Companies are finding it difficult to fully incorporate measures of climate risks into their strategy and operations, according to a report by the UN Global Compact, the UN Environment Programme (UNEP), Oxfam and the World Resources Institute.

The report, Adapting for a Green Economy: Companies, Communities and Climate Change (pdf), said that even among firms participating in the UNEP-Global Compact initiative Caring for Climate, there is not yet widespread understanding of what climate adaptation means for the companies, their suppliers and the markets they serve. In a survey, only about a third of these companies said that their climate change strategy has a “strong emphasis” on the issue of climate change risks.

About one quarter have not been able to determine, or could not provide concrete information on, the percentage of their operating sites that are vulnerable to climate change. But 83 percent of the 72 responding companies said that climate change impacts do pose a risk to their products or services.

Climate risks confronting companies include physical, operational, regulatory, legal, financing, market, political and reputation risks, the report authors said. For example, companies face more stringent legislation related to climate risk management, more lawsuits in cases of infringement, and reduced consumer spending power due to the economic effects of climate change.

Each sector faces a particular set of risks, especially on the physical and operational side, the report said. In the survey, energy and utilities companies said they face not only the risk of peak demand outstripping capacity, but physical risks to personnel and equipment from extreme weather events. Construction and building materials respondents said that many of their plants are vulnerable because they are located in coastal areas.

The mining and metals industry cited increasing regulation of process impacts, facility locations and raw material availability. The agriculture industry said that water scarcity is its greatest vulnerability, though the impact of climate change on farm products is increasing.

The report said that many companies do recognize certain climate risks, especially those to do with energy and water, but have not fully evaluated the implications of other climate risks and opportunities. Factors making it difficult for companies to act on climate risk include the long-term nature of climate change, the uncertainty of climate impact projects, a lack of good information and lack of incentives for action, the authors said.

“As one company from the chemicals sector observed, the speculative nature of long-term climate change makes a strategic business response difficult,” the report said. “Sometimes the highest priority components of an adaptation strategy can also be the most challenging to assess and manage.”

The study recommends that businesses integrate climate adaptation into core strategic planning and build a portfolio of climate-resilient goods and services. The authors also called for stronger policy and finance commitments to adaptation, financial and risk-reduction incentives to stimulate the market, and for new forms of public-private partnerships.

Environmental Leader, June 21