Droughts, heat waves, floods, and hurricanes: extreme weather events are on the rise. In 2012, worldwide incidents resulted in more than $130 billion in damages. As Jeffrey Cunningham, NACD managing director and senior advisor remarked: “Everyone talks about the weather, but no one does anything about it.” In the closing plenary session of the 2013 NACD Board Leadership Conference, he was joined by Hon. Eileen Claussen, president of the Center for Climate and Energy Solutions, and Jeffry Sterba, CEO of American Water, to discuss the most underestimated risk in the boardroom: volatile weather.
The Need to Oversee Weather-Related Risk
Not only do weather-related events destroy lives, they can significantly impact capitalism and profitability. Between the years 2001 and 2004, the earth experienced the five warmest years since 1861. In 2012 alone, there were about 800 global weather- related incidents that cost more than $130 billion in damages.
Both Claussen and Sterba encouraged attendees to assess their critical customers, and ask: what are the potential impacts that volatile—not just extreme—weather can have? For example, Claussen asked: “Does your company have data centers that are heavily dependent on power or water? What if those services are lost?” Beyond data centers, how vulnerable is your supply chain, which tends to be global?
“The effects on urban areas,” Sterba observed, “are magnified by the sheer amount of people.” Further, many of the current major cities were developed centuries ago, without the intent of handling significant weather. In a recent study, New York City was least prepared for a flood. Amsterdam, however, is far more prepared, as it has had to withstand floods for centuries.
Developing a Process
To help companies develop processes to mitigate and work through weather-related risks, Claussen suggested drawing a map. “Figure out where everything comes from and the vulnerabilities in each of those locations,” she said.
Sterba added that it’s also important to examine climate change outside the political arena. “Think of it as a business challenge and consider the risks climate change presents for your business,” he said. “How do you manage the risks and opportunities presented?”