London businesses ill-prepared for climate change, report finds

The 25-man watchdog committee said that overheating, flooding and global supply chain failures are likely to have a significant detrimental impact on companies in the capital

The Assembly highlights finance, small businesses and the insurance industry as the sectors most vulnerable to a capricious climate.

SMEs

Smaller businesses are reportedly most at risk because they ‘lack the capacity and resources’ to address climate risks. The biggest threat to SME’s could be flooding, as insurance premiums are hiked higher and higher.

“SMEs are already finding it increasingly difficult to obtain flood cover in high risk areas,” reads the report. “This could have negative impacts on the UK economy as a whole but at a local level, on those communities who may lose access to local retailers and service providers.”

Insurers

But these spiraling premiums may not be enough to protect the insurers, who could also be hamstrung by extreme weather.

London insurers totaled £60bn of gross written premiums in 2013, but Nick Beecroft from Lloyds in London said: “The industry has no capacity to insure climate change. We cannot continually keep paying the costs of the same climate-driven events generating the same damage.”

As a result, the Association of British Insurers has estimated that a 4°C rise in global average temperatures would lead to a 14% increase in annual insured losses caused by floods in the UK.

Finance

The financial markets dominate the London economy, employing 350,000 people, and turning over almost $4trn every day.

The first danger comes from a potential ‘carbon bubble’ – the idea that fossil fuels are over-valued in investment markets, because future restrictions will reduce their value.

As the Carbon Tracker Initiative put it: “With approximately one third of the total value of the FTSE 100 being represented by resource and mining companies; London’s role as a global financial centre is at stake if these assets become unburnable en route to a low carbon economy.”

A second danger for finance comes from global supply chain vulnerability. The total value of goods and services imported to London in 2013 was around £72bn, while the value of exports was £33bn. 

PwC’s Daniel Dowling said: “London, as a globalised city, is potentially ‘importing’ a great deal of risk through its financial services sector and the international supply chains of large and small businesses.”

If these supply chains fail, revenue and share prices could plummet.

Solutions

The London Assembly report suggests that the London businesses and industries most at risk, are also the most able to adapt.

PwC said: “The insurance industry, with its risk management expertise, is well-positioned to help society reduce its vulnerability and improve its community resilience. Greater resilience not only helps to reduce the impacts of adverse events but also help to lower insurance premiums. “

Lower premiums for businesses with proper preventative measures can also help ensure best practice. Similarly, banks have the power to stipulate climate-change adaptation policies and environmental considerations when lending and financing London businesses. 

Report: The impact of climate change on London’s economy

Brad Allen