Climate change negatively affects the global economy

29th March 2013 By: Anine Kilian - Contributing Editor Online

Carbon advisory firm Promethium Carbon, together with the Climate Disclosure Standards Board (CDSB), launched a publication earlier this month that provides reporting committees and internal auditors with a reference tool on integrated and climate-change-related reporting, as the effects of climate change are taking place faster than expected.

The publication, which aims to limit the impact of climate change on businesses, was launched on March 1 at the Climate Change and Integrated Reporting Conference at the Johannesburg Stock Exchange, in Sandton, Johannesburg.

“Integrated reporting and climate- change-related reporting have a lot in common. Both are relatively new, both require companies to think and act in new ways and, most importantly, both can help to shape a corporation’s competitive advantage over the next decade,” CDSB executive director Lois Guthrie said at the launch.

She stated that the publication explored and compared the fundamental concepts, guiding principles and content elements set out in the International Integrated Reporting Council’s Prototype Framework with the requirements of the CDSB’s framework.

Promethium Carbon director Robbie Louw, who also addressed the conference, stated that the effect of climate change, including the way in which it would affect all forms of capital, was relevant to any business and was likely to result in material effects for some.

“Businesses across many sectors will, therefore, look to increase disclosures about climate change in their yearly integrated report,” he said.

Louw noted that South Africa ranked first in the world regarding corporate reporting, according to the World Economic Forum (WEF) publication on competitiveness, which was released last year.

He explained that materiality in integrated reporting was the ability to keep integrated reporting short and simple.

“The ability to keep the report brief is the essence of integrated reporting. It is about producing a 50-page synopsis that requires insight, effort and time.

“If it is not material, it should not feature in the report. If an issue, such as climate change, has a high probability of occurrence and a high impact on business, it is deemed material and should be included in the report,” he says.

Louw added that matters involving stakeholders were also material to a company’s integrated report, especially if they were of high impact and great concern.

Climate Change

Louw stated that the WEF’s risk access report pertaining to climate change showed that the natural phenomenon had the potential to directly affect businesses on a global scale.

“The WEF lists ten climate-change-related risks that the world is facing. These are the most [serious] risks that some of the biggest thinkers in the world predict will have a nega- tive impact on the planet in years to come.

“Water supply is one of the things that will be impacted on most by climate change at both ends of the scale – water scarcity and water overabundance. Failure to adapt to climate change will result in high risks environmentally and economically.”

He added that the volatility of energy, especially the pricing of carbon, would also be affected by climate change, as most of the planet’s energy was still generated from fossil fuels and the contribution of renewable energy was still in the initial phases.

“Global food shortage is another impact of climate change. Storms, droughts and fires negatively impact on the planet’s food resources and we have already seen the effect of this in East African countries, such as Uganda.

“Mineral resource supply will also be affected by climate change and will impact on mining companies’ ability to supply raw materials needed by the global economy,” stated Louw.

He said that a major factor that contributed to climate change was increasing greenhouse-gas emissions, which, in turn, made the planet vulnerable to pandemics and diseases.

Louw noted that, globally, there had been a great number of persistent and extreme weather anomalies.

“We have already seen the impacts of this type of weather and, if this continues, it will have definitive negative impacts on a global scale,” he stated, highlighting that there were many extreme weather events brought on by climate change in 2012. There were bushfires in Australia and California, droughts in the US and Africa, as well as several snowstorms, hurricanes, earthquakes and extreme temperature fluctuations.

“For example, in January, Australia had to add a new colour to its weather maps – incandescent purple – owing to the extreme heat conditions,” Louw said.

He added that international insurance company Lloyd’s of London stated that, until now, it had considered climate change a gradual phenomenon, which would take place slowly, over a long period of hundreds – or perhaps thousands – of years.

“The latest scientific reports suggest that climate change is likely to bring increasingly dramatic and possibly rapid effects at local level, which differ in their intensity and even in their outcome.” This was stated in Lloyd’s of London’s 360 Risk project last year.

“The insurance company is telling people to take note as climate change is getting serious. The planet is absorbing less carbon and the consequences are taking place faster than we had anticipated,” Louw stated.

He explained that the effects of climate change were starting to impact significantly on businesses.

“For example, multinational mining and petroleum company BHP Billiton CE Marcus Randolph, stated that, owing to the increasing number of cyclone-related events in Australia, the company had to build a model explaining how it considered these events to impact on the economics of the company.

“If tropical cyclone Yasi, which caused landfall in 2011 in northern Queensland had hit Hay Point, a large coal-export harbour, BHP Billiton would have lost that facility. As these cyclones become more severe, the company needs to have facilities that are capable of withstanding them,” Louw said.

Last month, BHP Billiton reported that extreme weather was on its way to the company’s iron-ore facility in Perth, Australia, and the price of iron-ore might increase, owing to climate change.

“This shows that climate change is material to several companies worldwide and that it is something that must be urgently dealt with,” Louw concluded.