Find out why your busi­ness might be more vul­ner­a­ble to cli­mate change than you think

Gus Schellekens, MENA cli­mate change and sus­tain­abil­ity ser­vices leader at EY, ex­plains how cli­mate change could af­fect your busi­ness now and in the fu­ture

Gulf Business - - FRONT PAGE -

DO YOU KNOW how much money your busi­ness has al­ready lost due to cli­mate change? For most busi­nesses in the Mid­dle East and North Africa, the an­swer is no.

Smart busi­nesses know that in­creas­ing tem­per­a­tures, ex­treme weather and ris­ing sea lev­els are al­ready af­fect­ing ev­ery­thing from their en­ergy and wa­ter costs to of­fice ar­chi­tec­ture, sup­ply chain risk, in­sur­ance pre­mi­ums, and staff safety.

Yet too few busi­nesses in the Gulf are think­ing so strate­gi­cally about cli­mate change. Whether this is due to cost aver­sion, ig­no­rance or com­pla­cency, it is a my­opia that risks not just prof­its but po­ten­tially their ex­is­tence. From in­creas­ing wa­ter bills to the threat of shock events like the flash floods re­cently hit­ting Oman and the ris­ing sea lev­els that threaten ex­pen­sive coastal in­fra­struc­ture, the Gulf is al­ready at a cli­matic ex­treme. The only ques­tion now is when and how much?

Many re­gional play­ers have of­fices and peo­ple in overseas cli­mate-stressed areas, such as SABIC, a global leader in di­ver­si­fied chem­i­cals, whose pres­ence in­cludes drought-rid­den Cape Town, and Ben­galuru. Gulf in­vestors have also put cap­i­tal to work across Africa, whose agri­cul­tural sec­tor may bear the brunt of fu­ture cli­mate change im­pacts. Con­sumer-fac­ing in­vest­ments could also be un­der­mined by the econ­o­my­wide de­te­ri­o­ra­tion that would fol­low an agri­cul­tural cri­sis. For some in­dus­tries, Africa's growth is al­ready down from its ear­lier highs. It is not clear whether Gulf com­pa­nies are re­ally screen­ing for and mea­sur­ing the risks and costs of these overseas threats.

Even those not plan­ning to ven­ture abroad will be ex­posed to global sup­ply

chain volatil­ity. Drought-driven spikes in the prices of com­modi­ties such as food will im­pact this im­port-re­liant re­gion. Ex­treme weather events will hit in­ter­na­tional travel and trans­port, a sec­tor crit­i­cal to the Gulf 's di­ver­si­fi­ca­tion drive, and dis­rupt global sup­ply chains. Sea level rises could af­fect the re­gional coastal in­vest­ments, the ship­ping traf­fic through the cru­cial Strait of Hor­muz, a vi­tal node in global oil and other raw ma­te­ri­als trade.

Gulf firms also need to recog­nise that in­ter­na­tional fi­nan­cial de­ci­sion-mak­ers, from in­sti­tu­tional in­vestors to pri­vate eq­uity funds, are in­creas­ingly in­clud­ing cli­mate risk in their in­vest­ment mak­ing de­ci­sions. One es­ti­mate of global 'as­sets at risk' from cli­mate change quan­ti­fies the fig­ure at $4.2 tril­lion – roughly the value of all the world's oil and gas com­pa­nies – so in­vestors will want to know what risks a busi­ness is ex­posed to, and where, be­fore they risk their cap­i­tal.

Cli­mate in­sur­ance is get­ting pricier too. The in­sur­ance bill for 2017 nat­u­ral catas­tro­phes, which in­cluded the hur­ri­cane trio of Har­vey, Irma and Maria, is es­ti­mated at $135bn, ac­cord­ing to Mu­nich Re, mak­ing last year the costli­est hur­ri­cane sea­son ever. With in­sur­ers los­ing huge sums, ex­pect ris­ing pre­mi­ums. Some risks the in­sur­ance in­dus­try may now not even touch. If gov­ern­ments have to step in as in­surer of last re­sort, they will reg­u­late heav­ily to en­sure com­pa­nies are do­ing ev­ery­thing they can to pro­tect them­selves. Com­pa­nies not tak­ing those steps will face sig­nif­i­cantly ris­ing costs.

