Why climate change is a market disruptor

With the climate changing before our eyes and global efforts to rein in greenhouse emissions accelerating, forward-thinking businesses stand to capture value.

2016 is almost certain to eclipse records set in both 2015 and 2014 as the warmest year ever, with global average temperatures expected to be around 1.25 degrees above the mid-20th century average. In a recent survey, 77 per cent of Australians agreed that the climate is changing.

The overwhelming consensus of scientists is that our use of fossil fuels (coal, oil and gas), combined with land clearing and certain industrial processes, such as the production of cement, is largely to blame.

What does all this mean for businesses? There are plenty of risks, particularly for firms that are high emitters whose products will increasingly be slugged with a rising carbon price, other sanctions, or consumer boycotts led by green groups.

Then there are the direct effects, with droughts, heat waves, extreme weather, rising sea levels and ocean acidification to contend with.

A businessman stands in a field with an umbrellaClimate-sensitive businesses such as coral reef tourism, wine producers, alpine sports operators and those with coastal-exposed assets are already feeling these effects.

But opportunities abound, and treating a changing climate as a market disruptor is helping organisations predict what might happen to their sectors and where new sources of demand may develop.

The climate adaptation market can be separated into several sectors:

Clean tech

Products and services that substitute incumbents with less environmentally harmful alternatives that produce fewer greenhouse emissions.

This sector has been around for a while and includes renewable electricity generation and many innovations to improve energy efficiency.

However, it is still a fertile area and ripe for entrepreneurs, with emerging technologies including transparent solar cells, which could replace entire building facades to dramatically increase localised energy production, particularly when combined with new battery storage options.

Globally, clean tech investment is approaching $1 trillion per annum.

Consumer green

This sector takes advantage of consumers’ (and some corporate purchasers’) desire to do something to be more environmentally sustainable.

The more the effects of climate change are felt (along with broader pollution) the larger this market will grow. Think of toothbrush 'subscription' services, 'closed-loop' recycling services, the sharing economy and so on. These offerings are about using less raw materials and energy, and producing less pollution and waste.

Adaptive needs

As temperatures and sea levels rise, precipitation patterns change and more intense storms lash both rural areas and cities, demand for a variety of products and services will increase.

Infrastructure investment will eventually include a range of coastal defences, moving key assets away from shorelines, and the overhaul of stormwater systems in low-lying areas.

The Earth floats in waterFor example, Miami Beach, Florida recently undertook a US$400 million project to raise the level of a section of the iconic Alton Road and install a stormwater pumping system to alleviate 'sunny-day flooding' during very high tides.

Additional innovation will be required in many sectors, such as agriculture, food technology, water, healthcare, construction and disaster mitigation.

Geo-engineering

Ultimately, it’s going to be necessary to suck some of the carbon dioxide and other greenhouse gases out of the atmosphere to stabilise the climate.

While early attempts at so-called carbon capture and storage have been disappointing, this is potentially a multitrillion-dollar industry if the technology can be proven.

Another huge challenge will be reversing the ocean acidification and de-oxygenation associated with our greenhouse emissions before we choke the vital marine ecosystems on which a lot of our food supply depends.

Growing and preserving forests, rather than clearing them, is likely to become more lucrative in time as carbon markets develop.

Green governance

Amid all this innovation, there is plenty of 'green-washing' going on, with many firms’ sustainability programs little more than marketing spin.

While the Australian Competition and Consumer Commission is starting to clamp down on misleading environmental claims, there is fertile ground for innovation in sectors such as product and business certification to help accurately inform consumers about the broad range of environmental considerations involved in their purchase decisions.

David McEwen, Adaptive CapabilityWithin the next couple of decades or less we expect the effects of climate change will become too compelling to ignore, and it will leapfrog concerns such as the economy and national security to become the number one issue for politicians and the public.

Well before that point, your business should be ready to compete in the climate adaptation market.

David McEwen is a director at Adaptive Capability and author of Navigating the Adaptive Economy.

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