Is the Climate Crisis a high priority?
Despite claims that responding to the Climate Crisis is a high priority in boardrooms and for senior executives, some surveys are indicating this opinion may not be correct. If so, it is the Supply Chains group that will feel the effects, because they are expected to ‘fix’ any future climate induced disruption in their organisation’s supply chains.
A recent article noted a survey of more than 700 CEOs and senior executives across seven large economies. They were asked questions about responsibility for identifying and promoting changes associated with climate change. When considering the responsibility of business to identify and plan the required changes, respondents in three ‘western’ countries had the lowest response , with the UK being the lowest at 48 percent. In comparison, the remaining four countries had executives consider that businesses were responsible for its own future, ranging from 70 percent in Brazil to 93 percent in India.
The article also noted another survey of 1500 business leaders by the UK insurance broker Gallaghers. Although about half the respondents had experienced some negative effects to their business from climate change, the majority had taken no action to adapt or mitigate against the known and potential risks. So why the apparent assumption in some countries that it is the role of government to drive the required changes?
- Short-term thinking: senior executives are less concerned about addressing threats to the business that might occur after they have departed;
- Government assistance: government will most likely compensate for a damaged facility, even though it is built on a known floodplain
- Technology: a belief (or hope) among senior executives that future technologies will deliver solutions to address the climate crisis
- Obvious risks: senior executives are more likely to understand and manage ‘obvious’ risks (such as cybercrime) than the more generalised and less tangible risks associated with climate change
- Knowledge gap: senior executives fail to understand (or avoid) the science of climate change and/or do not know how to apply the knowledge
- Government’s role: senior executives assume that government understands the relevant facts and are therefore best placed to develop the appropriate solutions
Terms used in climate action
In previous blogposts, emphasis has been placed on defining the terms used in supply chains, so that all people in your business are ‘singing from the same page’. This also applies to terms used in climate action:
Adaptation is protecting things of value from adverse consequences of climate change. It is driven by known and expected external climate induced events and consequences, which your organisation cannot control. This requires a risk-based analysis to identify the sequence of changes and investments.
Mitigation is action to limit additional Greenhouse Gas (GHG) emissions. This is achieved through saving energy, reducing water use, buying recyclable packaging and other actions under the control of your organisation.
Portfolio of approved actions. When supply chain risks are identified, Adaptation requires choices for action: eliminate, minimize, share or transfer the risk. Mitigation requires a company-wide plan to meet a stated level of emissions reduction.
Identify external physical risks
Unfortunately, adjusting to climate change (Adaptation) has not received the same level of attention in government and media as reducing greenhouse gas emissions (Mitigation). However, for a society or business, it is prudent to take action early to protect what is currently valuable. For a Supply Chains group, this starts with identifying external physical risks through the supply chains. Also, identify the potential ‘cascading risks’, where the impact of a disruption may be felt along and across the chains – disruption does not end at a defined place or link in a chain.
An example is the current delay for ships transiting the Panama Canal. The Canal connects ports and countries across the world, but the main traffic is China and Japan to the US East Coast, with 40 percent of US consumer goods. To describe the situation, the Panama Canal Authority (ACP) is using expressions such as “unprecedented challenges” and “no historical precedence” – similar to other climate induced emergencies.
When the Canal was built, Central America had high rainfall, but the frequency of drying patterns has risen significantly during the last 25 years. The current drought has reduced the flow of water into the lakes that serve the Panama Canal system by between 30 and 50 percent and the situation is not expected to improve until about September 2024.
The Canal was designed to use freshwater from the lakes to refill the locks for each ship’s transit. However, the ACP cannot replace freshwater with seawater in the lock system, as the pumping facilities that clean the lake water to service the cities of Panama do not have desalination equipment.
The ongoing disruption will likely drive additional costs for shippers:
- When entering the Canal system, a container ship must not be deeper in the water than the required draught, otherwise it must (at extra cost) unload excess containers to trains for Canal transit and reload at the exit end
- Shipping companies impose a surcharge to cover the potential delay
- Spot prices for North Asia to US East Coast cargoes increase
- Change North Asia – US East Coast route to transit via the Suez Canal, with an additional sailing time of 7-14 days
The ‘cascading risks’ from the disruption will affect the availability of berths at destination ports; the booking of transport and warehouse slots and promotion plans of retailers, especially going into the Christmas season.
Risks to physical infrastructure
In addition to the disruptions in Panama caused by drought, in other parts of the world there will be more intense hurricanes, cyclones, tornadoes and storms, with increased rainfall. These are forecast to cause significant port and hinterland infrastructure damage, requiring major repairs. Some of the areas affected will be countries in North Asia for manufactured products, including Korea, Japan, Taiwan and coastal China; flooding in South East China; ports along the US Gulf of Mexico coast and the Mediterranean area where weather extremes will include heatwaves, which damage infrastructures.
Identify the external physical risks to your organisation’s supply chains at Links in the Supply Chains Network Design Map. The affected Links are joined with the Nodes of critical materials and sub-assemblies, to identify the action required that provides sufficient Adaptation in the business.