Whose re­spon­si­bil­ity is it?

As a planet-wide de­vel­op­ment, we know that ad­dress­ing cli­mate change needs in­ter­na­tional government agree­ments. Politi­cians es­tab­lish long-term tar­gets and set reg­u­la­tions. But busi­nesses must re­alise that cli­mate change is not sim­ply an is­sue for pol­icy mak­ers. It is a di­rect threat to their suc­cess, and even ex­is­tence, and they need to play a large part as well.

Gulf gov­ern­ments have been en­thu­si­as­tic par­tic­i­pants in green pol­icy. Saudi Ara­bia's Vi­sion 2030 agenda aims to in­crease the share of re­new­ables to 9.5GW by 2023, while Dubai is build­ing a mega-so­lar park with a planned ca­pac­ity of 5,000MW. En­vi­ron­men­tal per­for­mance cri­te­ria for build­ings, es­pe­cially in the UAE, are tight­en­ing. In ad­di­tion, gov­ern­ments are look­ing to em­brace the Sus­tain­able De­vel­op­ment Goals in their na­tional plan­ning.

These are wel­come in­ter­ven­tions but com­pa­nies should not just re­act to reg­u­la­tion. They should also be­gin to think more strate­gi­cally. In the longer term, cli­mate change will pro­vide new busi­ness op­por­tu­ni­ties. In the shorter term, cli­mateproof­ing your busi­ness is an op­por­tu­nity to un­der­take a wider re­view of cor­po­rate strat­egy – your costs, sup­ply chains, mar­ket ex­pan­sion, risks and your daily op­er­a­tions.

At a time of in­creas­ing costs in the MENA re­gion, with VAT be­ing in­tro­duced and sub­sidy re­duc­tions, busi­nesses can also look at sus­tain­abil­ity as a way to cut waste and in­ef­fi­ciency. Com­pa­nies adopt­ing sus­tain­abil­ity prin­ci­ples are known to out­per­form oth­ers; they are run bet­ter, they are gov­erned bet­ter and they man­age their risks bet­ter, with fewer sur­prises to the busi­ness and less per­for­mance volatil­ity.

Through retrofitting, the head­quar­ters of Dubai Cham­ber re­duced wa­ter and en­ergy con­sump­tion by 77 per cent and 47 per cent re­spec­tively be­tween 1998 and 2008, while com­mer­cial firms also prove that busi­ness suc­cess and sus­tain­abil­ity go hand in hand, such as Ma­jid Al Fut­taim, the first com­pany in the re­gion to achieve LEED (Lead­er­ship in En­ergy and En­vi­ron­men­tal De­sign) cer­ti­fi­ca­tion for its malls, ho­tels and of­fices.

To truly fu­ture-proof a busi­ness, com­pa­nies should think about how a chang­ing cli­mate af­fects what and where they can build, buy, and sell. They should fore­cast the ways these changes will hit their mar­kets, as­sets and work­ers at home and abroad. This means plan­ning for pos­si­ble sce­nar­ios and think­ing about how ready you are, adapt­ing your busi­ness, and pre­par­ing mit­i­ga­tion re­sponses for pos­si­ble threats and then train­ing staff. Sup­ply chains, overseas mar­kets and in­vest­ments should all be scru­ti­nised for risk.

The goal of this cli­mate proof­ing is to pre­pare for the fu­ture. The al­ter­na­tive could be no fu­ture at all.

sea level r i s e s could af­fect the re­gional coastal in­vest­ments, the ship­ping t raf­fic through the cru­cial st ra i t of hor­muz, a v i t a l node in global o i l and other raw ma­te­ri­als t rade.

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