PwC preview the Intergovernmental Panel on Climate Change – Working Group II: Impacts, adaptation & vulnerability.

Published at 17:12 PM on 28 March 2014

PwC Sustainability & Climate Change  team preview the implications of the IPCC Working Group II report on climate change impacts, adaptation and vulnerability. We focus on what stands out from this report, what could cause economic or business concern, and the implications for the UK.

PwC’s sustainability & climate change team includes specialists in climate science, policy, energy & renewables, climate & business strategy and carbon emissions. For further comment contact Rowena Mearley (+44 7841 563 180) or Miranda Ward (+44 7803 455 991)

  • Climate risks are not as far out as some people think: Dr Celine Herweijer, partner, PwC Sustainability & Climate Change (specialist in climate science and adaptation) 
  • Future impacts are exacerbated by global links: Dr Celine Herweijer, partner, PwC Sustainability & Climate Change (specialist in climate science and adaptation) 
  • Developing countries: "The early drafts give little room for optimism": Sam Bickersteth, Director, PwC Sustainability & Climate Change
  • The domino effect: PwC’s analysis of the knock on impacts from trade disruption to the rest of the UK economy: Lit Ping Low, climate economist, PwC Sustainability & Climate Change
  • Business responses to climate risks:Larger UK-listed companies have sophisticated approach but what about the smaller ones? Jonathan Grant, director, PwC Sustainability & Climate Change
  • Impact on Climate Policy and Climate Negotiations: Jonathan Grant, director, PwC Sustainability & Climate Change
  • The Climate and the CEO - Business leader views of implications of climate change: Dr Celine Herweijer, partner, PwC Sustainability & Climate Change (specialist in climate science and adaptation)
  • Appendix: Business impacts of climate change

Introduction

The IPCC releases its findings from Working Group 2 (WG2), on impacts, vulnerability and adaptation to climate change on Monday 31st March.

Whether its  Summary for Policy Makers (SPM) becomes a must read for business and government leaders remains to be seen, despite its emphasis on accessible language to a non-scientific audience attempting to make it easier to digest and interpret to inform decision making.

But its accessibility should not undermine the amount of work that the WG2 has invested in this process. The group, comprising over 300 authors and subject matter experts, has gone through an unprecedented volume of scientific, technical and socioeconomic literature. The surge in literature reflects the increasing knowledge base in climate risks.

Climate risks are not as far out as some people think.
Dr Celine Herweijer, Partner, PwC Sustainability & Climate Change

"Early leaked drafts have circulated for some time, fuelling discussion on the ultimate publication. These reinforce the IPCC AR5’s findings,’that the effects of climate change are already being felt, in particular multiplying and reinforcing existing challenges;  observed impacts are widespread and consequential, on all continents and across all oceans’.

“The water and food nexus we are reliant on, will be particularly affected. Water quality and availability will be impacted by changing rainfall and snow/ice melt; in some places leading to more prolonged droughts and in others more floods. The impacts of a warming world on crop production are already putting pressure on food prices and security of supply. The world’s poorest will be impacted the greatest with development eroded by climate change impacts; the relevance of which will not be missed in the UN’s upcoming Sustainable Development Goals.”

Future impacts exacerbated by global links
Dr Celine Herweijer, Partner, PwC sustainability and climate change

It’s widely recognised that should  carbon emissions remain unchecked, impacts are likely to become more severe. Looking out to the future, in early drafts of the Working Group II report eight future key risks across sectors and regions are highlighted.

“The risks are worryingly familiar to those who’ve followed the climate talks: the most vulnerable are hit the hardest - the small island developing states, the low lying megacities and rural communities in Asia, and the agriculture-driven economies in some of the least developed countries represented by the Africa Group.

“The IPCC’s draft “reasons for concern” are a pretty modest way of putting what could erode their potential for long-term economic growth, stability and wellbeing. The hotter hots, colder colds, wetter wets, dryer dries, and bigger, stronger or longer storms that we’ve seen in the US, UK, Australia, and the Philippines alone in the last six months are the drivers of damage. The outcomes are the real reasons for concern, and the early drafts of the report highlight the substantial risks that even at 1C and 2C of warming pose to low lying coastal cities, food production and ecosystems.

