COP28: Are businesses doing enough to adapt to climate change and manage risk? 

Less than half of businesses have identified climate risks they consider would have a significant financial or strategic impact and are not prioritizing climate change adaptation, according to a new report.

It comes despite failure to mitigate and adapt to climate change and extreme weather events being the top three global risks over the next decade, according to the World Economic Forum’s Global Risks Report 2023.

As world leaders discuss the findings of the first Global Stocktake at COP28 in Dubai, the Forum has revealed the results of its work with the Stockholm Environment Institute and PwC on a stocktake of business action on adaptation.

Taking Stock of Business Efforts to Adapt to Climate Change surveyed 30 large global businesses, to uncover how they are performing against the climate adaptation framework proposed back in January 2023.

It finds that many are exploring adaptation through climate risk assessments, opportunity scanning, or community projects. Around half of respondents are taking significant action, but “not necessarily in the way the international community would expect or need”.

Businesses are developing opportunities to enhance efficiencies, generate value through products and services, or maximize sustainability outcomes. While only a small number are making substantial investments in adaptation projects to enhance their own resilience or that of their operating communities.

In short, there’s a disconnect: businesses are approaching adaptation from an opportunity perspective, while governments are trying to engage them to take more action from a risk perspective.

“It is clear that business action does not yet match the urgent need for adaptation,” the report warns.

“It is time to act. Governments, businesses, civil society and other organizations all share an interest in preparing for the impacts of climate change, and each can bring different strengths. By collaborating, they can make the most of their respective strengths and accelerate adaptation action.”

Although there is a clear corporate interest in adaptation, with 80% of respondents saying they have assessed physical climate risks to their organizations, only 27% rated adaptation as a “very high priority”, compared to more than double (60%) for mitigation.

Only 43% of the businesses surveyed found physical climate risks they deemed “material” – those that have a significant impact on financial performance or strategy, while a third of respondents are working on addressing climate risks.

Of those who have assessed climate risk, only half have conducted assessments of upstream value chain activities and fewer than one in 10 businesses are going beyond risk assessments to work with their value chain partners and connected communities.

The survey also found that businesses may risk “maladaptation” to ensure business continuity, with 13% of respondents saying they were relocating operations or supply chains away from certain geographies due to physical climate risks.

When it comes to capitalizing on opportunities, more than two-thirds of respondents have identified opportunities arising from physical climate risks and the measures to address them. More than 80% of businesses that find market opportunities are acting on them.

These include sales of products and services, cost savings and efficiencies, or improvements on other sustainability outcomes.

“We are living through climate collapse in real-time – and the impact is devastating,” United Nations (UN) Secretary-General António Guterres told world leaders at the opening of the UN climate conference on 30 November.

The year 2023 is set to be the warmest on record, with the World Meteorological Organization reporting global temperatures have risen 1.4°C above pre-industrial levels.

Climate change is having a devastating impact on lives and livelihoods, but also on the global economy and the labour force. In October 2023, insurance and reinsurance experts Lloyds estimated the extreme weather events creating food and water shocks could lead to losses of $5 trillion over five years.

Under a 1.5°C warming scenario, heat stress could result in loss of working hours equivalent to 80 million full-time jobs globally by 2030, according to the International Labour Organization.

But, as the Taking Stock of Business Efforts to Adapt to Climate Change report notes, business losses from climate change is “not limited to the impacts of extreme events”, with crop losses, changes in agricultural trade flows and changing demand for climate-related goods and services among a list of consequences.

Businesses can also experience impacts along their entire value chains – and these can be transboundary – such as when floods in one region impact the availability of goods on the other side of the world.

Governments increasingly expect the private sector to step up in terms of its involvement in climate adaptation, particularly as a source of financing their adaptation plans, but also as innovators for adaptation-related goods and services.

The report highlights several countries, from Bangladesh to the UK, where businesses are specifically mentioned in National Adaptation Plans, which are submitted to the UN’s Framework Convention on Climate Change.

COP27 in 2022 saw the presentation of the Sharm El-Sheikh Adaptation Agenda. It includes a goal for 2,000 of the world's largest companies to develop actionable adaptation plans by 2030.

While companies are complying with disclosure requirements by assessing risk, adaptation “rarely registers as a priority and businesses fail to substantively engage”, notes the Taking Stock of Business Efforts to Adapt to Climate Change report.

This in turn has a knock-on effect: because there is little private-sector appetite to undertake adaptation projects, adaptation finance remains under-developed and expensive; because adaptation is not a priority across the business, it is difficult to engage with value chain partners on the topic as higher priority agendas will drive such highly strategic relationships.

The report identifies key barriers that prevent businesses from taking action on adaptation, which besides not seeing climate risk as a risk, include a lack of human resources and expertise, cost and a difficult investment case to make, as well as a policy landscape that does not incentivize action.

Reasons the businesses gave for not seeing climate risk as significant included, believing the risks to be beyond the time horizon of 3-10 years used for risk management, the limitations of climate data to forecast climate events, and because they were not including the full value chain in their risk assessment.

“By failing to understand adaptation as a risk, not only do businesses limit investments into building their own resilience, they also miss opportunities to provide products and services to help others manage risks,” the report warns.

It offers a list of recommendations to spur greater action on adaptation:

1. Enhance knowledge of climate risks and opportunities

2. Make climate risk assessment and disclosures the norm

3. Foster collaborations

4. Engage in stronger public-private dialogue

The report’s objectives for addressing the challenges of climate change adaptation include developing innovative solutions, mobilizing capital and creating new markets. This is vital to enable the brokering, dissemination and support required for the scaling-up of business-led products and services to reach over three billion people within the next decade, it says.