The Business Case for Investing in Climate Resilience 

A 400% return on investment. The prevention of up to 1/3 of potential losses. It might surprise you to learn that these impressive business numbers arose from a study about investing in climate resilience measures. Dr. Alfredo Roa-Henriquez, a supply chain resilience expert at North Dakota State University, offered a look at these numbers, and the study behind them, in the recent PRP Climate Ready Providence Speaker Series.

Key among the takeaways was the conclusion that when a disaster strikes, business interruption costs often far exceed property damage costs. Property damage typically gets the press in the wake of a disaster. The stark visuals of flooded or crumbled buildings naturally grab our attention. The losses are visceral and painfully obvious. But Dr. Roa-Henriquez illustrated that the business interruption costs that follow such events should command at least as much of our attention. Those interruptions might include workers unable to leave home to get to work, or larger transportation infrastructure disruptions. They might show up as supply chain breakdowns, or power and communication outages. Whatever the combination of interruptions any given business might experience, they can far surpass the cost of actual property damage.

Dr. Roa-Henriquez’s research team surveyed small & medium sized businesses impacted in New York and New Jersey by Superstorm Sandy, and those in Texas that were hit by Hurricane Harvey. Out of that work, Dr. Roa-Henriquez offered several “Resilience Tactics” that businesses might consider. These tactics can be a significant investment.  But the study suggested that it’s money very well spent.  

The team assessed what resilience tactics the businesses had adopted prior to the storms and sought to measure how effectively those measures helped them to recover after the storms had passed.  Results were expressed in two primary metrics.  One is the “Resilience Metric” (RM), which is expressed as a ratio of avoided loss to maximum potential loss.  The second is the “Benefit Cost Ratio” (BCR) which is the ratio of avoided loss to the cost of undertaking the resilience tactics.  As the next table shows, the results varied by event, but taken together, the numbers make a strong case for the value of pursuing resilience tactics.

 

Dr. Roa-Henriquez also introduced a tool called the Business Resilience Calculator (BRC). A joint effort of Ohio State University, the University of Illinois, the University of Southern California, and the National Institute of Standards and Technology, the BRC calculator offers businesses a chance to estimate the cost effectiveness of various resiliency tactics under a variety of different disaster scenarios. 

For a more detailed look at this information, we encourage you to watch the video of Dr. Roa-Henriquez’s presentation or check out his full deck of slides here.