Climate change and strategy

Whether a skeptic or not, any CEO should check their strategy is OK if global warming does turn out to be real. Who, doing business in Pakistan, assessed the business risk from once-a-century flooding? ? Who, serving the Russian agriculture sector, checked the consequences from unprecedented temperatures and wild-fires? Who, planning utilities’ strategies in Europe, was ready for recent wild swings in temperature and rainfall? Unfortunately, the response of many businesses to endless ill-informed cost-pressure has left them more exposed to risk, rather than more resilient.

The impact in many cases concerns infrastructure, but preparedness is nevertheless a strategic issue, best understood by distinguishing 3 dimensions – damage, resilience and recovery:

  • Cutting the fraction of infrastructure assets damaged by a disruption. A power company might reduce exposure to storm damage by putting cable underground, or more cheaply by using A-frame pylons.
  • Reducing the fraction of the system that is damaged by a disruption. Two cities, each served by a single main cable is less resilient than if served by a ring – the same damage (a break a cable) still leaves both cities with power.
  • Speeding the recovery from any damage – perhaps by holding strategic spares, or simply by having a few more trained staff in place.

Such preparedness is a strategic issue, since it implies careful, detailed assessment and sustained investments of effort and money – the return for which should be significantly lower risk.

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