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So You Think Climate Change Isn’t a Risk for Your Small Business? Think Again.

I spend a fair amount of time in conversations with entrepreneurs and owners of small businesses. Whether at an event, a business meeting, or when buying products from local small business owners, I enjoy discussing how current issues have an impact on them. And these days, the conversation often veers toward the threats associated with climate change.

One thing is striking: the number of small business owners who seem to be, well, pretty oblivious to just how vulnerable they (and their business) are. Too often, I hear something along the lines of “Well, I know that energy prices are likely to be volatile in the future. Aside from that, I just don’t really see how climate change is going to affect me, a small printer/distributor/café owner/toy store owner/ tech startup/construction contractor/fill-in-the-blank, here in Xurbia.”  They often seem to believe that climate change is someone else’s problem.

Are you a member of this club? Do you harbor the illusion that the effects of climate change on your business are well understood? And well managed?

If so, here are just a few of the real-life stories to think about:

  • Case in point: the severe floods that ravaged Thailand floods back in 2011 actually caused more economic damage outside of Thailand. Manufacturing plants in the country flooded, including those that produce hard disk drives (an industry hugely concentrated in Thailand). As a result, global production of computer equipment that relies on those disk drives was disrupted, as the price for disk drives doubled.  It eventually led to $15-20 billion in losses, impacting the profitability of many large companies (Cisco, Dell, Ford, and Toyota among others). And it wasn’t just these large companies who suffered huge losses. All their business partners – their suppliers, customers, and others in the global computer supply network, suffered as well.
  • Another example: drought has become pretty common in Texas, occurring with alarming frequency. In 2014, it got so bad that many farmers were forced to abandon millions of acres of cotton and corn, leading to about $5.2 billion in agricultural losses. But again, the secondary effects and losses were also significant. As the cotton supply dwindled, the price of cotton soared, rising more than 150%. And it isn’t just Texas. Droughts in China and floods in Pakistan have wreaked similar havoc on the global supply chains for cotton, with significant price spikes and profit losses for apparel manufacturers and retailers as well.

These stories (and there are countless others just like them) point to the same inescapable conclusion: no industry is immune, no industry is even protected, from the repercussions of climate change. And where do those repercussions come from? At the most basic level, they stem from the well-documented geophysical effects of the changing climate:

  • Rising temperatures (air and water)
  • Increasing sea levels, storm surges, and floods
  • Increased severe weather events
  • Decreasing water availability, and drought in some regions

How do these physical impacts affect business?

There are the obvious physical risks. The combination of rising sea levels and increased storm surges is leading to large increases in flooding. It’s particularly acute in coastal areas, but also in other areas that haven’t been prone to flooding. (Who would’ve expected that Vermont would ever experience hurricane-triggered devastating floods?)

Then there are the “knock-on” effects: breakdowns and disruptions in global supply chains (see cautionary tales, above). The business interruption losses that result can dwarf the initial physical damage.

The bottom line for all business is to keep in mind the risks that climate change pose for your business. Climate change is what is referred to as a “risk multiplier.”  That is, it amplifies other existing risks to create a much larger risk (think availability of essential materials, employee absences, or transportation disruptions). Businesses need to identify not only the risks emerging from climate change that could have a direct impact on them, but also how climate change impacts on others might amplify existing risks to their businesses.

Small businesses are particularly vulnerable to climate related losses

Unlike their larger counterparts, small businesses usually lack easy access to capital resources.  Direct damage from events such as flooding, sea level rise, storm surge, and drought can impact small businesses more severely than a larger business with more financial and human capital. Without access to the resources needed for recovery, small businesses can suffer lasting economic damage from a single extreme climate event

The Small Business Majority (SBM), a national small business advocacy organization has been calculating the impacts, particularly long-term impacts, of climate disasters on small business. Their research has found:

  • The majority of small businesses operate out of a single physical location. According to the U.S. Small Business Administration, up to 90% of small businesses get most their business from within two miles of their doors. This makes small businesses much more vulnerable to loss compared to larger companies that have backup resources at alternate facilities or branch locations.
  • Because of this, small businesses are particularly vulnerable to power failures, technological or telecommunications failures, employee absences, and supply chain interruptions.
  • As a result, a full 25% of all small businesses never re-open after a climate disaster.

What should small businesses do now?

Each small business owner should do a comprehensive and clear-eyed assessment of just what the climate risks (and risk multipliers) are, and take steps to address those risks.  Here are a few pointers on what to do now:

  • Develop a Disaster Recovery Plan or a Business Continuity Plan that can inform and guide recovery efforts to maximize chances of recovery as quickly as possible.
  • Make strategic investments to make your business more resilient.
  • Evolve your core products and services to address and include climate related offerings. Is there anything you can add or augment that might help your customers address and manage their own climate change related risks?
  • Engage with your local community to both obtain and provide education about adapting to climate change. Share expertise, resources, and strategies. After all, your entire community is in it together.
  • Think about the opportunity side of climate change. Consider developing new products or services responding to changing customer demands driven by climate change.

Rhett Buttle, vice president of external affairs for SBM, summed up the situation that small businesses are facing:  “More and more entrepreneurs are seeing real-life impacts to their businesses and their bottom lines from climate change and the extreme weather events it creates. They also see opportunities that will help boost their bottom lines, save money, and create market opportunities for small firms.”

More and more small businesses are waking up to the reality of the climate-change driven “new normal.“ The very real risks (and opportunities) confronting small businesses need to be assessed with an open mind. At Sustrana, we understand those risks and opportunities.  It’s why we’re building an online platform to help businesses of all sizes build, implement, and manage an effective and affordable sustainability program. Check us out. We’ll show you how, with a free webinar demo.