SLR and what the data and science can tell business about the polycrisis

TRANSITION RISK: Big corporates, such mining and agriculture companies – and cities – need to know if their investments are viable in the next decade or two as they deal with the climate and net zero challenges underway. But it’s the building and construction sector that is one of the most exposed to the geopolitical shifts and depleted resources from nature.

Miguel Oyarbide, director of corporate sustainability advisory for SLR, isn’t so much a futurist as a strategist using data, science and geo-political insights to forecast likely scenarios that face businesses and organisations with rapidly advancing climate change, geo political fractures and decarbonising economies.

But he also takes input from organisations such as the International Energy Agency and the Network for Greening the Financial System, which is a collection of central banks concerned to influence economic policy in the face of climate change, along with modelling of inputs into the economy

Things such as the cost of fuel and materials such as concrete.

Oyarbide’s clients range from mining and agriculture companies to a recent transition risk analysis for the City of Melbourne that looked at where the likely stresses and opportunities will emerge from galloping climate change and the race for net zero.

• Don’t miss what Miguel Oyarbide will say about the City of Melbourne’s transition risk analysis at the Transition Risk masterclass in Melbourne 8 September

Other clients are in the construction and building sectors. These are businesses that need to read the value chain five or even 10 years in advance given the length of their lead times.

“They need to think as well ahead of their supply chains, whether getting concrete, steel or glass (or timber),” Oyarbide says.

All of these materials are in increasing supply stress because of geopolitical disruption but also because they derive from nature, which is not replenishing them at the rate we’re extracting them.

Governments are starting to prepare

Governments are starting to pay closer attention to supply chains, some even looking at resource nationalism as an option.

Canadian Prime Minister Mark Carney has adopted what he calls “variable geometry” to form agreements with a select group of countries or organisations that in part at least, can secure supply chains.

Among Australia’s biggest vulnerabilities are manufactured materials for construction since we import a large share of those we need, Oyarbide says. This means strategic analysis of our relationships with countries such as China, Vietnam and Indonesia.

“We depend a lot on imports for materials. We need to acknowledge what it means for the supply of materials in the future.”

Asphalt and steel are going to be “hugely important” in dealing with the physical risks of climate change.

“Australia produces a lot of the underlying raw materials, but we do not have the domestic manufacturing capacity for the volumes that we need.”

What we need now

Oyarbide says one of the most urgent things we need now is a lot more climate literacy among those who are making decisions – boards and executive teams.

“They need to know, for example, the investment that is required for decarbonising a business…otherwise it’s very easy to make bad decisions.”

Because what’s in front of them is no less than a polycrisis, he says.

“They need to know, for example, the investment that is required for decarbonising a business…otherwise it’s very easy to make bad decisions.”

And when presented with, say, three scenarios of impact few people expect the mildest one is most likely to occur.

He points to a summary from a recent conference by the Australian Institute of Company Directors that shows the next decade will determine the future of Australian industry:

“The next short decade is where the future will be determined, not 2040… Do not allow a distant target to substitute for a near term plan and do not detach the climate discussion from the people who must deliver it. The credibility of a transition plan is measured by funded actions, accountable owners and partners, clear decision points and a willingness to change course.”

And the AICD also said (in a note that is hugely relevant for our Transition Risk masterclass on 8 and 22 of September) that “energy now belongs in the same strategic conversation as technology, capital, and competitiveness.”

Making the wrong long term investment decisions now can mean irreversible damage, Oyarbide says.

Think 10 or 20 years out

Think of mining companies that need to understand if their investment will be viable product in 20 years, and what the likely state of its supply chain will be.

So too the owners of an avocado plantation who will need to know that what they plant now will be commercially viable in the 10 years it takes for their produce to come online.

“You need to think, are there going to be the conditions that I’m assuming now? Are they going to be in place in the next few years?” Such as energy security, availability, affordability, water where and when you need it.

There’s the need to “detach yourself from dependencies that are going to make your business more vulnerable” he says.

“So, fossil fuels. Diesel generators are needed in many areas where there is no availability of any other option right now, but as we are seeing, when there is a closure in a particular part of the world (that supplies diesel) that makes the price of fuel and fertiliser a lot more expensive.”

And then there is how insurers are likely to react. Without insurance there will be a lack of confidence to proceed.

“The organisations best placed for the future will not be those that simply disclose their risks but those that understand their dependencies, stress-test their assumptions under a range of scenarios and act while they still have choices,” Oyarbide says.

Don’t miss Miguel Oyarbide at Transition Risk, Melbourne Town Hall, 8 September