“PwC’s analysis suggests that even doubling current rates of decarbonisation we are heading towards a 4C world; that’s a world that for most would be about survival, not about resilience to changing climates.”      

Disproportionate impacts on the poor and vulnerable
Sam Bickersteth, director, PwC Sustainability and Climate Change, and CEO of the Climate & Development Knowledge Network.

“The IPCC will undoubtedly reinforce the message that many already know, that the poor and vulnerable are often hardest hit by climate change, because of their dependency on vulnerable systems such as food and water, and their lack of capacity to adapt particularly in extreme weather shocks.

“Helping to improve resilience is important for communities and livelihoods, but will also be strategically important for the UK and businesses. Current efforts on poverty reduction and reducing vulnerability to existing climate threats are likely to be no regret measures.

“The early drafts give little room for optimism, but such is the nature of the vulnerability and adaptation issues we face. It’s important not to overlook references (with ‘high confidence’) to the co-benefits, synergies and transformations that could result from the development of systems that facilitate adaptation, mitigation and sustainable development. It’s a long term play, and a complicated way of pointing to some of the essential foundations of sustainable development, which use, and reuse low carbon techniques at scale.”

The UK will feel the heat, not just the floods
Lit Ping Low, climate economist, PwC Sustainability & Climate Change

“Focusing in on the impacts in the UK, the IPCC Working Group II has taken in work that has been done by climate scientists here, including for example those included in Defra’s Climate Change Risk Assessment (CCRA). 

“These risks could amplify existing threats in the UK. For example, the Environment Agency findings were that in in London alone approximately 15% of all properties are in the floodplain – which is around half a million properties potentially affecting one million people. Of these, 70% are at risk from tidal flooding, 29% are at risk of fluvial flooding and 1% are at risk from both.”

“But potentially even more important for some sectors in the UK is the impacts felt outside of its borders, and how this trickles back to the UK’s trade and investments, as well as dependency on food and energy imports.

“PwC’s analysis of the threats and opportunities for the UK from international climate change warned that with the UK holding £10 trillion of assets abroad, physical damage or financial devaluation of even a very small proportion of these assets can be significant.

“Global risks in food security will translate to UK risks in food security, as food supplies in the UK are underpinned by global food supplies. Current main threats are fluctuating and volatile prices as a result of disruptions in the production, transportation and distribution of imported foodstuffs; but future threats could be more systemic if availability of core foodstuff becomes threatened.

The domino effect
PwC’s analysis of the knock on impacts from trade disruption to the rest of the UK economy caused by international climate change

  Impacts
Taken from PwC’s report on the International Threats & Opportunities of Climate Change to the UK for Defra (2013) . See the full report here: http://www.pwc.co.uk/sustainability-climate-change/publications/international-threats-and-opportunities-of-climate-change-to-the-uk.jhtml

Business responses to climate risks
Jonathan Grant, Director, PwC Sustainability & Climate Change

“The business response to this report is likely to depend on size, sector and geography. Insurers will worry about impacts on underwriting and long-term insurability; retailers may focus on vulnerability of their supply chain; and energy, mining and power companies will be concerned about impacts on their infrastructure such as storm surges or water availability.

“Our analysis shows that the larger UK-listed companies have a more sophisticated approach to dealing with climate risk.  The smaller British companies often have shorter term and narrower horizons and may only be reactive to commodity price volatility, policy change or climate shocks.  And in emerging markets there is even less capability within the business community to consider these climate risks.

