Climate change adaptation

Following the publication of the latest IPCC report, many quality summaries have already been made, analyzing the risks of climate change by continent and the adaptation efforts necessary for our societies. Frédéric Schorgen, consultant in ecological transition and in the Climate Resilience Index, explains everything to us!

Ways of adapting to the inflationary crisis

Here I will focus on how European businesses are adapting to climate change and the current inflationary crisis.

The observation is in my eyes quite simple and implacable: to continue to exist in 5 to 10 years, most companies must transform their business model towards sustainability and rethink their product/service offer, by adding to their economic management taking into account environmental constraints and the needs of the least favored populations.

An inflationary context that increases business costs

Let us analyze the major global upheavals since the Covid crisis: we are witnessing a disorganization of global supply chains and tensions over the price and availability of energy and raw materials (highlighted and accelerated by the war in Ukraine).

Let’s take a look at recent changes in the costs of certain raw materials for companies (sources and method detailed at the end of the article):

For many resources, the price increase is already well above that of the 2011/2013 period (more at the level experienced after the financial crisis of 2008) and will probably increase for many months at least.

The sustainable return to cheap resources is unlikely to happen:

scarcity of energy, mineral and agricultural resources
refocusing countries on their internal needs before considering exporting
energy transition needs
strengthening of environmental regulations to compel companies to adapt and put out the fire on the climate and biodiversity.
Climate change will amplify the current crisis, let us mention some impacts of the physical risks it generates. Droughts, torrential rains and storms increasingly lead to:
sharp decline in agricultural yields flooded mines and instability in the availability of metals
damaged logistical infrastructure and disrupted international trade

I will not detail here the impacts of the fall in biodiversity, but they are combined with climate disturbances, with strong impacts for the agri-food sector for example (decline in soil fertility, pollination).

An economic impact that weighs on businesses and citizens

These economic constraints that already weigh on companies also weigh on their customers, who cannot pay more for everything, especially with wages that do not keep up with inflation:

they therefore refocus their financial means on their priority needs (food, housing and heating, moving around without fuel if possible)
and for those who can afford it on purchases that offer the prospect of resolving environmental crises, improving their quality of life or limiting their expenses in the medium term (consuming food produced in good social and environmental conditions, insulating one's home and replacing its gas boiler with a heat pump).

A vicious circle then sets in if the company does not adapt to this new context and does not begin a profound environmental and social transition:

This is followed by a deterioration of the company (economic performance, working conditions) and then in the medium term its disappearance or its takeover by a competitor better suited to the current challenges.

What means of adaptation for companies?

Another way is possible and can benefit the company and the community at the same time (economic spinoffs and positive social and environmental impacts):

The main ways companies adapt seem to be:

the reduction of their environmental footprint (decarbonization, eco-design, circularity of materials, nature-based solutions) which reduces their costs or avoids their inexorable increase
the strong improvement in the quality of products which would remain at affordable prices via an extended lifespan or a model of rental rather than sale (reuse, economy of functionality)
the development of simpler offers, with fewer technological gadgets but with good social/environmental standards, accessible to more customers whose purchasing power is shrinking (specific low-margin ranges, low tech, social enterprises)

To illustrate the interest of these channels, here is how the trends in the selling prices of these offers would evolve:

Investment in processing is urgent and will be more difficult if delayed

This ecological and social transition of businesses and consumption patterns will require investment (research and innovation, infrastructure, employee training, communication with customers). These costs may seem difficult to sustain for some companies in the current context, but it must be borne in mind that these adaptation efforts will have a much lower cost than the economic deterioration promised by immobility and an overheated planet!

Moreover, if the investment is delayed, it will be more expensive and complex to carry out (insufficient energy, depletion of natural resources, degraded social context).

It is therefore high time to enter the 21st century together by conditioning economic performance to the best environmental and social standards, it is for now and delaying action for a few more years will increase the obstacles to be overcome!