Risks to global supply chains are rising from the increasingly severe effects of climate change laid bare in a landmark UN report this week, and could place extra pressure on fuel stability and essential goods worldwide.
Recent crises have thrown the vulnerability of supply chains into sharp focus, as Russia’s invasion of Ukraine has highlighted Europe’s dependence on oil and gas imports, while the international manufacture and distribution of goods remains chaotic following the pandemic.
Climate-related shocks such as extreme weather events will become more common and severe as the world warms, and could further upend interconnected supply chains if governments do not act to build resilience, the latest analysis by the UN’s Intergovernmental Panel on Climate Change says.
That could drive up the price of critical items such as food and hamper international development, said the report, which was authored by 270 scientists from 67 countries.
The world has warmed by 1.1C since the pre-industrial period and is on track for 3C by 2100, the IPCC said. Beyond 1.5C the effects are expected to be exponential for each fraction of a degree of warming.
Among the risks highlighted was the potential for climate-related hazards such as floods, droughts and energy outages to disrupt global trade, and the effects that could have on economies and food security.
Damage to food storage, caused by electricity failures, and to transport routes could “significantly decrease availability and increase the cost of 22 highly perishable, nutritious foods such as fruits, vegetables, fish, meat, and dairy”, the report said.
One-third of China’s population, and its manufacturing capability as a result, was vulnerable to electricity supply disruptions caused by floods or droughts, it warned.
The globalised nature of supply chains meant risks were “interconnected and systemic. One leads to another,” said Mami Mizutori, head of the United Nations Office for Disaster Risk Reduction. But risk management was often siloed and reactive, she said. “We are caught continuously in this vicious circle of disaster, response, recovery and then again disaster.”
Global beverage company Coca-Cola said 21 per cent of the water used by the facilities it owned came from “areas of high or extremely high water stress”, in a recent climate disclosure to non-profit monitoring group CDP.
“Approximately $946mn of annual revenue is dependent upon bottling facilities in India that operate in areas considered to have high baseline water stress,” the company added.
Daniela Schmidt, a lead IPCC author, warned of the risk of “simultaneous failures” of breadbasket commodities, that could drive up global food prices.
Wildfires devastated agricultural crops in Russia in 2010 and 2011, upending wheat supply chains and causing a spike in food prices.
Floods in Bangkok in 2011, meanwhile, hit the manufacturers of car parts and computer chips, which had a knock-on effect to Silicon Valley and beyond as it rocked the global automotive and tech sectors.
Patrick Verkooijen, chief executive of the Rotterdam-based Global Center on Adaptation, said climate considerations needed to become part of everyday “risk management” for companies.
Nina Seega, from the University of Cambridge’s Institute for Sustainability Leadership, said “just in time” supply chains were particularly vulnerable. “If you can work to allow some slack in the system, that will create a more resilient system overall,” she said.
Source: Economy - ft.com
