Category Archives: Water

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Time to Get Serious About Climate Change Risks

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While arguments from climate change deniers have subsided, there is still discussion about the cause of climate change—natural or man made? But these arguments are mere time-wasters. Right now it’s critical to put the focus on managing this risk.

Insurers have it right. For years they have been pointing to the urgent need to deal with the issues surrounding climate change. Insurers know this global risk needs to be dealt with now—and in the future—and they can’t afford to get it wrong.

Johnny Chan, Ph.D., director of the Guy Carpenter Asia-Pacific Climate Impact Center said it best: “The debate on climate change and global warming has been intensely polarized. A great deal of this ‘noise’ has clouded the very real and emerging issues that we as an industry and society need to address. In order to adapt to climate change and the changing risk landscape, it is necessary to cut through this noise and focus on objective decisions to mitigate both the financial and social risks associated with climate change.”

Guy Carpenter said in a study on the risks of global warming that the biggest threat is rising sea-levels. According to the report, the greatest concern is coastal flooding, projected to increase as sea levels rise at least one to two feet by the end of the century. In other words, storms such as Superstorm Sandy on the U.S. East Coast and Cyclone Nilam in Eastern India are expected with greater frequency and severity.

Post-Sandy, we’ve seen how far-reaching the effects of a mega-storm can be. In fact, 25 miles or so away from the New York/New Jersey shoreline, northward along the Hudson River where I live, homes, businesses and communities were devastated by the storm surge. A number of businesses have closed and damaged homes still stand boarded and empty.

Bloomberg Businessweek reported that as the Federal Emergency Management Agency moves forward with its plans to update flood maps nationally, 350 coastal counties—and 32,000 homes—will be impacted. Homeowners and business owners are reeling from the price of flood insurance, which will escalate even more in designated areas unless they raise structures. One couple in Old Greenwich, Conn., will pay $300,000 to raise their home 15.5 feet, according to the article. Residents of towns that elect not to adopt the maps will not be eligible for National Flood Insurance Program coverage.

Hard-hit New York and New Jersey are taking the threat of rising seas seriously with announcements that a number of coastal structures will need to be raised. New York City Mayor Michael Bloomberg in June declared a sweeping plan to help combat future flooding. The plan, which would include building flood walls, levees and bulkheads along 520 miles of coast, was projected to initially cost $20 billion.

Guy Carpenter’s report recommends that coastal areas re-examine their flood strategies including dykes and seawalls. Inland urban communities aren’t immune, as winds and heavy rains can cause flooding. These areas need to have storm water management infrastructure in place to accommodate larger volumes of rainwater and should upgrade codes and standards for infrastructure and land use that permits rainwater catchment basins.

While these preparations should be a priority for governments, they also compete with the need to replace aging infrastructures everywhere. Bridges, roads and water systems need repairs or replacement in every corner of the country. But many communities, crippled by debt and shrinking workforces, no doubt are focusing on needs as they arise. Hopefully the two can go hand-in-hand so that risk managers can build in flood control and other upgrades as they make the improvements so badly needed.

Risks to the Ocean-Dependent Economy

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When the Deepwater Horizon drilling rig exploded and caused the biggest oil spill in U.S. history, many on the Gulf Coast were deeply concerned that the local seafood industry would be devastate for years to come. Fortunately, the extent of the damage was not as bad as initially feared and revenues for local fisherman were able to bounce back in a much shorter timeframe.

Other areas have faced threats from less catastrophic causes. In Maine, for instance, lobstermen started to fear that the crustaceans on which generations of their families’ livelihoods had been based may become endangered. Bluefin tuna, too, started to become increasingly scarce. As I wrote about a few years ago, however, while the lobster industry took action to ensure the species would remain populous enough to keep fishing for decades to come, the prospects for the bluefin remain bleak.

For these individual areas and the fisherman who rely on these species, the impact of the ocean’s health has presented a very real threat to their careers. And increasingly, it seems that the sectors of the economy that depend on the seas remain vulnerable.

Click on the link below to see an infographic from the Global Partnership for Oceans that shows the degree to which the economy and society rely on the ocean.

Continue reading →

Water Risk in the Middle East

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Water scarcity has become a hot topic within the last few years (we ran a feature on the the risk of water scarcity and its effect on businesses in our June 2009 issue). That risk, however, is far greater in certain areas of the world than others. On March 22nd, Maplecroft warned that Middle East and North African (MENA) countries top the list for extreme water security risks, which could lead to further increases in global oil prices and heightened political tensions in the future.

Maplecroft rated 18 countries at “extreme risk” with 15 of those located in the MENA region. Of the 12 organizations of the Petroleum Exporting Countries (OPEC), six are rated as “high risk.”

“Water security has the potential to compound the already fragile state of societal affairs in some countries,” says Professor Alyson Warhurst, CEO of Maplecroft. “For example, in Egypt water security may intensify the on-going civil tensions. In turn it is not unrelated to food security, which leads to cost of living protests and in turn violent oppression in less democratic societies.”

The report states that technological innovations, such as the desalination of salt water, may alleviate some of these risks. Businesses that require intensive water use (food and beverage, semiconductor manufacturing, etc.) will also need to consider their impacts and analyze options for lessening their reliance on water, especially in regions already experiencing shortages.

Sustainability — Managing a Major Business Risk

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True, businesses need to make money to stay afloat in the competitive business world. But in this modern marketplace, companies are increasingly focusing on remaining profitable while incorporating sustainability. With evidence that business activities are influencing climate change and companies are depleting the earth’s resources at an alarming rate, environmental risks have become business risks.

Marsh recently released a white paper entitled, “Sustainability – Managing Your Risk” that addresses the risks companies face in trying to manage one of the newest business risks. First, the report stresses companies to look for tangible evidence that their own suppliers have signed up to a sustainability code, saying that not only should your company become sustainable, but your company’s supply chain as well.

With legislation passing, companies are realizing their operations may not be considered environmentally friendly. As an example, the European Union enacted the Environmental Liability Directive, meaning that businesses must now ensure that they do not cause damage to water, land or biodiversity.

But many companies believe “going green” is more costly. Though that may be true in the near-term for some instances, the long-term return is proof that green is good.

“There is evidence that changing business practices to a more sustainable model can reap financial rewards. The Fairtrade movement is an example where consumers are willing to pay higher prices to be reassured about how the products have been produced.”

Among the sustainability issues for businesses and society is water (we ran an in-depth feature on this topic in the June 2009 issue). Water-intensive companies (think Coca-Cola, Nestle, Texas Instruments) are now assessing the risk they pose to the areas in which they operate. In fact, the Carbon Disclosure Project is now asking the world’s biggest companies for the first time to disclose how much water they use. And this is no tree-hugging initiative — major investors “with trillions of dollars in assets have backed this call for such information.”

In today’s business world, people’s view of a company is not based simply on what it does, but how the company does it. As Marsh says:

“With the increasing pressure on depleted natural resources and a greater level of scrutiny concerning environmental performance from policymakers and investors, it makes more sense than ever to fully understand the impact that a business is having on the environment and to make changes to business process that are seen to be having a deleterious effect on the environment and society.”

Lagging behind on the issue of sustainability within business operations will eventually mean lagging behind the competition.