There is now a substantial body of scientific evidence that climate change is already having a visible impact on regional climates and ecosystems around the globe. This poses a threat to companies’ operations and could generate substantial losses to the global economy, unless remedial actions are undertaken.

Changes induced by global warming, such as an increased exposure to climatic extremes, changes in precipitation patterns, more erratic rainy seasons as wells as regulatory and policy measures taken by governments to control levels of greenhouse gas emission present both significant first and second order risks to business unless adaptation measures are taken to address underlying operational and economic vulnerabilities.

For an effective responce, adaptation to climate change has to be understood as a continuous risk management effort. It begins with addressing existing vulnerabilities to current climate variability and extremes and new regulatory compliance obligations. But it also recognizes that the dynamics introduced by global climate change demand the integration of a forward looking risk management perspective.

First order risks include the direct impact on companies resulting from actual changes in climate (climate system), or simply changes in weather patterns (more frequent, high impact storms), water availability (natural and human/policy caused drought), sea level rises, long term temperature changes, etc.

Some recent examples of impacts from first order risks in Australia include:

• The reduction of iron ore operations in Pilbara I during 2006 because of impact of several large cyclones
• An estimated AUD $1 billion in losses to the coal industry as result of floods in North Queensland in January 2008
• The shortening of the Australian ski season
• Reduced agricultural productivity from prolonged drought
• Reduced generation capacity of hydro and coal fired power plants.

Second order risks in the short term have the potential to create more challenges than first order in terms of scale and range of affected industries. Such risks include the regulatory risks from key public actors adopting measure to manage own carbon risks and expectations (i.e. government regulators, customers and employees – the creation of regulatory and voluntary carbon markets). The most apparent example of this has been the introduction of carbon trading schemes.

First introduced overseas in the UK as well as New South Wales in 2002, similar schemes are now under operation across the European Union and in Japan, New Zealand and on a state level in the United States. A national-level scheme is set to commence in Australian with the introduction of the Carbon Pollution Reduction Scheme (CPRS) in 2010.

While the time horizon for addressing the impacts of climate change is unclear, organisations need to be asking themselves now a number of key questions relate to their climate-risk mitigation strategies. Among these are:

• How prepared is my organisation for climate change and the potential weather and health impacts on our operations?
• How prepared is my organisation to handle a changing regulatory environment?
• Do my organisation’s policies adequately address such areas as loss of production, inability to supply customers, employee assistance and communications?
• What impact will change climate risk analysis have on insurance coverage premiums?

GreenCollar Climate Solutions is committed to assisting Australian companies in finding answers to these questions. We are set to help business develop the necessary climate change management frameworks to protect and enhance shareholder value, addressing the foreseeable impacts of climate change on a company’s business environment and helping organisations manage the transition to a fully carbon conscious business over the long-term.