Successful businesses take advantage of the opportunities that change brings. What about climate change? The innovations required to adjust to the coming shifts in climate can only take place if nations around the world get the institutions right.
While politicians debate about the appropriate policy response to climate change, business leaders can’t afford to hesitate. This seems to be the only conclusion reached by CEOs across industries including oil and gas, apparel, and agriculture. Today, companies all over the world are doing what they can to prepare for a period of extreme novelty.
Take Nike as one example: the company is deepening its relationship with suppliers in order to influence operations on the ground. By providing the expertise of a multi-national institution, the sports and clothing company hopes to improve the resilience of local factories by promoting best practices. It’s not a moment too soon, either – experts agree that climate change can disrupt supply chains in a globalized world.
“In the face of today’s challenges — from climate change to inequality to how we unleash the potential of the next generation — I believe we need our boldest dreams yet.”
Mark Parker, CEO of NIKE
In fact, the U.S. Government Accountability Office found that climate-related impacts have already cost the federal government billions of dollars. Decreased agricultural yields have been reported throughout the Midwest, while increased energy demands driven by heatwaves in the Southwest strain the nation’s aging energy grid. In total, extreme weather and fire events cost the American taxpayer $350 billion in the decade from 2008 to 2018. It’s no surprise that any increase in these events can wreak havoc on markets.
Impact by Region
Of course, even as global a phenomenon as climate change won’t have the same impacts everywhere. In fact, the Intergovernmental Panel on Climate Change (IPCC) reports that Latin America shows no clear long-term tendencies in mean surface temperature change. Environmental shifts in the region are more likely to be caused by deforestation than by the emission of greenhouse gases. That being said, the loss of glaciers in the Andes, as well as in the mountains of Patagonia, is still a possibility.
Things couldn’t be more different in the Middle East and North Africa (MENA). MENA is thought to have exceptionally low adaptive capacity to climate change. It isn’t difficult to see why: agriculture is the largest source of employment in many MENA countries, yet 70 percent of food production in the region is rain-fed. Any significant drop in rainfall could fuel socioeconomic and political unrest, mass migration, and civil war. With per capita GDP ranging from over $900 in war-torn Yemen to over $63,000 in Qatar, even the wealthy gulf states could have a crisis on their hands if the food and water security of the entire region is not ensured.
Climate-induced hardship is also expected to impact people on the Indian subcontinent. Although each Indian state deserves its own analysis, almost all are heavily dependent upon agriculture. In fact, food production serves as the primary source of livelihood for 58 percent of the country’s population. If Himalayan glaciers continue to recede at 10-15 meters per year, the Indus, Ganga, and Brahmaputra rivers should see initial flooding, followed by years of reduced flows. Climate-induced migration from Bangladesh is also to be expected and could lead to conflict over natural resources.
Although China is the world’s leading emitter of greenhouse gases – or perhaps, because of the wealth it has gained as the result of its energy-intensive production activities – it is thought to have greater adaptive capacity than India. Yet, if the country’s response to the coronavirus is any indication, the CCP’s disregard for information sharing may prove a significant barrier to the innovation required for the country to successfully respond to coming changes in global sea levels.
“We need to solve climate change, but we also need to make sure that the cure isn’t more painful than the disease. Abandoning fossil fuels as quickly as possible, as many environmental activists demand, would slow the growth that has lifted billions of people out of poverty.”
Bjorn Lomborg, director of the Copenhagen Consensus Center
Russia may well be the only nation whose leaders expect to gain more from climate change than they will lose by it. Indeed, the thawing of permafrost in Siberia will unlock significant water resources for the country, opening up new opportunities in the robust energy sector. Furthermore, milder winters would allow the cultivation of new crop varieties in northern geographies. Finally, warmer years are likely to translate into lower domestic energy demands. Yet all of these opportunities demand careful stewardship by business and political leaders.
Climate change is also expected to extend the frost-free season – and therefore the growing season – in the United States. However, increased variation in precipitation patterns may strain agriculture by spurring cycles of flood and drought. If not met with proper resource management, disastrous fire seasons such as those seen in California in recent years could result.
Overall Outlook
In sum, the prognosis for the next few decades is mixed, with both destruction and opportunity likely to result from climate change. What is clear is that countries with pressing social, political, and economic problems are unlikely to adapt fast enough to the disruptions ahead. Unfortunately, businesses across the world will suffer unless businesses create innovative solutions. After all, if immigration is a challenge in the most prosperous of times, climate migrants are unlikely to be welcomed in the heart of a crisis.
Rising sea levels and changing patterns of rainfall require social, political, and technological innovation. Yet, without the rule of law and dependable property rights, entrepreneurial solutions to urgent needs are unlikely to emerge. In their stead, entire populations will have no alternative to government initiatives. To this end, business leaders need to step up and the government needs to listen.
