Adapting to the Inevitable

Transcription

1 ThinkForward: A.T. Kearney s foresight series As recent natural disasters illustrate, learning how to deal with a changing climate is an important topic of discussion for governments and businesses worldwide. While past efforts focused on preventing climate change, the future will be about adapting smartly. 1

2 Even under the most optimistic projections, greenhouse gas (GHG) emissions will continue to rise (see figure). According to the International Panel on Climate Change, this could cause an increase in global temperatures and rising sea levels. Extreme heat, extended heat waves, massive droughts, and extraordinary precipitation events could all become more frequent, and typhoons and hurricanes could become more intense. Melting of the polar ice sheets could raise sea levels by one meter by 2100 and put 10 percent of the world s population at risk. One Pacific island nation, Tuvalu, has already arranged to retreat to New Zealand when sea levels rise to unsafe levels, while coastal megacities, including Bangkok, Los Angeles, Manila, Mumbai, and Sydney could also be in danger. Climate change threatens transportation infrastructures, agricultural yields, water supplies, and increases the risk of heat-related illnesses. Figure Even in the best-case scenarios, global carbon emissions will increase CO 2 concentration projections (parts per million) 1, A1FI A2p A1B B Notes: A1B, A1FI, B1, and A2p are different scenarios the International Panel on Climate Change uses for its carbon emissions projections. They are based on different levels of globalization vs. regionalization, and an economic vs. environmental focus. Source: International Panel on Climate Change Recent natural disasters, whether or not induced by climate change, aptly demonstrate the fragility of today s global supply chains. The March 2011 earthquake and tsunami in Japan forced manufacturing plants worldwide to shut down temporarily because of a shortage of Japanese parts, including a General Motors truck plant nearly 7,000 miles away in Louisiana. Later the same year, Thailand s worst floods in a century delayed the supply of Apple computer components and suspended Toyota s Thai production of Camry and Prius vehicles. Forward-thinking governments and businesses are beginning to take steps to adapt to the changes, since meaningful moves to reduce emissions significantly are not forthcoming on a global level. These leaders are accepting and even promoting efforts to limit vulnerability. They are thinking ahead, and adapting to the inevitable. 2

3 New Environmental Consequences Policymakers are pursuing adaptation at the city, state, and country levels, while businesses are becoming aware of the need for innovative and cost-effective adaptation measures. Businesses that understand how customers will be affected by climate change will be in a better position to solve their problems. For example, energy, water, construction, and infrastructure businesses are likely to play a lead role in protecting communities from higher sea levels, longer droughts, and harsher storms. Businesses that understand how customers will be affected by climate change will be in a better position to solve their problems. The effects of climate change could hit companies hard disrupting production processes and deliveries, affecting the availability of raw materials and components, and interrupting electricity and water supplies. Demographic movements compelled by weather may even change the location of the future labor force, with at-risk areas losing people to areas where the risks are slighter. Industries that require constant water supply, such as paper factories, will be forced to relocate. Adaptation is especially crucial in four areas: Infrastructure. Making infrastructure more resilient is the most readily identifiable area for adaptation. This includes a range of actions from raising freeways and homes in low-lying cities to building dams against rising waters and organizing managed retreats of people in the face of natural disasters. As we learned first from Hurricane Katrina and then from Superstorm Sandy in the United States, these preparations are enormously complex and costly for governments. Governments will need to partner with firms that can plan and execute necessary infrastructure changes and new construction. Even before Superstorm Sandy pummeled the U.S. East Coast, Consolidated Edison, New York City s primary electricity supplier, was installing submersible switches and moving high-voltage transformers above ground as part of a long-term strategy. And New York s subway system was considering plans to increase pumping capacity at stations, raise entrances, and design floodgates to block flood water. San Francisco is pursuing adaptation strategies, including designing and developing a shoreline that can cope with higher sea levels. Opportunities also exist in developing countries, where low-lying, densely populated cities could be hit hard by climate change. For example, global cement company Cemex is developing low-cost, climate-resilient housing for its home market in Mexico and plans to expand to other markets. The industrial waterfronts with chemical manufacturing plants, oil-storage sites, and garbage-transfer stations also need to be protected or moved. 3

