Why Preparing Now for Climate Change Is Smart Business

Pakistan Flooding
Pakistan Flooding

No matter where you stand on the issue of global warming, there's no denying we've been having some weird weather lately: record high temperatures in Southern California, massive wildfires in Russia, mudslides in Mexico, deadly flooding in Pakistan (pictured) -- plus severe flooding all across the Southern and Midwestern U.S.

Climate change is also a political and economic hot potato this year. In a recent interview with Rolling Stone, President Obama said one of his top priorities for 2011 will be an energy policy "that begins to address all facets of our over-reliance on fossil fuels." Californians are scheduled to vote in November on whether to suspend the state's law curbing greenhouse gas emissions, in an effort to reduce unemployment. And soon after that vote, the U.N. is hosting a climate change summit in Cancun, Mexico.

Environmentalists hope the Cancun powwow will be more successful than last year's in Copenhagen -- where delegates failed to come up with a binding, wide-ranging global agreement on climate change. But there's already pessimism ahead of Cancun "[T]he financial commitments made by the developed countries at Copenhagen have not been fulfilled and are unlikely to be fulfilled in any substantial measure," India's environment minister recently lamented.

Damage Estimates -- and Questions About Them

Believers in climate change warn that its future expense could cripple national and international economies. A 2008 study by the National Resources Defense Council estimated that inaction on global warming could cost more than 3.6% of U.S. GDP -- or over $3.8 trillion annually -- in increased water, energy, insurance and real estate costs by 2100. And a German study estimates annual worldwide economic damage from global warming could reach around $20 trillion (in 2002 U.S. dollars) by the end of the century, or about 6% to 8% of the world's economic output.

But some observers remain skeptical about these numbers. "None of the data, none of the research studies or articles that I read are very clear on what the actual metrics are about costs," says Bruce Hutton, dean emeritus at the University of Denver's Daniels College of Business. Hutton has spent much of his career studying sustainable development, marketing research and corporate social responsibility. He believes some researchers are basing their estimates only on the negative costs -- without considering the increases in jobs, energy and economic performance expected from a growing renewable energy sector.

The current economic arguments over climate change, he says, are distorted by the "apparent fact-free political process we seem to be in, where it doesn't really matter what you say or what the truth is."

Not Waiting for the Final Answer

But Hutton says climate change is an industrial risk-management issue that cannot be ignored. "The World Business Council for Sustainable Development and some other organizations are having this conversation with businesses, about the idea of facing these mega-risks in our society," he says. "The question is: What happens if climate change is actually real and if it's somewhere in the vicinity of what most scientists say it's going to be? The question for a company -- or a community, for that matter -- is: What are the costs of that to me, in terms of how it's going to affect my business?"

Sponsored Links

Coca-Cola (KO) and other corporations, he says, are doing a lot of research on how to change their supply-chain structures and develop new processes for their products -- in Coke's case, using less water -- as a hedge against possible climate change risks. And for several years now, General Electric (GE) has issued its Ecomagination Challenge, awarding $200 million for ideas that "help us to change the way the world uses energy."

But Hutton doubts there's going to be a "gold rush" on sustainable energy in the near future. "Jeffrey Immelt at GE said we live in a kind of reset world now, from the financial markets going to hell to other stuff," he says. "We're not going to see what's been happening today as a cycle that's going to come back. We're in a time in which we have to create new stories."

"Creeping Crisis"

And he hopes it doesn't take some climate change "mega-event" to get American industries thinking, planning and preparing.

"The culture of the U.S. is we typically don't rise to the occasion until we're at the brink," Hutton says. "We have an amazing ability to respond to crises. The problem is that the issue we face today [is] a kind of [a] creeping crisis. It's a slippery slope problem. At some point we're going to have to adjust without the "defining moment" because the defining moment may be too damn late."

Adds Hutton: "So what I hope, personally, is rather than crying 'fire' and trying to create a defining moment -- which we don't respond to very well -- [that] we turn this conversation around climate change. . .into fundamentally good business practices."