All change!

Global warming is going to transform the world and the economy with it, says Dr Arlo Brady of Cambridge University. But there are ways in which business can prepare for the massive changes on the horizone

Whether you take your information from the TV, from the newspapers, or from films like The Day After Tomorrow, it’s impossible to avoid the issue of climate change. Every news bulletin seems to herald a new piece of research or a new initiative for tackling the problem – and, though completely unrelated, events like the recent tsunami in South East Asia do little to quell the public’s fear of dramatic and devastating natural events.

The subject of climate change is deeply complex; there are no clear-cut answers or solutions – only more questions. The confusion and disagreement surrounding the Kyoto process bears testament to this. I would argue that this global reaction to climate change can be explained by simple psychology. When individuals, in this case nation states, are attempting to resolve a specific issue, the first stage of the process is usually denial followed by blame. Only later do the parties put blame aside and focus instead on rationality.

From a corporate perspective, it’s worth leaving the blame phase to governments and cut to the rationality phase. What do we know about climate change? What are we sure of?

One thing we know for sure – it’s happening! We’ve already done the damage. Even if we stopped emitting CO2 altogether tomorrow, climate change would still occur. Most pro-active organisations, nations and businesses are now striving to respond in some way, but I wonder if they are really tackling all the issues.

The great debate

For most businesses the dominant question is “What can we do to reduce our CO2 emissions?” This debate is driven by governments and is particularly prevalent in corporate sustainability or responsibility reports. It’s an important debate, but I do not think it’s the whole story for business.

Business needs to establish how it can change and adapt to the new operating environment that climate change WILL create. A difficult challenge, but one which ‘built-to-last’ businesses will need to meet if they are to survive and thrive.

Sit back and think for a moment. Imagine your business operating in a different global environment – and remember that environmental changes drive social change, which ultimately drives economic change. Don’t think of the extremes; just think of an average temperature rise of 1-2 degrees. The impact on your business will depend on where you are based, where you operate, what you sell, who your clients are, and what your raw materials are. But, regardless of the sector you are in, the changes are likely to be significant. Just in one scenario we would be talking about greater economic instability, heightened security challenges, increased prevalence of disease and famine, water shortages in some places and floods in others. All this and more, coupled with increased global economic and social integration resulting from the continuation of globalisation.

Over the years, business has developed a range of strategic tools to deal with future uncertainty. While we do not currently know the exact nature of the changes that climate change will create, we are in possession of research which delineates the extremes. Businesses can use this “extreme” information to build scenarios of a future world.

Scenario planning has been used in the past to successfully envisage the end of the Cold War and, famously for Shell, the OPEC Oil crisis of the 1970s. Scenario planning does not aim simply to extrapolate current trends, it creates plausible stories of alternative futures. The ‘father’ of scenario planning, Peter Schwartz, describes scenarios as “a tool for helping us to take a long view in a world of great uncertainty… they are stories about the way the world might turn out tomorrow”. The company or organisation concerned is able to use these alternate stories to ‘road-test’ their proposed strategies, ensuring that they are built to a robust and enduring design – regardless of actual outcome.

Depending on your budgetary constraints, scenarios can be bought off the shelf, created in a bespoke fashion for your company, or developed in-house. I do not necessarily have a view as to which you should consider using; the real value of this approach is simply to get your company thinking about the future, not to predict it accurately.

Looking beyond borders

For a business based in the developed world it is easy to think about climate change from a nationalistic perspective. The scenarios you build will envisage London or New York under water, sunbathing in Denmark, etc.

This is not the whole story, however. We live in a globalised world where events elsewhere have a strong impact at home. For example, long before London floods, low-lying parts of the developing world are likely to be affected. This could result in, among other things, mass migration of poor, dispossessed, probably quite angry individuals who would want to resettle in another region or country. The climate change debate could quickly become a debate about security.

Even if we managed to avoid a security crisis, we could find ourselves with a major supply challenge. Our economy and businesses rely on many businesses in the developing world to provide us with cheap labour and raw materials. Imagine what would happen, for instance, if the so-called ‘sweatshops’ of Bangladesh were to cease production.

Climate change is a complex and uncertain process – but that is no excuse for avoiding the issue. By using scenario planning and thinking beyond our borders we can ensure our mitigation and adaptation strategy is ‘built to last’.

After all, as history has shown us, it is only visionary companies that survive into the future.

Key Messages:

  • Don’t panic – the human race is inherently adaptable;
  • Re-assign responsibility for your firm’s stance on climate change from your environmental function to your senior management or strategy panel;
  • Develop or obtain a set of scenarios;
  • Test your corporate strategy against these scenarios;
  • Adapt your strategy and implement actions; and,
  • Continue to reduce your CO2 emissions.

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