Munich Re, Rio Tinto Face Costs From Less Water, Warming

Corporations from Munich Re to Rio Tinto Group will bear rising costs from pressures on the Earth’s environment such as changes in the climate and water shortages, according to a United Nations Environment Program report.

Their success will increasingly hinge on the ability to adapt to a “rapidly” changing environment and to develop goods and services that help reduce the effect of climate change and are less reliant on water and harmful chemicals, the agency said today in a report released at Bloomberg’s London office.

“Climate change and dwindling availability of natural resources like water will shape future profit and loss and drive new markets,” UNEP Executive Director Achim Steiner said in the study. “Companies that face up to these realities are likely to be the ones that thrive and remain competitive in a rapidly changing world.”

Businesses are trying to curb damage to the environment by moderating greenhouse-gas emissions, water usage and trash disposal. At the RIO+20 summit on sustainability a year ago, the UN detailed $513 billion of commitments from governments and companies seeking to reduce strain on the Earth’s resources.

A week ago, British billionaire Richard Branson, chairman and founder of Virgin Group Ltd., and Kering executive Jochen Zeitz said they were setting up a panel of business leaders dubbed the “B Team” to devise business strategies that prioritize environmental effects alongside profit.

Flooding Costs

Today’s GEO-5 for Business study builds on the fifth edition of the UN Global Environment Outlook, released in June 2012 and marking the institution’s most comprehensive assessment of the state of the planet. The rising frequency of extreme weather events linked to climate change is a risk for all industries, today’s report showed.

The UN cited as an example flooding in Australia in 2010 and 2011 that led to more than $350 million of claims for Munich Re and $245 million of costs for miner Rio Tinto. While scientists balk at attributing individual natural disasters to climate change, they say rising temperatures will lead to an increase in extreme weather events.

Temperature gains may render fewer than half of ski resorts in the U.S. Northeast economically viable within 30 years, while water charges for platinum mines in South Africa’s Olifants River system may increase 10-fold by 2020 as the region dries up, according to the study.

Risks, Opportunities

The report examined 10 areas of business, identifying risks and opportunities for each that result from environmental pressures. The findings include:

-- Building and construction companies may find opportunities limited in some areas due to water scarcity, while consumers step up pressure to minimize waste. Urbanization will lead to growing demand for “green” housing and infrastructure.

-- Chemical companies will face increasing government regulations and consumer pressure to minimize water usage and cut waste. Demand for chemicals used in insulation, energy-efficient lighting and water purification is set to grow.

-- The reliability of power grids may be put under pressure by increasing heat waves. Utilities will have to shore up infrastructure that’s vulnerable to extreme weather. Renewable energy is predicted to increase at the expense of coal.

-- Operational costs of mining companies will be hit by extreme weather events, while environmental laws may prevent their spread into some areas. Demand for minerals and metals used in renewable energy technologies is set to grow.

-- In finance, insurers may face rising costs from claims, while there will be increased demand for insurance and more financing opportunities for projects relating to climate change.

-- Food and drinks companies face depleted fish stocks and shifting agricultural zones as the climate changes. New markets are predicted to open up for climate-resilient food varieties.

-- The loss of plant and animal species will limit discoveries of compounds used in health care. Demand for health care services may rise due to air pollution and water-borne diseases.

-- Data centers for information and communication companies are energy-intensive and vulnerable to rising power prices. Makers of electronic goods may face new regulations and consumer pressure to cut waste. Markets will grow for products that manage energy use in buildings and process other environmental data.

-- Tourism may decline in some areas due to environmental degradation. Eco-tourism is growing, and customers are often willing to pay more for it.

-- Transportation companies face supply chains disrupted by extreme weather, and regulations to reduce their emissions. Incentives may boost low-carbon and fuel-efficient technologies.

The study “is in many ways a prospectus for the 21st century company: one that internalizes how rapid and accelerating environmental change will shape risks, but also the need and demand for new sustainable products and market opportunities,” Steiner said.

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