The economic effects of climate change are coming now. What are you going to do?
As the 21st century’s most formidable and far-reaching threat to our planet and people, climate change has already begun to impact and influence a broad range of corporate interests in a number of ways. But while it’s fair to say certain industries will bear the brunt of its inconvenient truths, it’s also true that opportunities to overperform exist for those able to act swiftly and strategically.
To put the economics of climate change in perspective for Australia and the world at large, the National Reserve Bank recently revealed that if the global community doesn’t act quickly or decisively enough – limiting emissions to net zero by circa 2070 – the impact of the crisis on global GDP could be a massive 25% downturn by 2100.
Businesses have both the means and incentive to play a major role in pursuing these targets but, for most, successful management of climate change’s negative forces will depend on their ability and ambition to start making adjustments to bottom lines, business models, products and practices now. Some will innovate, adapt and diversify their way towards mitigating threats which range from supply shortages and legal liabilities to cost fluctuations tied to technologies, markets and regulation. Others will cross their fingers as nature, policy and consumer behaviour evolve around them.
So which industries and their organisations are already going beyond the basics to prepare for the environment and economies of a warming climate, to ensure they prosper into the future even if on paper the odds are stacked against them? Professor Jon Barnett, Australian Research Council Laureate Fellow and expert in environmental impacts from The University of Melbourne, helped us highlight some standout examples.
Transport and logistics
The transport sector currently contributes approximately 23% of the total man-made CO2 emissions worldwide, and its routes and infrastructure are exposed to extreme weather events and other climatic vulnerabilities. Consequently, building resilience into systems, upgrading construction standards and looking at ways to increase efficiency through intelligent design and new technologies are starting to become essential considerations for operators and investors, as they look to protect returns and uphold responsibilities.
This is welcome, but our modes of moving people and products, and the ways they are powered, also need to continue innovating to lead long-term solutions. Professor Barnett identifies two key developments which, whilst already in market, are poised to deliver exponential growth in their commercial ecosystems in the coming decades, due to a prime mix of sustainability, technology and market demand.
“To dial down the emissions currently produced by passenger cars, a concerted shift towards electric vehicles is expected. As well as physical manufacture and assembly of the cars themselves, research and development will continue, power capacity and connectivity will require enhancement, and batteries will need to be produced. Increased investment in the sector could see the total number of electric vehicles on the road reach almost a billion by 2050.
In addition to the role of electricity, analysis by the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) found biofuels production is projected to increase 10-fold by 2060, making it a major player in decarbonisation of transport worldwide. Biofuels like ethanol are already mixed with petroleum products but will progress to adoption by areas including aviation, with hydrotreated vegetable oil – a type of biodiesel – and other emerging options boosting the market with expansive growth.”
According to Professor Barnett, insurance is an interesting case in that it may well swing between suffering new lows and celebrating new highs in the midst of climate change. What is certain is that the industry’s competitive companies aren’t just sitting on their hands when it comes to adaption and future-proofing.
“Global warming will continue to cause and contribute directly to natural catastrophes and loss of life, determining that insurance payouts (and premiums) will rise. This will redefine the industry, but given insurers are literally in the business of risk, there are plenty being bullishly proactive in improving their abilities to monitor, measure, assess and account for outcomes and adjust their business models accordingly. Whether that involves creating wholly new types of policies to swing upside back towards their creators rather than their holders, deploying technologies to provide more in-depth insight on assets or lobbying government agencies, the parameters of risk assessment are being adjusted to suit those showing dynamism in the space.”
Agriculture plus food and beverage production
Professor Barnett notes that with 30% of the global population dependent on agriculture for their incomes, the sector and those downstream of it, including food and beverage production, are ripe for climate change disruption.
“With rises in temperature, water shortages and increased incidence of wild weather events, regions with vast agricultural areas are set to see the people and businesses dependent on them severely affected over time unless they invest and adapt to new rotations, methods and technologies. Lower yields are likely, variability of yields will increase and a reduction in suitable areas for cultivation will take hold. Further, food and beverage production for a growing population will be subject to tensions over access to raw materials such as water, as debate around domestic, agricultural and industrial use comes to the fore.”
However, the industry is taking steps to address any negative narrative. Locally, the Australian Government has been working with organisations, establishments and industry bodies to tackle related issues through its Climate Change Research Program (CCRP), funding projects to equip primary producers with knowledge, tools and strategies. To date these have included testing the viability of adaptation practices at farm and producer level, looking at how to strengthen crop and pasture production by examining the impacts of increased CO2 and temperature on yield, and assessing expansion of existing crops such as peanuts and cotton into new regions.
Aside from the fact the mass movement of people for travel and leisure still relies predominantly upon means that continue to add to the carbon catastrophe, many tourism types are closely related to weather and in turn climate dependent, as Professor Barnett explains.
“Hotter localities may become too warm for too long to attract the same numbers of visitors in peak seasons, low lying coastal areas may become increasingly prone to flooding, and alpine regions may lose snow cover key to pursuits such as skiing. Realities such as these change how humans interact with a destination, as do mounting occurrences of freak weather such as wildfires and super-waves, but beyond that they also impact upon the native flora and fauna that plays such a crucial role in the allure of a place – coral bleaching within the Great Barrier Reef being a prime and uncomfortably close-to-home example.”
For the tourism industry, helping individuals and organisations understand these factors and quantify their travel and tourism impacts has been a positive place to start, but championing ongoing education around risks and opportunities, further incentivising responsible practices, and encouraging adaptable, collaborative business models will be game changers. This is why countries, states and regions are starting to implement multi-stakeholder frameworks for sustainable tourism, built around adequate financing, investment in technology and development of supportive infrastructure and human resources.
On a practical level, travellers want to align themselves with those making concerted and creative efforts to reduce carbon footprints, which is why progressive companies are being rewarded with custom, climate action credibility and cost savings. For example, the vast majority of global Airbnb property hosts incorporate green practices such as composting and providing bikes, whilst international hotelier Marriott’s Linen Reuse Program has cut its hot water and sewer costs in an eco-friendly manner. British Airways is building a plant hoped to produce lower carbon fuel from household waste, tour operator Intrepid Travel is offsetting itinerary emissions with renewable energy investments, and even cruise operators are cleaning up engines and powering ships with innovative biofuels.
The ability to thrive or survive through any major challenge or certified crisis – even one as significant as climate change – comes down how those affected can or can’t, will or won’t, react, adapt and innovate. For this reason, it’s essential that businesses make a real effort to consider how economics and environments will continue to intersect, to help them plan for and secure long term success.
With special thanks to:
- Professor Jon Barnett, Australian Research Council Laureate Fellow, School of Geography | Faculty of Science