The Long Hedge

Preserving Organisational Value through Climate Change Adaptation

Jason West

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781907643958
• eBook ISBN: 9781351276344
• Topic: Business
• Subtopic: Business General
• Index: Business

Part of the Greenleaf Publishing Responsible Investment Series.Mitigating and adapting to risks and changing circumstances is a natural part of doing business. But methods of mitigating and adapting can be quite different in terms of time, cost and observed impacts. The impacts of mitigation activities are more immediate while the benefits of adaptation activities may take many years to take effect. Nowhere is this difference more apparent than in the case of the corporate response to climate change.In the context of climate change, adaptation is the process of changing behaviour in response to actual or expected climate change impacts. Climate change adaptation is now emerging as a critical partner to mitigation, and indeed may even become the primary protection mechanism for future generations.In this unique book, Jason West provides a comprehensive assessment of the management of climate change adaptation in the corporate sector. The book provides a formal overview of the range of approaches available along with a series of practical case studies and examples that can be used by companies and other organizations to identify, assess and manage climate change adaptation.A major focus is on the financial and investment implications of climate change adaptation. West examines how firms can evaluate the investment decisions associated with long-term climate change adaptation measures, including how such investments can be valued and funded, the appropriate accounting treatment of such measures and appropriate risk management and governance practices in relation to such measures. The book also considers the needs and interests of investors and other stakeholders, and considers how they can assess the adequacy and appropriateness of corporate action on climate change.The Long Hedge will be essential reading and a key text for risk-practitioners, investors, financiers, scholars and policy makers in the field of climate change.

1
Understanding climate change

In this chapter we will examine:

• Climate change projections
• Climate change evidence — the brutal facts
• Local impacts
• Economic projections and other effects

This chapter briefly describes the major aspects of climate change science, including the terminology and primary information sources. It provides insight into the arguments that support human—induced climate change and counterclaims against the sceptics’ view that climate change is either naturally occurring, or otherwise non-existent. The discussion is confined to impacts that are likely to have the greatest financial effect on the business community, while recognising that a variety of other severe impacts may be expected worldwide.

1.1 Climate change projections

A great deal of evidence presented regarding climate change and projected impacts can be selective. The result is a bias towards the evidence and effects of climate change that have been detected, while a lack of evidence from certain studies is not reported. This raises the possibility of ‘publication bias’ in the provision of evidence. In the following summary, however, we have attempted to avoid such bias by reporting only those facts that are known with a high degree of certainty. At this stage of our discussion, this is merely provided to set the scene and establish the key facts.

Since the industrial revolution, atmospheric concentrations of CO₂ have increased by over 30% (from 280 to 400 parts per million as measured at Hawaii’s Mauna Loa observatory), while concentrations of nitrous oxide and methane have increased by 17% and 151%, respectively. These emissions commit the world to a certain level of warming and accompanying climate change. Maintaining current forcing rates is expected to produce an estimated 0.5–1.0°C of committed warming.

Rising global temperatures are expected to cause changes in weather patterns, rising sea levels and may increase the frequency and/or intensity of extreme weather events across the globe. The earth has warmed, on average, by about 0.7°C since 1910. Climate and weather agencies have observed an increase in heatwaves, fewer frosts and a warming of the lower atmosphere and upper ocean. There is a range of initial evidence suggesting that much of the warming since 1950 is due to human activities which has increased the concentration of greenhouse gases in the atmosphere. This is well known as the Greenhouse Effect. The Greenhouse Effect comes from defined greenhouse gases (GHGs) which are substances whose molecular structure is more complex and much less common than the two most abundant gases in the atmosphere (nitrogen and oxygen). Apart from water vapour, GHGs include several gases such as carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), halocarbons and sulphur hexafluoride (SF₆).

Water vapour and carbon dioxide (CO₂) are the most important GHGs. CO₂ is a naturally-occurring gas formed as by-product of burning fossil fuels and biomass, as well as through other industrial processes, such as steel production and cement manufacturing. CO₂ is the principal anthropogenic GHG, which is the reference gas against which other GHGs are measured (IPCC 2007). In humid equatorial regions, the presence of significant levels of water vapour induces a strong Greenhouse Effect so adding a small amount of CO₂ or water vapour, results in only a minor impact on downward infra-red radiation. In colder and drier regions, such as near the poles, the effect of a small increase in CO₂ or water vapour is much greater. The same is true for the cold and dry upper atmosphere.

The magnitude of warming also depends on the impact of feedback mechanisms. For instance, as the atmosphere warms caused by a rising concentration of GHGs, the concentration of water vapour also increases, which intensifies the Greenhouse Effect. This is expected to cause additional warming and increases in water vapour through a self-reinforcing cycle. It is suggested that the water vapour feedback may be strong enough to double the increase in the Greenhouse Effect from added CO₂ alone (IPCC 2007).

Atmospheric CO₂ levels have increased by 35% from pre-industrial times and ice core records indicate this current level is higher than at any other time in the past 420,000 years.

