Tuesday, 28 April 2009

FTSE 350 ignore the impact of climate change

In a report that we published last year, The Green IT Report spelled out the various opportunities and business risks of climate change.

The risks are not very often discussed, although we have talked about them here from time to time. Some of the business risks are clear and have become a lot more obvious over the last year. For example the risk of legislation and regulation to track and limit emissions, which is talked about a lot more now, with legislation, such as the UK's Climate Change Bill, already in place.

In terms of products, the need to reduce power consumption and the expansion of regulations around products, such as Energy Star and EPEAT certification in the IT industry, is seen as a market and competitive challenge. Certainly this could be a risk to some if recommendations are for alternative solutions, rather than improved products.

But the least talked about is the physical risk to operations. In the CDP (Carbon Disclosure Project) responses by IT companies in 2007, which was the source for our comments in the report, some companies were unconcerned because they had seen no threat and others believed they could rely on existing business continuity provisions. However, the list of concerns that were expressed included water shortages, wildfires, tsunami, floods, typhoons and rising sea levels.

The problem is that many just look at the direct impact and hence the need to reinforce buildings, possibly move data centres and generally improve protection. However, of as much concern is the knock-on effects. Examples included power shortages and blackouts, telecoms failures, medical epidemics leading to resource shortages, inability to get to work or travel on business, and the impact these would have on suppliers, distributors and resellers. The concern was also that the impact would be not from just one event but from a combination of events up and down the supply chain.

Anyway, IBM has sponsored a report from Acclimatise, also based on CDP responses, about this issue and it has just been released. It shows that only 38% of FTSE 350 companies have conducted any financial or quantified analysis into the impact of climate change risks to their investors, although 87% admitted they were exposed to the effects of climate change. According to the press release "The report reveals that companies need to start adapting their business models and build resilient business processes and facilities to help protect their supply chains, operations and markets and to help understand the risks to their workforce, customers and the communities in which they are located".

Clearly this is an opportunity for IT companies. The report we produced last year went on to spell out the six areas of opportunity for the industry as the result of climate change, one of which is "Climate change impact opportunities, such as weather monitoring and reporting, impact assessments, risk management systems, business continuity, real-time information, etc". It will require some education in the market, and maybe a few more extreme weather events, but this is an area where we can expect to see substantial growth for IT companies in the future.

The downside is that, based on our analysis a year ago, there are a lot of IT companies that think they will not be impacted ('we only write software'), that their own existing business continuity systems are perfectly adequate and generally have a very short-sighted view of potential climate change impact.



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