Climate Change, Equal Opportunity & Human Rights, Inclusive Growth, Natural Capital & The Environment, Sustainable Finance

Record high temperatures: can businesses take the heat?

Bertrand Yan | Feb 16, 2023

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This past month has seen record-breaking climate phenomena, with all eyes on Europe posting its warmest New Year’s Day in history. While typically the coldest time of the year, temperatures exceeded 19°C in parts of Poland and 16°C in the Netherlands, shattering January records by up to 4°C across the continent. 

Large swathes of ski resorts in the Alps found themselves in a green situation mid-winter. Temperatures were so high that even snowmakers were inoperable: many resorts chose to shut down, while others opened their chair lifts for typically summer activities like hiking. As extreme heat becomes increasingly common, a wide range of business activities and industries will be disrupted, if they haven’t already.

That said, ski resorts are but a small niche in the world economy; far more concerning would be if larger, global players were to face heat-related disruptions. Of course that has already happened, as summer heatwaves in 2022 caused data centre meltdowns for critical internet companies, including Google, Oracle and Twitter.

This new range of climate change impacts are in addition to already well documented disruptions in materiality and supply chain (such as decreases in agricultural yield), therefore businesses of all kinds must be cognizant of the impact heat can have on their operations.

 

Adaptation is not a fix

For many companies, the approach has been to adapt to these new changes, such as creating geographic redundancy in their supply chain and production, but is this sufficient? While ski resorts may be able adapt to snow-less winters by switching to other activities, it does not negate the loss of the skiing industry as a whole. The collapse of commercial fisheries might be accommodated in the short term by sourcing from other still-productive waters, but merely creates higher immediate costs without a long term fix. In other words, firms prioritising adaptation may see success for a while, but long term sustainability is impossible as the root causes are unaddressed.

 

https://theconversation.com/why-canada-shuttered-some-mackerel-and-spring-herring-fisheries-in-quebec-and-atlantic-canada-181143

The crux is that unrestricted consumption of resources, as enabled by an expansion of the free market, has found itself in a conundrum. While often vaunted for creating consumer choice, decades of environmental damage has begun to impose restrictions on the kinds of activities (business or otherwise) people can engage in. The focus should thus be on developing and executing comprehensive mitigation approaches that can create positive outcomes for the environment and its people, which itself ensures the sustainability of the business.

 

Mitigation requires nuance

For the majority of large corporations, mitigation primarily refers to carbon neutrality. As firms work towards promoting efficiency and reducing emissions, their remaining carbon output is offset through carbon credits. In theory, this presents itself as an effective solution. Trees planted, for example, will store carbon as they grow. However, the critical piece of science is that this carbon must be sequestered into the earth permanently, so any disruption to this process (fires, using the trees for wood etc.) renders the carbon credits useless. Beyond that, even high quality, ‘gold’ standard carbon credits appear ineffective and their impact exaggerated, such as this recent research exposing flaws in the carbon accounting of Verra, an industry leader. A further dive into carbon credits has been covered on our website, which also highlights the ‘quick-fix’ nature of this approach. Using carbon offsets as part of the mitigation strategy can therefore be helpful, but must be approached with caution and proper accounting and management.

Technology can and should serve a role in reducing carbon emissions, but they should not be the only approach. After all, technological progress and innovation has been slowing relative to the urgency to reduce carbon, with current projections estimating only a mitigation of 13% of the economic damage by 2100. Furthermore, the inequalities across geographies will be exacerbated as a technocentric approach privileges wealthy states and institutions, which can provide the support for businesses to transform. Businesses need a more considered mitigation strategy.

Governments, businesses and individuals need to come together in the fight against climate change. Whether it be climate change and ESG compliance through frameworks like GRI, TCFD or the SDGs, regulation and accountability are important. Creativity is required to evaluate not just future innovations, but existing production, extraction and consumption processes. More than that, firms need to take initiative to ensure their business activities generate equitable and sustainable outcomes for people all along the value chain, through careful involvement of stakeholders. In this way, alleviating pressures on natural systems and resources has the dual benefit of preserving one’s own businesses in the long term as well.

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