In parts of the globe that experience extreme temperature variations, such as Russia, Canada and Australia, temperatures have increased by almost 0.9°C over the last hundred years, slightly higher than the global average. Projections for many areas are for a hotter climate and potentially more frequent extreme events. One scientific body, the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO) estimates that there may be:

• Warming of 0.4–2°C by 2030 and 1–6°C by 2070 compared to 1990 (warming will not be the same everywhere but almost everywhere the climate will be different)
• More hot days over 35°C (up to three times as many) by 2070 and a reduction in the number of frost days
• An increase in the frequency and duration of extreme events such as heavy rains, cyclones, floods and droughts and
• A rise in sea level rise of between 9 and 88 cm by 2100 compared to 1990¹

The more extreme effects already occurring in other areas include:

• The retreat of some glaciers and sea ice
• A decline of 10–15% of Arctic sea ice and up to a 40% decrease in its average thickness
• The snow depth at the start and end of winter in each year has declined 40% in the last 40 years
• An average sea level rise of 20 mm per decade over the last 50 years
• Poleward and altitudinal shifts of plants and animals, particularly in the alpine zone and
• An increase in coral bleaching due to increased water temperature.²

More broadly, some of the world’s scientific bodies including the US National Academy of Sciences, the UK Met Office (Hadley Centre), the UK-based Tyndall Centre for Climate Change Research, the CSIRO and the national science academies of Brazil, Canada, China, France, Germany, Italy, India, Japan, Mexico, Russia and South Africa have identified a range of possible future impacts. The most widely anticipated impacts include:

• An increase in the risk of flooding, salinity and erosion
• Greater pressure on drainage systems
• Water supply shortages and increased water demand
• Increased summer cooling demands
• Significant changes in weather patterns affecting consumption and transport
• International supply chain effects on imports and exports
• Loss of many important habitats for wildlife
• Summer water shortages and low stream-flows
• Extreme weather events displacing large populations for seasons at a time
• Increased risk of subsidence (in areas where subsidence is already a problem)
• Buildings becoming uncomfortably hot and
• Health issues including the spread of infectious diseases from the tropics

While there has been a significant focus on mitigation, it is likely that a certain level of increased warming has already been caused. Mitigation of some of these impacts may rapidly become a priority. It has, however, been established that cutting greenhouse gas emissions now will have a delayed effect on the climate system and some changes are inevitable due to existing CO₂ concentration levels. Governments, businesses and individuals are gradually accepting that they will need to adapt plans and behaviour to respond to the challenges of climate change. While the significance of the effects will vary, the impacts of climate change will be felt by businesses around the world.

Agreeing on the evidence

Global awareness of the greenhouse effect has been assisted by reports authored by the Intergovernmental Panel on Climate Change (IPCC), the leading international body for the assessment of climate change. The IPCC is a scientific intergovernmental body set up in 1988 by the World Meteorological Organization (WMO) and by the United Nations Environment Programme (UNEP) to provide an objective source of information about climate change. The IPCC does not directly conduct research itself nor does it systematically monitor climate-related data. Its stated role is to ‘comprehensively, objectively and transparently assess the latest scientific, technical and socio-economic literature produced worldwide relevant to the understanding of the risk of human-induced climate change’. This includes any observed or projected impacts as well as providing options for adaptation and mitigation. The IPCC is a high form of ‘peer review’ whose role is to objectively and consistently test scientific study results, investigating climate change and its effects through meta-analysis and systematic reviews. The information then provided by the IPCC through these published reports is based on scientific evidence reflecting the prevailing view of the global scientific community, rather than a new non-peer-reviewed source of primary research. Scientific content is obtained from contributions across all regions in all relevant disciplines and content, methodology and relevance is systematically reviewed by members of the Panel. The process for acceptance includes a two-stage review process by both experts and governments. The IPCC reports are therefore a synthesis of peer-reviewed scientific studies of past, present and forecasted climate conditions. The IPCC is charged with the provision of scientific, technical and socio-economic information relevant to policy-makers that must not induce bias or prejudice.

Now to a brief history of the IPCC reports and how they have been developed. The publication of the first IPCC Assessment Report in 1990 helped in the development of the United Nations Framework Convention on Climate Change (UNFCCC). This framework was adopted on 9 May 1992 in New York and was signed at the Rio de Janeiro Summit in 1992 by more than 150 countries and the European Community. The aim of this treaty was for the signatories to consider cooperatively what actions could be endorsed to limit average global temperature increases, including any resulting climate change impacts, and how to cope with whatever impacts may be inevitable. The treaty came into force in 1994 with the main objective stabilising GHG concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. The treaty contained certain commitments by the signatories (which included practically all developed and most developing countries) and issued a policy ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Introduction
• 1: Understanding climate change
• 2: Business response to climate change
• 3: Defining mitigation and adaptation
• 4: Adaptation activities
• 5: The costs of adaptation: assessment options
• 6: Adaptation: investor disclosure
• 7: Managing adaptation strategies
• 8: Evaluating corporate sustainability
• 9: Sustainability assessment using DEA
• 10: Research gaps and future directions
• 11: How to deploy these techniques: A user's guide
• Appendix 1: Generic climate cost estimation
• Appendix 2: Economic assessment of adaptation
• Appendix 3: Corporate governance principles
• Appendix 4: Sample risk register
• Appendix 5: Risk instruments
• Appendix 6: Case study for CO2 mitigation
• Appendix 7: Constructing the firm marginal abatement curve
• Notes
• References
• Glossary
• Index