Time to stop blaming the weather: Managing Climate Change risk now

With the majority of coverage on climate change and its related half cousin, energy security, focused on productive and practical solutions such as energy efficiency, carbon reduction and corporate sustainability, it is easy to forget that at the core of the issue is, well, the climate itself.

The biggest threat from climate change is not that the world will get warmer by a few degrees Celsius, but the impact of those few degrees on the weather that has the potential to bring about cataclysmic consequences.

So while the climate change focus has been on saving the planet of tomorrow, there has been scarcely little attention paid on managing the risks of severe weather that is clearly already impacting today’s infrastructure.

A new survey commissioned by Storm Exchange, a San-Diego-based risk management firm specializing in weather, and the Chicago Mercantile Exchange, which trades weather derivatives, 51% of finance professionals – I assume accountants, financial controllers and CFOs – from Fortune 1000 companies admitted that their organizations are not prepared to cope with the economic risks caused by day-to-day weather, according to a report by Environmental Finance magazine.

At the same time, 82% of the survey’s respondents did recognized that they may have to change their business models in the long term to deal with risks from climate change and weather volatility.

SNOWED IN
In the telecoms space, that means networks, facilities, energy security, employee safety and many aspects of everyday operations that can impact an operator’s services. And there’s plenty of evidence of those impacts in the past six months, from freak weather that supposedly forced the mooring of ships off the Egyptian coast, resulting in the cable cuts that wreck havoc on the Internet across the Middle East and the Indian subcontinent, to severe snowstorms in China, which affected tens of thousands of kilometers of telecoms networks together with a large number of mobile base stations during the hectic Chinese New Year period.

The financial impacts were evident as well, with China’s Ministry of Information Industry citing losses of some US$150 million during the weeks of bad weather for the country’s telecoms sector. In addition to the purely financial costs, the human costs of the snowstorms also added up. Some 800,000 workers and hundreds of thousands of vehicles had to be mobilized to restore services. While Chinese workers typically work on monthly salaries without overtime pay, there will surely be impacts to the mental and physical health of the employees, who basically had to skip the biggest holiday of the year to brave severe cold and snowy conditions.

In one case, a team of China Mobile engineers had to haul a barrel of diesel over a mountain for 5 hours in minus 5 degrees temperature to restore power to a remote cell site. This kind of ordeal would surely impact productivity if not the moral of staff.

Then there are the real catastrophes. Just this week, tropical cyclone Nargis devastated the country of Myanmar. There was widespread power outage in the country’s largest city of Yangon, with electricity available only to wealthy households or hotels and large organizations with portable generators. And even those were only running on partial as fuel prices soared on heightened demand.

Most telephones lines, mobile phones and Internet connections were downed. Any telecoms operator in such as situation would not only lose service revenue, but also has to bear the costs of replacing damaged equipment as well as the labour costs of restoring services, not to mentioned potential losses from crime as a result of massive blackouts, employee safety and so on.

FORCE MAJEURE PROTECTION
Mother Nature has a wrath that is difficult to defend against and even more difficult to predict. That’s why most telecoms services come with SLAs that protect the service provider against any liability caused by natural disasters, or force majeure, in legal terminology. Typically, network operators don’t have to pay compensation to customers impacted by such events.

On the other hand, they still have to fix the networks, which costs money. In the majority of cases, the operators can’t wait until they are able to fix their own infrastructure but must respond quickly with intermediate solutions to restore customer traffic, such as buying capacity from others, usually at inflated prices. Failure to do so can directly impact customer confidence and in some cases, lost of the customer altogether.

So far, natural disasters are dealt with as extraordinary events. Sure, there are disaster recovery plans and objectives, but I seriously doubt that anticipated losses as a result of natural disasters are part of the financial planning model, or that many capex budgets have items for protecting networks and infrastructure against severe weather.

Within the telecoms industry, the situation is not all that bad. Vendors, especially mobile equipment or subsea cable system suppliers have long taken the potential impact of severe weather and other forms of natural disasters into account. Mobile networks will withstand gale force winds while subsea cables are buried to prevent impact from sharks, fishing trawlers and other ‘accidents’ and cable landing stations are designed to withstand earthquakes.

The problem is that natural disasters are no longer restricted to the telecoms sector. Earthquakes can knock out power lines. Snowstorms in China impact coal production, which causes shortages in Australia, pushing up fuel prices worldwide.

Even extremely minor impacts, such as a snowstorm in Dallas that delays an executive’s flight to Tokyo, making him late for an important customer meeting, can add up. The meeting can be rescheduled, but that might mean rearrange the executive’s entire schedule, requiring extra work and diminishes productivity across the entire organization.

In the past, the weather is a perfectly acceptable business interruption. Can we continue to do that when there are clear signs everywhere that the weather is getting more volatile each year, with fluctuations in temperature and the severity of extreme conditions now more common across the globe?

Related posts:

1. Global businesses are ill prepared for climate change risks
2. ITU ponders systematic standards review in light of climate change
3. Business leaders call on UN to develop legally-binding framework to tackle climate change
4. 2007 Review: the year IT and telecoms woke up to climate change
5. Norway’s Telenor and 12 peers form partnership to fight climate change

Tags: China, Climate change, disaster recovery, energy security, Mobile, natural disasters, severe weather, subsea cables

Category: Climate change, Featured articles, Global energy, Mobile