You might not remember the appalling floods in Thailand in 2011, but their effects were felt in London. Factories in Thailand produce a quarter of the world’s hard drives, and prices doubled while business was interrupted by the floods. This pushed up prices and hit profits across the global IT industry, including in London.
With more climate chaos on the way, how prepared is our capital for the inevitable economic challenges?
A report released by the London Assembly Economy Committee has uncovered a worrying lack of climate change resilience in London’s economy. This is not just a picture of vulnerability to increased risk of flooding, drought and heatwave: London’s interdependence with economies elsewhere in the world means substantial risk is ‘imported’ through the financial services sector and international supply chains. Yet these risks, even as their likelihood and potential severity increase, are poorly understood in the capital.
Incredibly, the Committee’s investigation found that 54 per cent of FTSE 100 firms have no business adaptation plans in place for climate change. Furthermore, small and medium enterprises are particularly unlikely to have taken steps to prepare for the risk of climate change: evidence from the Federation of Small Businesses suggests 60 per cent have no plan in place to deal with extreme weather conditions. And the adaptation strategies which the other 40 per cent have, rarely take into account the wider vulnerabilities of global supply chains and investments:
Water scarcity, extreme flooding, land loss and heatwaves are expected to become increasingly commonplace in the critical food-producing and industrialising regions which provide the basis for many of London’s supply chains. This includes countries like China, India and Indonesia.
However, little work has been done to establish the full extent of supply chain vulnerabilities for London’s economy. Businesses, particularly in the most vulnerable sectors, such as high tech manufacturing, require assistance to develop the skills to evaluate and respond to the risks which they face.
The prosperity of London’s financial services industry may also be at risk, because its global investments are vulnerable to the impacts of climate change in other parts of the world. Compounding this is the extent to which major investors based in London are reliant upon the performance of companies that produce or trade in fossil fuels. Any global carbon emissions agreement, emerging from the UN Convention for Climate Change in Paris later this year, could make proven fossil fuel reserves un-burnable and cause the value of fossil fuel investments to slump.
The Committee found that businesses often consider climate change risk just one of many, to be factored into investment decisions – although, awareness of its potential severity is growing. Some London-based investors have aligned with the global movement to divest from fossil fuels, and The Bank of England is conducting an inquiry into climate change adaptation which will consider the possibility of fossil fuel reserves becoming stranded assets (investments which are effectively worthless owing to changes in environmental legislation).
The Assembly is keen to advocate a transition away from investments in fossil fuels, particularly coal, and instead proposes investment in more responsible funds – which deliver appropriate returns to the taxpayer, of course.
The Economy Committee also found that investment can be a force for good in helping SMEs and other businesses adapt to climate change. By encouraging, or requiring evidence of, continuity planning, from the companies in which they are investing, financial services companies can help raise awareness of the risks posed by future climate change. And they are well placed to provide assistance to those companies which might otherwise struggle to respond.
Many global mega-cities like London have some way to go to become resilient to the full range of risks which climate change presents. But the opportunity for action, now, is clear. Developing a risk based, city-wide approach will be a vital first step. But to succeed it must be built on a systematic evaluation of the future risks which London’s economy might face. And it must have the flexibility to respond to the uncertain changing climate scenarios we face.
Jenny Jones AM is the report’s author and the former Chair of the London Assembly Economy Committee. See more of the work of the London Assembly here.