4 Protecting existing water sources and creating new ones will be crucial. New reservoirs and dams will be needed to increase storage capacity, as will more efficient water recycling and conservation technologies. Desalinization, though prohibitively expensive and energy-intensive today, will be a sensible option as technology improves, particularly for coastal regions with nearby saltwater sources. Higher temperatures are allowing infectious diseases to spread to previously unaffected areas, encouraging more spending on solutions to vector-borne diseases such as malaria. Agriculture. Even as some countries will be hit hard by new weather patterns, others stand to benefit as more rainfall and warmer temperatures open up agricultural opportunities in previously less hospitable climates. German chemical giant BASF and American agricultural biotechnology firm Monsanto are collaborating to find solutions for the coming climate challenges and positioning for new market opportunities. For example, drought-tolerant seeds with a larger root mass will allow farmers and ranchers to harvest products despite intense heat and drought. Certain varieties are capable of rolling up their leaves to slow moisture loss. Researchers at Texas A&M University are working with ranchers to breed cattle with natural tolerance to heat and drought. Some countries stand to benefit as more rain and warmer temperatures open up new agricultural opportunities. Risk management. The insurance industry faces a more complicated road to adaptation. In Florida, the home insurance market is already partly run by the government because high property values and the risk of intense storms make insuring homes too risky. Yet, as many firms departed Florida for historically lower-risk regions, such as the U.S. Midwest, they received nearly as many claims for severe weather tornadoes, hailstorms, and other events as along the Gulf Coast. Shipping and resource exploration. Climate change is creating new business prospects in commercial shipping and resource exploration. Melting in the Arctic has finally made the Northeast Passage a speedy sea route from the Atlantic to the Pacific passable for a few months each summer, cutting about 10 days from a 30-day trip and reducing fuel costs and time to market. While unpredictable ice makes time-sensitive trips unlikely, it is less of a problem for dry bulk goods. As the passage becomes more feasible for commercial journeys, ice-class cargo ships with an extra layer of steel will be in demand. And as the new route comes into use, the Arctic will be open for new port complexes and more oil and gas exploration and extraction. 4

5 Adapting to a World of Change Regardless of industry or geography, adaptation strategies will help reduce costs and risks. Companies and governments that are more nimble and resilient in responding to future threats will have the best chance of surviving a continually changing environment. Top actions include: Adapting product and service opportunities toward areas of strength Strengthening supply chains against immediate threats Auditing long-term plans from a resilience point of view, taking into account vulnerabilities of potential locations and supplies While the world plays catch-up on mitigating climate change, the best path forward may be to simply adapt to a new reality. About the ThinkForward series ThinkForward is a series that uses foresight techniques to identify over-the-horizon trends that will have a major impact on the future business environment. The ThinkForward publication series shares findings from our horizon-scanning efforts and stimulates discussion about the opportunities and challenges that companies confront as they head into the future. Authors Joerg Schrottke, partner, Munich joerg.schrottke@atkearney.com Jürgen Rothenbücher, partner, Munich juergen.rothenbuecher@atkearney.com Thomas Weber, principal, Frankfurt thomas.weber@atkearney.com Sandra Niewiem, principal, Frankfurt sandra.niewiem@atkearney.com The authors wish to thank Wiebke Hoffman and Ann-Cathrin Seifried for their valuable contributions to this paper. 5

6 A.T. Kearney is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world s leading organizations across all major industries and service sectors. A.T. Kearney has 57 offices located in major business centers across 39 countries. Americas Atlanta Calgary Chicago Dallas Detroit Houston Mexico City New York San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Dubai Johannesburg Manama Riyadh For more information, permission to reprint or translate this work, and all other correspondence, please insight@atkearney.com. A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. 2013, A.T. Kearney, Inc. All rights reserved. The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring essential rightness in all that we do.