- KPMG associate director Chi Mun Woo discusses the sectors facing risks from climate change, particularly the transport sector (22/05/2008) Cameraperson: Danie de Beer Video Editing by: Darlene Creamer (6.32 MB)
Professional services organisation KPMG identified the six most prevalent sectors in danger of risks from climate change, and these were transport, tourism, aviation, healthcare, the financial sector, and the oil and gas sector.
These sectors scored high on the risks facing the sector (either physical, regulatory, reputational, or litigious), and yet they scored poorly in terms of preparedness to face these risks.
This emerged from the ‘Climate Changes Your Business' survey - KPMG's review of the risks and economic impacts of climate change at a sectoral level.
"When considering how businesses report on climate change risks, it is striking that businesses consistently appear to gloss over certain climate risks, even where they have well established management techniques for dealing with other forms of risk," explained KPMG sustainability services associate director Chi Mun Woo.
The three sectors that fell in the "relatively safe zone" were the telecommunications sector, the food and beverage sector, and the chemicals sector. Although, further analysis of the results by KPMG suggested that these sectors might not be as safe as they would like to think, for example, the food and beverages industry was highly vulnerable to climate-related risks such as increases in agricultural input costs.
"There is almost a universal ‘underperception' of risk regarding climate change," noted Woo.
Over all, the business risks and economic impacts of climate change remain underestimated.
"There are huge differences between sectors in terms of the relation between climate change risks, and risk preparedness. Industries may be relatively safe, they may be in the danger zone, or the may be in between, but wherever they are, risks tend to be underestimated," he added.
It was also noted that even though companies may recognise risks, there was still very little "adaptation thinking" going on throughout the various sectors.
The survey had a European and North American focus, and KPMG South Africa would be working towards localising the survey.
"Companies in South Africa need to go on a journey of awareness and learning, and the development of strategic responses that take account of evolving regulations and consumer expectations, carbon footprints and reduction opportunities, and of course physical risks flowing from climate change," said Woo.
He added that climate change was recognised as a greater threat to Africa, owing to the continent's lower capacity to mitigate and adapt to this challenge in relation to richer nations. "We are also more dependent on agricultural industries, which are very exposed to the risks mentioned in the report. South Africa in particular will come against strong international pressure because of its high-emissions intensity."
DANGER ZONE SECTORS
Climate change risks to the transport sector have been recognised for some time, however it still attracted attention for its low preparedness as a sector. "The transport sector as a whole is probably the least prepared sector," indicated Woo.
The transport sector was a significant contributor to greenhouse-gas emissions, owing to the heavy consumption of fossil fuels, and as a result it was targeted by policymakers to reduce its emissions.
The main risks to the sector were cited as regulation in the form of government initiatives to make transport more expensive, by means of fuel taxes, road pricing, emissions trading, and a fiscal burden on air transport. The transport sector was also subject to physical risks, such as risks of delays, cancellations and accidents.
The reports analysed in the survey hardly mentioned any risks beyond the regulatory for the transport sector though, indicating that the risk for the transport sector was largely underestimated. The effects of climate change, such as floods and storms, on transport infrastructure like roads was not mentioned.
The consequences of climate change on the financial sector were said to be mostly indirect, as financial institutions were indirectly exposed to climate risks through their investment portfolios. Risk to reputation was increasing as consumer awareness grew.
The level of awareness in the financial sector was said to be reasonably high, although there was a wide variation of preparedness among banks. The investment community has responded by setting up ‘sustainable' investment funds and increasing investments in renewable energy.
Climate change could have huge impacts on human health as both global warming and extreme weather events are connected to the outbreak and spread of disease. In countries with public health financing, the ability to cope with increases in various diseases, such as malaria, could be limited.
In some reports analysed by KPMG it was stated that the health care sector had been largely unresponsive to the financial risks brought about by climate change.
The aviation sector was largely affected by emerging regulation, and risks to reputation. Physical risks, and risks of litigation, which should not be ignored by the aviation sector, were largely unmentioned and not widely viewed as risks by the sector.
The physical effects of climate change could lead to significant reductions in tourism in certain areas. For example, with a two to three degree increase in ocean temperature, the coral of Australia's Great Barrier reef could be bleached, which would have a huge impact on tourism in that country, which generates some $29-billion ordinarily. The world tourism organisation was said to promote sustainable tourism, but "companies in the sector appear to lag behind on preparedness", the KPMG survey stated.
The oil and gas sector was exposed to a high level of regulatory risk, as well as physical risk, and risk to reputation. "As for preparedness ... a few European companies are showing initiative, whereas American companies lag behind," the survey found.
MIDDLE OF THE ROAD SECTORS
The sectors nestled between the danger zone and the safe haven offered a few surprises in some cases. They were the automotive sector, the building and real estate sector, the insurance sector, the construction and materials sector, the manufacturing sector, the mining and metals sector, the pharmaceuticals sector, the retail sector, and utilities.
Of course this did not mean that these sectors were not as affected by climate change, but perhaps in some cases, the sectors were more aware of and prepared to face the risks.