Productive Business

Few things are as fundamental to business as risk management.  Minimizing exposure to potential losses, regardless of the source, is crucial to maintaining a successful enterprise.  Perhaps that is why a group of eminently respected business leaders – liberals and conservatives among them – including Michael Bloomberg and Henry Paulson have framed their recent report on the dangers of climate change in the terms of business risk.  In this context climate change is apolitical and, one would hope, uncontroversial.  Rather it is simply a source of risk that any practical business should plan to manage.

As the report makes clear, and as anyone who read the recent NCA report should know, the risks are many and could be costly.  Of particular note are the risks that sea level rise poses to coastal Florida.  The report finds a 1 in 20 chance of losses exceeding $346 billion in lost property.  But more striking the report finds a 1 in 100 chance of more than $681 billion of property that could be submerged as sea levels rise.  From a business perspective, labor productivity could decline by 3.2% by the end of the century.  This doesn’t seem like much by itself but in the context of past labor productivity changes it is shocking.

Since 1947 (the earliest available BLS statistics) labor productivity has declined year over year only twice.  Over the whole time period productivity has improved by nearly 400%.  In that context a 3.2% decline in productivity represents a reversal of a 70 year trend. That has major ramifications for both businesses and workers.  As labor productivity declines, labor becomes relatively more expensive and wages stagnate (or decline).

Labor Productivity

Impacts on labor productivity are just one of the risks to business this new report discusses.  Taken together its conclusions clearly indicate that climate change is, if not the most serious risk most business face in the long run, a very serious risk.  The notion that climate change is not something business needs to be concerned with should therefore be thoroughly debunked.

This report, combined with recent announcements of insurance companies in Illinois suing cities who have not prepared enough for climate change, could indicate the beginning of a very positive change among business. There is a new, growing recognition among business leaders that climate change is real, it is happening, and while it threatens their businesses, it also presents opportunities for new business development.  This is a very positive step for those who believe we need to take immediate and drastic action on climate change.

That is the major success of this report: it underlines the need for continued work at the interface of business and climate change while putting the problem in language that is uncontroversial in a board room.  Businesses will never devote a significant portion of their time or energy towards sustainability measures only taken for the sake of good PR.  Nor should they; that is not their core business.  Harnessing the power of self-interested capitalism depends on putting the problem in terms of the profit motive.  This report, and the insurance companies’ lawsuit, makes it clear that climate change puts enormous amounts of money at stake.

For better or worse the drastic, rapid change that is necessary to combat climate change is driven by business.  Activism and regulation can prod businesses in the direction of change but real change happens when there is significant money at stake.  There is. And now the evidence comes not from scientists outside of the business mainstream but from some of the most successful business leaders of the last 50 years.  There is nowhere left to hide; if the government will not take action on climate change business must.  For their own good.

 

 

 

Image Credit: Patsy Lynch via Wikimedia Commons

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