There’s a balletic quality to the synchronized movement of goods around the world in the just-in-time economy. The linking of sophisticated supply chains, capital flows, and far-flung markets represents a feat of human ingenuity; less clear is how resilient the system is. Will it be able to adapt to a more tempestuous planet in the age of climate change?
When Global Network Perspectives asked experts from throughout the Global Network for Advanced Management to describe the impacts of climate change, there were consistent themes in responses that originated from five continents: uncertainty is a certainty and the impacts will reshape business, government, and society in profound, if not entirely predictable, ways.
The efficiency and reliability of production may not continue as a given. Yale’s Bradford S. Gentry points out, “If you have just-in-time inventory and the port is closed or the roads are closed, it’s not just-in-time anymore.” He cites the flooding in Thailand in 2011 that closed more than 1,000 factories that supplied key parts to global electronics and automotive manufacturers, and the extreme heat in the U.S. this year that halted trains from traveling over the softened metal of the tracks and grounded planes unable to take off in less-dense summer air.
Shipping is key to the economy and daily life of the Philippines, an archipelagic nation of more than 7,000 islands located in the typhoon belt of the Pacific. With climate change creating more extreme storms, shipping is a less predictable form of transport, writes Kenneth Hartigan-Go, associate professor of strategic management at the Asian Institute of Management. Compounding the challenge, increased frequency of drought and flooding “will devastate the existing agricultural industry of the country, which currently employs 27% of the labor force. Tourism contributes around 9% to the gross domestic product of the country and that is in danger as well.” Hartigan-Go noted the country’s poor will be the most vulnerable.
In South Africa, too, poor agricultural areas will be at particular risk. “Climate change and its consequences will further exacerbate economic marginalization and political instability,” according to Martin Hall of the University of Cape Town Graduate School of Business. Paradoxically, he adds that unreliability of the state-owned coal-powered electricity grid has “incentivized large mining and manufacturing firms to invest in alternative energy sources” while renewable power remains out of reach for most households.
Many of the experts pointed out that carbon-intensive businesses will face new costs as climate liability is increasingly factored into valuation and access to capital, and the insurance industry will be pressed by increasing claims. For each direct impact, there will be ripples throughout value chains. They will eventually reshape consumption patterns and direct innovation, but early adapters may end up with an advantage.
Business school students are already positioning themselves to create practical solutions for the challenges resulting from climate change. HEC Paris professor Andrea Masini writes that students are building toolkits that will let them work at the “nexus between economic development and environmental protection and social development.” He adds, “When our graduates evaluate offers from potential employers, the environmental and societal performance of these companies are among the criteria that most influence their choices.”
The role of governments is less certain. Luli Pesqueira of the EGADE Business School warns that governments may need to play an increasing role including setting priorities around adaptation and “proper allocation of the existing resources, which will in turn will be translated into increased regulation, scrutiny, and costs for the private sector.”
Joaquín Garralda of the IE Business School suggests a different way to reach the same goal: “greater transparency, with equal environmental standards for all. This would make it possible to compare the traceability of a company’s efforts to protect the environment, leaving the market to reward or punish individual companies.”
Many of the experts address President Trump’s decision to pull the U.S. out of the Paris Climate Accord. CB Bhattacharya, the Pietro Ferrero Chair in Sustainability at ESMT, notes, “The EU and the rest of the world will suffer from the dire environmental consequences of this unfortunate decision.” Pulling out may not even provide the economic benefits that Trump imagines, he notes, pointing to calls for a carbon tax on goods entering the EU from the U.S.: “The rest of the world can do so much to hurt the U.S economy. This will be a lose-lose situation for all.”
But poorer countries are the most vulnerable. Albert Ahenkan of the University of Ghana Business School writes that Ghana’s targets for adaptation and mitigation are all “subject to international support in the form of finance, investment, technology development and transfer, and capacity building.” Given that the U.S. decision to pull out of the accord will almost certainly damage the funding mechanism designed to aid developing nations, Ahenkan writes, “[i]t is therefore important that Ghana intensifies her efforts in mobilizing other options including private sector and domestic fiscal budgets to scale up her mitigation and adaptation needs.”
Both developing and developed countries must surmount a key challenge, which is is embedded in the way that humans are themselves built. Gentry writes, “One of the difficulties about climate change is that it’s not immediate. Humans are hardwired to react to threats they can see.” Even if the threat is dire, the worst impacts are decades off. “Where does any of that fit compared to, Do I have a job? Do I have access to healthcare?”