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"Chocolate at stake" or Risk Management turning a blind eye on Climate Adaptation: 10 possible root causes

Two days into the Adaptation Futures 2023 conference I am very inspired on the varios #Adapation examples and research. Therefore, I´d like to shed light on why it is not always advancing as fast as we may wish.

Picture a multinational corporation based in Europe that sources cocoa from West Africa for its premium chocolates. After years of consistent deliveries, they suddenly face a massive shortfall. The culprit? Prolonged droughts affecting the cocoa yield in their key sourcing regions. The company’s risk management had rigorous strategies for political instability or market fluctuations but overlooked the tangible impacts of climate change on its supply chain. Such gaps highlight the urgency of embedding climate adaptation into traditional risk assessments.

The integration of climate adaptation into corporate risk management is increasingly recognized as essential, but there are several reasons why it has historically been overlooked or insufficiently addressed:

1.    Short-Term Focus:

Traditional corporate risk management, while often focusing on immediate threats, can sometimes overlook or inadequately prioritize long-term challenges like climate change, especially if they manifest incrementally or outside of typical reporting cycles. There are several standards, however, demanding a longer-term perspective (e.g. SASB, IR, CSRD, TCFD, GRI)

2.       Perceived Complexity:

Climate science is intricate, and the long-term impacts of climate change on specific industries or geographical locations can be challenging to predict with precision. This perceived complexity can deter businesses from integrating it into their risk assessments.

3.       Lack of Awareness and Education:

Not all business leaders and decision-makers are adequately informed about the specific risks climate change poses to their operations, supply chains, or market demand. This can lead to underestimation or outright dismissal of such risks.

4.       Insufficient Data and Tools:

Historically, many businesses lacked access to granular data or tools to model the potential impacts of climate change on their specific operations. While this is changing with advancements in technology and data analytics, legacy systems and attitudes might persist.

5.       Economic Incentives:

Immediate investments in climate adaptation can be costly, and without immediate returns or regulatory requirements, some companies might deprioritize these investments in favor of others with clearer, short-term ROI.

6.       Regulatory Environment:

In the absence of stringent regulations or standards mandating businesses to account for climate risks, companies might not have the incentive to voluntarily incorporate such considerations. A promising development in this context is, again (see 1.) the Corporate Sustainability Reporting Directive (CSRD) which requests thousands of enterprises active in the EU to evaluate both positive and negative impacts of climate change on their business.

7.       Stakeholder Pressure:

Historically, shareholders and other key stakeholders might not have emphasized climate adaptation. However, with increased awareness, there is now growing pressure from investors, customers, and even employees to prioritize sustainable and adaptive practices.

8.       Cultural and Organizational Inertia:

Changing a company's approach to risk management requires shifts in culture, mindset, and sometimes organizational structures. Resistance to change and inertia can act as barriers.

9.       Misunderstanding of Scope:

Some businesses may believe that climate change impacts are limited to certain sectors (e.g., agriculture or coastal businesses) and might not see it as a universal risk that affects a wide array of industries.

10.   Externalization of Costs:

Businesses might believe that the costs associated with climate adaptation will be borne by others (governments, insurers, or society at large) and might not feel the immediate need to internalize those costs and risks.

Returning to our multinational corporation, the cocoa shortfall not only threatened the business's bottom line but also damaged its brand reputation. Customers who had come to love their premium chocolates found shelves empty or product quality inconsistent due to sourcing challenges. The ripple effects extended to retailers, stakeholders, and even investors.

So, what's the takeaway? Addressing climate change adaptation isn't just about avoiding catastrophe; it's about ensuring that the intricate web of global business – from cocoa farmers in West Africa to chocolate aficionados in Berlin – remains robust and resilient. In a world increasingly shaped by climate uncertainties, businesses that proactively factor in these adaptations into their risk management processes will not only safeguard their operations but also seize a competitive advantage.

In the end, it's more than just chocolates at stake; it's about the future viability and vitality of global business in an ever-changing climate landscape. "The era of global warming has ended; the era of global boiling has arrived.” So said UN Secretary-General António Guterres in July this year.

In recent years, the narrative is changing, as more businesses recognize the profound impacts of climate change on their operations, supply chains, and consumer demand. There's a growing push to incorporate climate adaptation into comprehensive corporate risk management strategies.

Do not let your chocolates melt away...


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