Climate extremes and the impact on businesses, jobs and economies

  • Dr. Louis Gritzo Vice President and Manager of Research, FM Global - Property Casualty 360°; December 13, 2016

Our world's climate is changing, and with it comes changing weather patterns.

Of particular concern are changes that are subtle, on average, but more severe in the extremes. These are the changes that have the greatest potential to produce natural catastrophes affecting businesses, jobs and economies on a regional or global scale.

Working together with some of the most respected atmospheric experts in the US, FM Global research scientists recently published "Coping with extremes - The impact of climate change on extreme precipitation and flooding in the United States and how businesses can prepare now." The results of our research may surprise you, and we hope, lead you to start preparing for the future.

The facts and science indicate that certain regions of the United States are expected to be prone to more intense precipitation events, and potentially increased risk of flooding while others are prone to less precipitation, prolonged droughts and a potentially increased risk of wildfires.

The science behind it
Although extreme precipitation and flooding events are as old as recorded history, the science of understanding the weather patterns that cause them has dramatically evolved with enhanced computing power and improved observational platforms. Available temperature data indicate a long-term warming trend on earth since 1850.

In our research paper, my colleagues and I warn that U.S. businesses and people will be exposed to changing precipitation patterns in the century ahead, depending on their geographic location. Not all changes in weather patterns can be attributed to natural variability or specific climate phenomena like El Nino.

First, Dr. Kevin Trenberth of the National Center for Atmospheric Research notes warmer air temperature will result in increased water vapor loading in the air which supplements cloud formation leading to more intense, albeit not more frequent precipitation. "The observed amount of total annual precipitation has shown little change since 1950, but with increased water vapor in the air, the precipitation events become less frequent with stronger intensity."

Professor Kerry Emmanuel of the Massachusetts Institute of Technology reinforced this concept by analysis of the water cycle over oceans. "Basic physics tells us that as the climate warms, the water cycle becomes more volatile. Absent large changes in atmospheric circulations (for example, wind velocity and patterns) this volatility means that places that are usually very dry, like Southern California will likely get drier. And places where it rains a lot, like the Pacific Northwest and Southeastern United States, will probably experience more rain," he said.

An additional consequence of extreme weather is increased wildfires. As the temperature rises in areas that historically experience dry conditions, the additional heat has the effect of raising temperatures, and depleting soil moisture and therefore "exacerbating the risk of wildfire" says Trenberth.

Emmanuel notes: "What is conclusive is that based on strong theoretical expectations backed up by climate models, most places will experience more volatile weather.

The business forecast
Weather can have a positive or negative impact on the flow of commerce, affecting a wide range of businesses. Heavy rain or severe snowstorms can shut down transportation networks or flood buildings, and thus impact a company's bottom line.

Extreme wet or dry conditions can affect buildings, machinery, data centers, transportation networks, supply chains, people and sales. When businesses in the United States are significantly affected by extreme precipitation and flooding, the ramifications can be felt throughout the global supply chain.

Yet, many in the business world simply don't think about extreme weather until it happens. Of particular concern to businesses, we found, were psychological obstacles to preparation. One is "generational memory threshold," where a community's collective memory is too short to remember prior major disasters.

Another obstacle is heedlessness. In earlier research done at FM Global, 96 percent of financial executives surveyed said their companies had operations that were exposed to natural catastrophes like hurricanes, floods and earthquakes; yet fewer than 20 percent said their organizations were "very concerned" about such disasters hurting the bottom line.

How do you protect your business?
Companies with built or planned structures in affected regions can prepare for extreme weather events in the future by taking action now. To begin with, risk managers and business owners alike must recognize the warming climate and consider the effect it will have on their business.

According to Trenberth, "Water management is critical." Businesses should sharpen their focus on water management, that is, diverting water from property, optimizing drainage and protecting water supplies, and consider new weather extremes when managing supply chains.

Professor Minghua Zhang, of the School of Marine and Atmospheric Sciences at Stony Brook University, part of the State University of New York system, agreed with this perspective and offered other ways for companies and supply chain partners to prepare for more extreme weather. "Risk managers should make sure they review the resilience of their buildings or new locations to withstand the impact of an extremely high rainfall event and area flooding," he said.

Rather than just focus on the 100-year flood zone, businesses are wise to protect to the 500-year flood period levels so they have less than a 0.2 percent (1/500) chance of flooding every year. Often this doesn't mean a huge change—a slight relocation or modification will move a location from a 100- to a 500-year flood protection level. When viewed over the lifetime of a building or mortgage, the risk is significantly reduced. As changes in the hazards evolve, this also provides an additional level of protection.

Location, location, location
Now is the time for businesses to examine their buildings' ability to withstand flooding, as well as evaluate their processes to manage surface water, roof drainage and water supplies. Similarly, companies should be mindful as to where they build new plants, factories and office structures, closely evaluating the potential impact of extreme precipitation and flooding.

As an engineering-driven property insurer, we collaborated with leading experts in atmospheric science to understand in great detail the effect of climate change on precipitation. As sound as the underlying science is, no one should conclude that these are detailed scientific predictions of any single time in the future. Uncertainties will always exist regarding the impact of climate change on precipitation events locally and regionally.

We very much hope that business leaders will use this research to focus their efforts on protecting from extreme precipitation and continually enhance their resilience by preparing their property for whatever precipitation extremes they are likely to experience. There are more cost effective solutions that ever.

If your business is just starting to consider these hazards, an emergency response plan for every facility is the right place to start. FM Global loss history illustrates that locations with an effective Flood Emergency Response Plan resume operations faster, and experience 70 percent less loss during a flood. It's time to get started.

Dr. Louis Gritzo is vice president and manager of research at FM Global. Gritzo also oversees activities at FM Global's 1,600-acre Research Campus in West Glocester, R.I.

Connect with Dr. Louis Gritzo, FM Global Vice President of Research on LinkedIn

PC360: "Climate extremes and the impact on businesses, jobs and economies" 12/13/2016