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Climate change versus cost

Climate change: the facts

  • Greenhouse gases are at a 4.5 million-year high - Mastodons and woolly mammoths roamed the Earth the last time the concentration of carbon dioxide (CO2) in the atmosphere reached today’s levels. Scientists say levels of CO2, which as a greenhouse gas traps heat and causes global warming, are now comparable to the Pliocene Age, between 4.1 and 4.5 million years ago, when the sea level was about 24 metres higher than today, and the average temperature was nearly 4 degrees Celcius warmer.1
  • July 2021 was Earth’s hottest month ever recorded - July 2021 secured its ranking as the hottest month ever recorded since records began 142 years ago, according to the National Oceanic and Atmospheric Administration.1
  • UK rain and heatwaves are on the rise - Greater London has seen 48% more rainfall than the city’s long-term average, and increases of a similar scale have been recorded in Hampshire (up 49%), Surrey (up 54%) and West Sussex (up 52%). The Met Office issued its first ever amber heat warning for the UK in July 2021, and Northern Ireland broke its all-time temperature record on July 21.1
  • Antarctica loses an Everest of ice every year - Antarctica is losing 151 billion tonnes of ice per year, roughly equivalent in weight to the rock that makes Mount Everest, according to NASA’s Grace Follow-On satellite.1
  • The homes of 200 million people will be below sea level in 70 years - 200 million people in the world, more than three times the UK population, will live below the tideline by the end of this century if levels continue to rise, according to Nature Communications. China, Bangladesh, and India are particularly vulnerable to rising sea levels, coastal storm surges and flooding, as are the Netherlands and parts of the UK.1
  • A million species are at risk - A chilling number of Earth's other habitants, including 40 percent of all amphibians known to science (about 3,200 species) is under threat due to human impact, according to the UN. Climate change, pollution, deforestation, overfishing, development, and invasive species are putting biodiversity in peril.1
  • The concept of tipping points is scary - What many don't realise about the warming of the present Earth is that once we pass a certain threshold, physics takes over. This is at least true for the ice sheets, which – once they hit a rate of melting – can no longer sustain their mass. Known as the surface mass balance (SMB), passing this tipping point means that the ice sheet can no longer sustain its colossal mass based on the amount it is replenished by precipitation, and begins an unstoppable and accelerating decline humans are powerless to stop. With strong mitigation – limiting global temperature rise to ideally 1.5 degrees C, the levels agreed by nations administering the Paris Agreement – the ice sheets will continue to lose mass, but won't pass this critical tipping point. Without it, in a high emissions scenario, scientists are unsure when that tipping point may be hit.1
  • Failure to mitigate climate change - A failure to mitigate climate change is ranked as one of the most severe threats in the short term, but is the global risk we are seen to be the least prepared for, with 70% of Marsh’s Global Risks Perception Survey respondents rating existing measures to prevent or prepare for climate change as “ineffective” or “highly ineffective”. According to the Intergovernmental Panel on Climate Change (IPCC), the chance of breaching the 1.5°C target by as early as 2030 stands at 50%. Current commitments made by the G7 private sector suggest an increase of 2.7°C by mid-century, way above the goals outlined in the Paris Agreement.2

So what does all of this mean for your business?

The challenges businesses face

Businesses face many challenges including:

  • Energy crisis – the cost of energy, as we all know, has risen hugely. Therefore, this is a really difficult cost to manage and budget for.
  • Inflation – an exceptionally difficult area to manage as this spans all aspects of your business.
  • BREXIT – there is still uncertainty as to the exact fallout of this.
  • Geo-political landscape – domestic and abroad there is so much happening at a fast pace. How can you track and work out the knock-on effect to your business?
  • Supply chain – how robust are your supply chains? Can you obtain the raw materials and skill sets you need? Understand the climate risk in your supply chain. For example, a US airline was concerned about access to glycol (de-icer) because of draught leading to Mississippi flowing at historically low levels meaning barges could not get up river to deliver it. Who would have thought that an airline would have a climate exposure to Mississippi water levels?
  • Global pandemic – what is the true cost of this?
  • Employees health - What does the future bring in terms of employees health etc. how can we support colleagues through extreme weather events, especially heat waves which are the biggest weather-related killer?
  • Increased regulation – keep track of what is already in place and what is coming, and how you manage this risk.
  • Customers and employees – the way your customers potentially require servicing and their expectations may have changed. And, so have your employees, leading to a potential lack of talent pool. So how do you attract and retain skilled workers?

However, climate change is a game changer and one you can do something about. With the challenges that your business faces, it is easy for this not to be on the agenda.

What can you do to address climate change in your business?

  • Concept – start by getting climate change risk off the AOB and onto the Agenda, and look for someone to take a lead on this.
  • Decide where to start – It’s a huge subject that can be daunting, so begin with looking at small changes. (For example: Build a culture of sustainability awareness, rethink your waste, print when necessary, reduce your travel, switch off visual display units (VDUs), printers etc. to save energy) You can then begin to build on this looking at where you source your energy from, making your premises energy efficient, green transport, investment in renewable energy assets. Model the climate risks and assess now so you can build in resilience when there is planned capex.
  • Contracts – If you are going to invest, make sure that you carry out your due diligence to establish if what you are doing is right for your business. Are the supply chains you’re using experienced? Understand the risk in your supply chain to climate change. What government support mechanisms/policies are on the horizon i.e. would you be better hanging on until that policy is in place?
  • Risk – The risks of climate change are evident. Doing nothing is probably your biggest risk.
  • Market and/or Environmental, Social, and Governance (ESG) – Customers and employees are now focussed on a business’s approach to mitigating climate change, so this could certainly help you in winning contracts, retaining and attracting employees and customers. It will also assist with your ESG credentials. But, let’s be clear, ESG is not climate change but the ‘E’ does play a vital role. Being able to tell your ESG story to customers, suppliers, future partners, and insurers is of vital importance.

Here to help

There are many challenges your business faces, none greater than climate change. Act now to get it on the agenda, then take small steps and grow from there. Not only are there planetary benefits, but also business benefits. Speak to our renewable energy experts to discuss any of the talking points raised in this article, or visit our net-zero resource centre.

Our colleagues in Marsh have also launched the ESG Pulse Check. This provides you with clear recommendations on which standards to address in your business, and what resilience measures you could look to deploy - in just 12 simple questions. Start your ESG Pulse Check.

Get in touch with a renewable energy insurance expert

By taking the time to assess your individual needs, we’ll explore the renewable energy insurance market and arrange the cover that’s right for your business.