Long Term Planning: Considering Climate Change

Guest post by John Hunter, author of Management Matters: Building Enterprise Capability.

The principle of long term thinking requires thinking about not just the past, or the current situation but what the future holds. One factor that will have large impacts in the long term is climate change. Already there are significant impacts.

We haven’t built for this climate:

This summer has demonstrated again and again that our infrastructure is not sufficient to withstand the changed climate of today, let alone the impacts on the horizon.

The past week featured two 1-in-1,000-year rainstorms that struck communities about 400 miles apart: St. Louis, Missouri and Hazard, Kentucky.

When thinking about long term impacts one challenge is our understanding has to not just understand the current system but project into the much more uncertain future. This holds true for the climate and also other factors that will impact business: technology, societal changes, demographics, etc.

Our guesses about 100-year flood plains, 1-in-1,000-year storms etc. are guesses. And most of those guesses have little or no attempt to factor in likely climate changes.

As I wrote in a post on my Curious Cat Science and Engineering Blog post on 500 year floods:

actually having a 500 year flood actually increases the odds for it happening again (because the data now includes that case which had not been included before). It doesn’t actually increase the likelihood of it happening but the predictions we make are based on the data we have (so given that it happens our previous 500 year prediction is questionable). With a coin toss we know the odds are 50%, getting 3 heads in a row doesn’t convince us that our prediction was bad.

For climate-related predictions, especially as we are undergoing rapid climate change, the extra data showing we just experienced what we predicted was a once-in-500-year event, would more likely mean our previous guess was wrong (it might actually be a once-in-500-year event but that doesn’t seem as likely as a mistake in our model).

Another quote from we haven’t built for this climate:

We have long designed our infrastructure as if the climate conditions and extremes of the past, such as the definition of a 100-year, 500-year or even 1,000-year flood in a particular location, would hold true in the future.

With climate change, that is no longer the case, as outlier events trend closer to the norm.

We continue to suffer due to our failure to think about the long-term realities and plan, build and adapt based on what we can expect. And decisions (city planning, building near oceans and flood plains, building in areas that will be subject to increased fire risks…) that will be in place and impacted by changes many decades from now require taking into account the long-term realities of climate change and more severe weather events that come along with those changes.

Long-term planning requires making predictions about the future. Those predictions should be based on a realistic understanding of how we will react. A few decades ago, it might be reasonable to believe that we would collectively make significant changes to the economy as the consequences of not acting became more and more obvious. Today that seems like a very foolish notion. The consequences are just starting to be upon us today, and we know the next few decades will see rapidly increasing consequences, and yet we are not taking nearly the steps necessary to reduce those consequences significantly.

It seems to me if your long-term thinking does not factor in the dramatic impacts of climate change over the next few decades, your long-term plans have material risks that should be considered. As with many risks, one way to cope is to have the ability to absorb the consequences if the risks do materialize. So having a strong balance sheet and robust business strategy that is able to weather negative shocks and survive is one way of preparing for risks.

My guess is we will see that the consequences of climate change will most severely impact those people, businesses, and countries that have less ability to absorb losses today. Wealth will allow taking the hits from climate change and being able to persevere. For businesses, the long-term robustness of the business matters a great deal. You can build a business to be the most profitable today (often taking on more leverage, reducing expenditures, maximizing quarterly profits…), or you can build a business to be strong for the long term and able to survive and even prosper in uncertain times.

How to factor climate change into long-term plans is not easy. Making decisions based on specific guesses (not locating an office in Miami due to fears of increased risks and costs of that decision for decades to come, choosing to locate a factory where water can be expected not to be a huge challenge in the decades to come, building a business to provide air conditioning in Europe, having your own flood plain work done based on realistic projections for climate change before buying property…) may make sense.

Building your business to be more robust may also make sense. Instead of trying to predict how specifically to avoid the largest consequences of climate change, just build systems that can accept much more chaos (make sure your supply chains are built more like the internet, able to survive many broken paths to route information, than many brittle supply chains are today). Long-term thinking is not easy, but it is vital and is increasingly important in an uncertain world.