Business looks to U.N. report for clarity on climate risks

LONDON Thu Sep 26, 2013 1:09pm BST

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LONDON (Reuters) - Companies increasingly factor extreme weather into their strategic planning and a report from the United Nations due on Friday is expected to underscore the heightened risks they face.

Extreme temperatures, droughts, and sea level rises will all get worse unless governments make sharp cuts to greenhouse gas emissions, the Intergovernmental Panel on Climate Change (IPCC) summary report is expected to conclude.

It is also expected to say human activities are "extremely likely" - at least a 95 percent probability - to be the main cause of warming since the 1950s, according to leaked drafts of the report seen by Reuters.

Most companies already examine how climate change and extreme weather events could impact their output, operations, goods availability and demand.

A survey by the Carbon Disclosure Project and Accenture in January showed that 70 percent of the 2,415 companies polled believed their revenue would be significantly affected by a changing climate.

Some 51 percent said that drought or extreme rain had already affected their businesses, which represented a combined spending power of $1 trillion.

"For business, it is not about arguing with scientific consensus; it is about understanding the scale of the risk," said Celine Herweijer, partner at PwC.

"It is about simple business risk and planning: where can you invest; how can you protect your infrastructure; where can you source supplies; what is the cost of commodities; what's your plan B?," she added.

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Utilities and manufacturers are studying weather patterns which could put their sites and operations at risk while retailers, such as Tesco (TSCO.L), are studying their supply chain to consider the impact of climate change on agricultural commodities.

Insurers might have to ditch traditional models for pricing risk as extreme weather events increase and premiums become unaffordable for homeowners and businesses.

Around 80 percent of the assets of companies on London's FTSE350 index .FTLC are overseas, many in the countries most vulnerable to climate change such as India, China, South Africa and Brazil.

Spirits maker Diageo (DGE.L) has been expanding in emerging markets such as Africa, India and Latin America, and expects water-related stress on crops to affect its businesses.

"As our business continues to grow, particularly in emerging markets, the climate change impacts increase. As we broaden our strategy from our own operations to our supply chain, the report reaffirms this is the right strategy to take," said Michael Alexander, head of environment at the firm.

Diageo, which sells brands such as Guinness beer and Smirnoff vodka, relies on wheat, barley, corn and maize but temperature and rainfall changes will affect some growing areas, prompting the firm to turn to less water-intensive crops such as sorghum or cassava.

For telecom companies such as Britain's BT Group (BT.L), more extreme weather will not only affect its suppliers in emerging markets but its networks in Europe.

"The BT network in the UK is a strategic national asset and we are looking at how we can model (based on the IPCC report) what could happen on the flood plains over the next 50 to 100 years," said Niall Dunne, BT Group's head of sustainability.

"The more extreme weather impacts on our network, the more faults there are. BT Fibre Optic Broadband and BT Sport are multi-billion pound investments and we need to protect those in the long term."

(Editing by Jason Neely)