May 22, 2024

Climate risks to UK supply chains: the roles of government and business

by Sweenia Surminski, member of the adaptation committee and David Style, Senior Analyst – Adaptation

Supply chains are the arteries of our economic system, spanning continents and sectors, and are often complex and highly specialized. Supply chains are designed with an emphasis on speed and efficiency, and are highly vulnerable to any type of disruption. Recent events, such as Covid and the Russian invasion of Ukraine, have brought this into focus, with major impacts on people and the economy, causing food and energy prices to rise and disrupting the production and transport of a wide range of intermediate inputs or final goods.

A growing challenge for global supply chains is the physical impacts of climate change, as floods, heatwaves, droughts and storms create cascading impacts that can be felt locally, but also far from where the event actually occurs. this year Falling river levels to record levels in Europe, China and the United States in the summer of 2022 meant factories and agriculture cut production, cargo ships carried smaller loads, and the risk of power outages to millions of people.

All three UK Climate Change Risk Assessments (CCRA) incl the most recent, highlighted the need for further action to increase the resilience of UK domestic and international supply chains. Given the growing urgency, CCC A New supply chain briefing To summarize the evidence in this area and identify actions that government and businesses should take.

Evidence provided by the CCC shows that we are already facing disruption to domestic supply chains due to floods, drought, rising temperatures and other extreme weather in the UK. A recent example of this is the impact of unusually adverse weather conditions in 2020 on wheat production, a key part of food supply chains. Extremely wet weather, followed by very dry weather, meant that wheat yields were the lowest since 1981, and their value was more than £500 million lower than the average of the previous four years. In a recent study conducted by the Business Continuity Institute, 42% of all respondents indicated that extreme weather events led to supply chain disruptions.

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The UK is also exposed to extreme weather and climate risks around the world through its international supply chains. Geographic concentrations of key inputs and products create the potential for greater impacts from weather-related disturbances. These could be things like critical metals or semiconductor chips which are currently produced mainly in East Asia, or everyday items such as tea and coffee which are mainly produced in Asia and South America. In the case of tea, many exports come from a small number of of countries. Such as Kenya and Sri Lanka.

As highlighted by the latter UK CCRA3However, climate change increases the risk of disruption. Global temperature will continue to rise until global carbon dioxide increases2 Emissions reach net zero, and some aspects of climate (such as sea levels) will continue to change for centuries. This inevitable climate change means that the exposure of UK supply chains to climate risks in the UK and internationally is set to increase. Some parts of supply chains will be under particular pressure. For example, supply chains involving occupations or sectors that require large amounts of outdoor labor, such as agriculture and construction, may be particularly affected by frequent, intense heatwaves.

The good news is that there is a lot that companies and government can do to reduce our exposure to these risks now and in the future. The Climate Change Convention has identified a range of adaptation measures that can increase supply chain resilience. One thing that is of fundamental importance for both is to learn lessons from the turmoil of recent years; In particular, we cannot think about these different supply chain risks in isolation. Efforts to increase resilience need to consider the potential for interaction or cascading risks. They must also integrate climate risks simultaneously with other trends, such as the shift to net zero, increasing digitalization, and changing trade patterns.

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There are a range of actions and strategies that companies can use to make their supply chains more resilient, including risks from climate change. Some of these measures may be within the companies' direct control, for example protecting a grain silo from flooding, others may be outside their direct control and will require working with suppliers, service providers and infrastructure operators. Examples of business processes include collaborative planning and control with suppliers and infrastructure operators; Diversifying the geographic location of suppliers, which will spread the risks of supply disruptions across more regions, and diversifying supply routes and means of transportation, which will spread the risks of supply disruptions across different parts of the transportation system. Larger companies play a particularly important role because they have the ability to influence the actions of their suppliers and ensure the health and resilience of the places where their suppliers are located.

As documented in CCC Adaptation Progress ReportsThe government has an essential role in enabling, supporting and building capabilities. Actions the government is taking to make supply chains resilient fall under several key responsibilities and span multiple government departments. These key responsibilities include stress testing of supply chains, international and trade policy, effective risk communication and adaptation by organisations, providing information and promoting procurement that incorporates resilience. If introduced alongside other UK adaptations, it will not only protect people and the UK economy from the impacts of future disruption, but will give the UK a comparative advantage, as a more attractive destination for businesses to locate parts of their supply chain.

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Resilient supply chains are an important part of delivering a well-adapted UK. If government and businesses take action now, we can all benefit from a safer supply of food, energy and the other goods and services we depend on.