively low levels of preparedness to deal with climate change, which is the reason for its inclusion as a Tier One risk.”

According to says James Maxwell, senior vice-president in the risk consulting practice at Marsh, a risk consultancy, companies are unaccustomed to the dealing with the long term nature of climate change risks.

“Companies, especially listed companies, are constrained from looking too far into the future because of their quarterly reporting requirement,” Maxwell said. The report adds that the short tenure of most CEOs further impacts the situation.

Meanwhile, the report cites Andy Hines, a futurist and director of consulting at Social Technologies, a future-oriented consultancy, who points out another reason for the low scores for climate change is the inability for corporate management to gauge the benefits of any investment.

“Spending towards prevention is a very tough organisational sell,” Hines said. “It’s human nature for executives to favour issues where they can quickly and easily see the benefits.”

OIL PRICE SHOCK
At the same time, the report’s findings confirms Green Telecom’s article this month on the risk of rising energy prices. Respondents gave the risk of ‘oil price shock’ a very high rating of just over 4 out of 6, behind only ‘talent shortage’, ‘global recession’ and ‘unexpected regulatory change.’

“With the price of oil having breached $100 a barrel, and concerns regularly raised about the possibility of declining supply in a world of spiralling demand, energy security has become a vital issue for business, and one that is now going beyond the realm of being manageable using hedging techniques,” the report said. “The potential for an oil price spike is seen as a particular concern among respondents in Asia-Pacific. The rapid economic development currently underway in this region is dependent on the supply of fossil fuels, and the region arguably has more to lose than more developed markets from a sudden spike in the oil price.”

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3. ITU ponders systematic standards review in light of climate change
4. Business leaders call on UN to develop legally-binding framework to tackle climate change
5. After Kyoto, the Tokyo declaration by global business leaders

Tags: BT, business risks, Climate change, energy security, oil price

Category: Climate change, Featured articles, Global energy, Green corporations