Dealing with climate change is a cost of doing business for more and more companies. But visionary ventures are turning potential liabilities into foundations for future profit.
Take SABMiller, the world's second-largest beer company. Beer can be made with barley. But the grain isn't always available, and sometimes is exported to regional markets. That can mean a really expensive pint of lager in, say, East Africa.
So SABMiller had an idea for Mozambique. The London-based company would manufacture a brew with one of Africa's most widely available crops — the cassava. Also known as yuca, the root resembles a potato. SABMiller would support local, sustainable farming. There was just one problem.
Yuca rots quickly. "In practice, it's a nightmare," said Andres Penate, a spokesman for SABMiller. So the brewer helped create a mobile unit that's used to process the crop on the farm. The first commercial scale, cassava-based beer — called "Impala" — was launched about three years ago. The project today helps cassava farmers earn income, some for the first time.
"Climate change is real and serious," said Oren Ahoobim, associate partner at Dalberg Global Development Advisors, a consultancy. "Even if you don't believe in the science, there's going to be regulation so you have to factor that into the business."
From Gap to Snapple
Recent reports show human-induced climate change already is being felt. Water is more scarce. There's more rain. Heat waves are growing in frequency and severity. Wildfires are intensifying. A report released in May, the National Climate Assessment, was the latest warning about human-triggered weather shifts.
Alex Brandon / AP
Gap is among big companies already paying to counter weather-related damage.The company said it absorbed higher cotton costs after precipitation and drought changes in China.
Some big companies already are paying to counter weather-related damage. More than 60 S&P 500 companies have spent money to offset climate change, according to a report last month from the Carbon Disclosure Project, which assesses companies and the environment.
Gap, for example, absorbed higher cotton costs after precipitation and drought changes in China, according to the carbon project report. Floods in Thailand in 2011 hit local manufacturing, which affected Hewlett-Packard's revenues. Dr. Pepper Snapple Group noted potential water supply and climate changes could put $2.5 billion of its cost of sales at risk.
Big companies also are investing now to lower their carbon footprint. Among S&P 500 companies, on average 4 percent of their annual capital expenditure has been allocated to lower emissions, according to the report. The capital expenditure ranged from less than 1 percent for consumer product companies to 23 percent for utilities, which use a lot of water.
Water, utilities and energy are among sectors that immediately would be affected by bigger weather changes.
Another industry embedding climate change deep into its strategy is reinsurance.
Based in Zurich, global reinsurer Swiss Re has been involved in the climate debate since the 1980s. Its customers range from companies to cities, trying to manage weather-related hazards.
Since Hurricane Sandy in 2012, for example, Swiss Re has been working with New York City to quantify climate change-related risks and identify cost-effective measures to shore up buildings and other structures such as elevating electrical systems, and building barriers to a storm surge.
Sandy cost New York City an estimated $19 billion in total losses — $13 billion in physical damage and almost $6 billion in lost economic activity, according to a city analysis. Swiss Re estimates additional climate change-related costs to the city could reach on average about $4.4 billion per year by 2055 if no action is taken.
"Can we afford not to adapt is the question," said Mark Way, head of sustainability for Swiss Re's Americas operations. "And yes, it's not just in society's interest. It's very much in our interest, too," Way said. "There is an insurance solution to help governments manage these kinds of risks."
Across the globe in developing nations, climate change exposure has created opportunities for startups.
In East Africa, venture developer CleanStar Ventures has helped create a smoke-free ethanol cookstove, an alternative to charcoal. The $35 stoves are being sold and distributed by NDZiLO Mozambique — which the venture developer has a stake in. The stoves can run on ethanol made from local cassava.
Due to political unrest, ethanol is being imported to power the stoves. But project leaders hope to revive the full supply chain that connects rural farmers with housewives in Mozambique's capital Maputo, who are buying and using the stoves.
"The business was designed to deliver both social and environmental values, in addition to being commercially viable," said Rahul Barua, a partner at CleanStar Ventures, based in Palo Alto, California.
Climate change's reach is broad. Sectors including media, retail and consumer staples are vulnerable to extreme weather liabilities. Hurricane Sandy, for example, lowered U.S. box-office receipts amid closed theaters.
Campbell Soup is thinking about climate change, too. Many of its suppliers are agricultural producers, so weather shifts would affect transportation and product availability, according to the carbon project report. Raw materials and sourcing often are cited as key climate worries among food and beverage companies.
A day after the U.S. announced plans to reduce carbon emissions at America's coal-fired power plants, China — the world's biggest greenhouse gas emitter — stepped into the debate Tuesday. China said it will limit its total emissions for the first time by the end of this decade. A major climate change conference is scheduled for Paris next year.
"Many people believe we will feel the impact of climate change through the availability of water," said William Sarni, a climate-change expert for Deloitte Consulting. "Now there's a conversation with CEOs about the risk of water scarcity to 'my business.'"
First published June 6 2014, 12:26 PM