Opinion: Businesses must evolve their approach to climate adaptation

The nature and climate crisis, and its global impacts, are accelerating faster than scientists had earlier predicted. The global stocktake at the 28th United Nations Climate Change Conference, or COP 28, confirmed that the world is not on track to meet the Paris Agreement goals. In 2023, the world set a new temperature record and experienced unprecedented flooding in several regions. In the years ahead, the world will experience accelerated heating, more extreme weather, and destabilization of the jet stream and ocean currents. At the World Economic Forum’s annual meeting in Davos this week there is an opportunity for the private sector to proactively reframe how we address the climate crisis, shift the collective consciousness from one of denial and passivity to that of responsibility and action, and seize the opportunity to invest in capabilities and partnerships that will bring resilience, stability, and sustained growth. How well businesses adapt and evolve their operations, products, and services to meet the effects of climate change will be key determinants in how well they navigate the turbulence to ensure business continuity, secure operational capacity and sustain profits. Hearteningly, there are areas emerging where businesses can use their dynamism to respond and take action. Adapting to new climate realities has long been on the global climate action agenda and is a priority for many at-risk states, but a lack of awareness and proper regulation, as well as limited data and analytics capabilities, has stymied funding and attention. Where initiatives exist, they are largely reactive and often confined to humanitarian aid support in limited locations. But every moment of delay brings escalating risks, higher costs, and more complex challenges. Business as usual will become self-limiting. “Businesses cannot wait for governments to agree on adaptation metrics before reacting.” --— Business and climate adaptation practices Currently, few businesses are pursuing meaningful climate adaptive practices. A WEF survey of 30 global businesses found only 33% of respondents are working to address physical climate risks. Until very recently (and still, in many cases), while businesses have highlighted climate change as one of the biggest risks to business, they have regarded the physical effects of climate risk as manageable, with tools — such as insurance — in place for when problems arise. Historically, adaptation has something of a first movers problem — it can increase costs unilaterally and also benefit nonpayers. Added to this, businesses typically lack the skills and expertise to properly address adaptation, in turn making it even more difficult to quantify its costs and benefits to make an investment case. More than one-third of survey respondents cited insufficient human resources and lack of technical expertise as a barrier to acting on adaptation. There is also the misperception that it’s a strategic mistake to divert attention from mitigation to adaptation activities. Businesses are under pressure to be seen to be acting on their net-zero goals, and mitigation is the most obvious — and measurable — means to achieve this. Realistically, we’re living on borrowed time. The failure to adapt to not just climate change, but specifically extreme weather, is — according to WEF’s annual Global Risks Report 2024 — one of the most significant risks and costs leaders will face in the coming decade. Shifting to a proactive approach Businesses must pursue robust adaptation practices alongside their net zero and nature positive pathways. There are promising signs that the mindset is changing, and reflecting the capacity of business to power change and innovation, there are at least three areas where businesses can proactively respond and take action. • Metrics and framework — as COP 28 highlighted, businesses cannot wait for governments to agree on adaptation metrics before reacting. The important aspect is to develop something that is credible and meaningful and to continue to enhance it as more data and experiences are acquired. The creation of metrics and frameworks would help unlock financial innovation, offer guidance, enable comparability, counter greenwashing accusations, and allow progress to be tracked. • Identifying shared vulnerabilities — businesses can work together to pool risks in their production and supply chains and catalyze the development of new financial products and investment vehicles. They can engage government and stakeholders to jointly protect important sources of input, strengthen community resilience, and minimize damage and losses when a weather event occurs. • Reframing the issue — businesses should address the risks as an opportunity to explore new solutions that create business value. Businesses that acknowledge the environmental realities and are proactive in developing risks and governance oversight, investing in adaptive capabilities as they transit toward net zero and nature-positive strategies, will be better able to endure climate disruptions and build more resilient business models. They will find themselves in a stronger position to expand their footprint, achieve efficiency gains, innovate for the future, and enhance their long-term comparative advantage. As we so often see at the annual meeting in Davos, role modeling and learning from best practices can facilitate progress. It is a forum in which businesses can seek inspiration, as well as a place to exchange experiences and stories of climate adaptation projects that are successful. Innovation must be large scale, which means creating lower-cost materials, discovering ways of partnering to identify and develop solutions, and using artificial intelligence and technology to translate data insights into strategy and action. In a definite case of “more heads are better than one,” multiple stakeholders are needed to identify risks, opportunities, and different solutions — many of which will require specific knowledge of a sector or business, as well as an entrepreneurial mindset that can spot an opportunity or different way of doing something where others can’t. This will give rise to stronger adaptation strategies and help avoid the maladaptation that can result from focusing exclusively on ensuring business continuity.