“The real challenge for companies assessing climate risk is how to make capital investment or supply chain decisions which don’t over-engineer or under-engineer the response. “

Impact on Climate Policy and Climate Negotiations
Jonathan Grant, director, PwC Sustainability & Climate Change

“The report will fan the flames in the climate negotiations particularly in the discussions about loss and damage.  Highlighting the disproportionate impacts of climate change on poorer countries and poorer sections of society will add to the feeling of injustice in the corridors of Lima this year. With a growing body of evidence linking  climate change and ‘consequential impacts’ particularly in tropical regions, it is likely that least developed countries will call for increased financial support for their measures to adapt and respond to these climate impacts.”

Global impacts with implications for business - investing in resilience
Dr Celine Herweijer, Partner, PwC Sustainability & Climate Change

“Professionally conservative, even an IPCC leaked draft has also quoted, 'with medium evidence and medium agreement', that global aggregated economic losses are estimated to be 0.2 – 2% of GDP with a global mean temperature increase of 2.5oC.

“There are strong suggestions that these are likely to be vast underestimates as the few nascent economic models currently available do not capture the full scale of risk. For example they exclude the possibility of catastrophic outcomes that climate models point to, losses from extreme events (which is a key driver of economic loss), possible mass migration and serious conflict. In short it assumes  growth which might not be fully realised  in the face of large scale infrastructure, energy, business, natural capital or wellbeing disruption.”

"As PwC’s Low Carbon Index highlighted last October, basic economic growth assumptions are now coming under question. We treat them as a given, rather than something which could be affected by changes in the climate system.

“For a business leader, it’s not the macro-view of economic impact that drives a decision to invest in climate resilience and mitigation. They are focused on expected costs to their balance sheet – how climate change will impact operational productivity, infrastructure damage, insurance premiums and availability, input prices, security of supply, service and workforce disruption, consumer preferences and license to operate.  The question is how climate change manifests in terms of these direct costs to a business’ bottom line – its year to year revenues and profits, and more importantly the long term view of the investment a business needs to make to ensure these continue to grow in a warming world.”

Climate and the CEO
Dr Celine Herweijer, Partner, PwC Sustainability & Climate Change

“Resource scarcity and climate change, urbanisation and demographic changes consistently feature in the top three megatrends set to transform business.

“But the reality of the scale of business disruption from these systemic risks, has not yet perhaps hit home with CEOs.

“CEOs interviewed for PwC’s recent CEO survey, when asked what is the biggest threat to revenue growth in the next twelve months, 58% of them said they were not very, or at all concerned about supply chain risk; 43% aren’t worried about energy costs; and 45% don’t see issues with raw material prices or availability. All areas impacted by extreme weather and climate change.

“Resource scarcity is fast becoming a priority on both the political and business agenda as demand for food, water, energy, goods and services increases. Climate change puts all of these under further pressure. There are clear industries and countries on the biting end of this.

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"Even basic commodities such as water are now in increasingly short supply both for human consumption and to support industry, energy and food production. In fact, water has emerged as one of the most critical resources, creating friction between communities, business and governments.”

“Their perception of risk three years down the road, shows only 1 in 4 will be focusing on climate change and biodiversity loss as a priority. This suggests there is still some way to go to get more wholesale business buy in on the urgency to act."

“On the positive side we have a growing cadre of well informed, and forward thinking multinationals who can see the reality of climate change – the 1 in 4 CEOs. They see commodity costs rising, performance impacted by extreme weather, or long term climate pattern shifts including water availability, supply chain interruption, and the impact on the emerging markets they want to grow in. They also see the opportunities for growth, resilience and cost reduction enabled by new technologies and business models."

Jon Williams, partner, PwC sustainability and climate change.

“Good business leaders continually make decisions under uncertainty, and when new information becomes available they revisit their decisions and adapt accordingly. So this IPCC report is the one for business leaders to take note of, to examine how they are exposed to the risks that have been identified.”

“Some of these decisions, such as the design of large infrastructure projects, may require rigorous quantitative information to feed formal evaluations, for example cost-benefit analysis. The outputs of these evaluations need to be presented in a clear, consistent way in order for business leaders to make informed judgements. Existing tools and methodologies are available to help business to translate the science into assessments and evaluations.”

“In situations where there are high uncertainties, or when trade-offs need to be made, a holistic view in decision making, that looks at the impact of a decision on multiple dimensions, would be required.”

The consumer and the climate – is the UK prepared?
PwC commissioned a survey of the public, conducted by YouGov, into the public’s attitudes to climate change and Britain’s ability to cope with extreme weather, using the recent floods as an example.  The survey examined experiences of the floods, willingness to invest in extreme weather defences for their homes, and whether their attitudes to climate change had changed as a result of recent extreme weather in the UK.

For a copy of the findings, contact Miranda Ward (+44 7803 455 991) or Rowena Mearley (07841 563 180)

PwC’s sustainability and climate change advisory team was established in 2007, and combines 700 experts globally, with over 100 in the UK. Specialists work with public and private sector clients on emerging issues of climate change science, policy, economics and development, sustainability/CSR strategy, supply chain, responsible investment, measurement, reporting and assurance. For more information see www.pwc.co.uk/sustainability.

Specialists include:

  • Climate science, resource security, impacts, adaptation & what it means for UK – Dr Celine Herweijer, partner, PwC sustainability & climate change
  • Impact on developing countries, adaptation in Africa, Latin America, and Asia – Sam Bickersteth, director, PwC & CEO, Climate & Development Knowledge Network
  • Climate change, business resilience, resource scarcity and insurance – Jon Williams, partner, PwC,
  • UK & International climate policy, energy, emissions: what we have to do to get emissions down: Jonathan Grant, director, PwC sustainability & climate change
  • Insurance and disaster risk reduction: economic impact of extreme weather on UK insurance – Mohammad Khan, partner, PwC insurance; Dom Del Re, disaster risk specialist, PwC
  • International climate economics & policy – Lit Ping Low, PwC sustainability & climate change

Appendix: Business impacts of climate change

Recent analysis by PwC for CDP, and DEFRA highlight recent impacts, and risks from climate change:

Read the full report on the international impacts of climate change on the UK at this link:
http://www.pwc.co.uk/sustainability-climate-change/publications/international-threats-and-opportunities-of-climate-change-to-the-uk.jhtml

  • In a recent report on the climate change strategies of the world’s largest 500 companies by PwC and CDP: Four out of five (83%) companies in the Global 500 index have reported that physical impacts of climate change are a risk. CDP/PwC Global 500
  • Energy companies reported that they are upgrading their offshore oil rigs in the Gulf of Mexico in response to the threat of more intense hurricanes. CDP/PwC Global 500
  • But physical impacts of climate change are also high on the list of risks: changes in precipitation extremes, changes in mean temperature and changes in temperature extremes are noted as risks by two thirds of utilities companies. Utilities note that climate change is expected to have direct and indirect impacts on their business. For example Scottish & Southern Electricity report that severe and unpredictable weather events represent a risk to their own buildings and sites as well as those of their customers, suppliers and employees. Delivery of turbines could be affected by disruptions in their supply chain. CDP/PwC Global 500
  • Retailers, such as Tesco are analysing their supply chain to consider the impact of climate change on agricultural commodities. CDP/PwC Global 500
  • Mining companies have described how water scarcity might affect their operations in sub-Saharan Africa. Nearly half of telecoms companies state that changes in mean temperature is a risk. CDP/PwC Global 500
  • For insurers, a changing climate means more historically unprecedented events – and pricing risk using models that only look back at past risks will no longer work. In the future, insurers may find that in some regions of rising risk, the required premiums may simply become unaffordable for homeowners and businesses.
  • Particularly at risk are high value, long lifetime, fixed assets, like manufacturing sites, energy, utilities and mining sites. Infrastructure investors including the power sector will invest $1trillion per annum over the next two decades in developing countries, and all of it will need to be climate resilient.
  • The UNISDR reported that the private sector is responsible for 70 to 85% of worldwide investment in new buildings, industry and critical infrastructure. The level of risk that is exposed to is directly linked to the where and how of this investment.

 

 

 


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