Flooding poses huge business risk

Flooding caused by climate change poses a severe business risk. A study by Liverpool University found that the 2007 UK floods cost affected companies an average of £100k each. Researchers in Germany claim that economic losses double for every 11cm increase in sea levels. Recent analysis by Risk Management Solutions and Lloyds calculates that annual losses from storm surge for UK properties could double by 2035. Companies with properties in low-lying coastal areas may find it difficult to insure their assets. Under the 2008 Climate Change Act, UK businesses that perform functions of a “public nature” such as port authorities, water utilities and power producers, could be required to publish a climate-related risk assessment and adaptation report, including an evaluation of vulnerability to sea-level rises.

As climate change risks go, rising sea levels fail to sound the same alarm bells as dramatic weather events and melting ice caps. Yet their long-term effects are among the most alarming. Flooded cities, submerged coastal areas, mass migrations.

According to recent research, the world’s oceans rose by 14cm last century. If we’re lucky, that number will merely double during the course of this century. If we’re not, an almost tenfold increase could be in store.

The potential economic damage is frightening. A study from Liverpool University found that floods in the UK in 2007 cost affected companies an average of £100,000 each. Those numbers will only rise. According to researchers in Germany, economic losses double for every 11cm increase in sea levels.

We’re not going to just abandon trillions of dollars of coastal assets. We need to adapt. Albert Slap, founder, Coastal Risk Consulting

One company turning such projections to its advantage is Florida-based Coastal Risk Consulting. Founded by retired public-interest environmental lawyer Albert Slap, this specialist consultancy uses sophisticated surveying technology known as LIDAR to map the likelihood of highly localised sea level flood risks.

For $99, homeowners in US coastal towns simply upload their zip code and get a 30-year “vulnerability assessment” report sent to their desktop. Coastal Risk Consulting says it has requests for around 1,000 such assessments per month and is looking at expanding outside North America.

“We’re not going to just abandon trillions of dollars of coastal assets. The doom-and-gloom people who say we should run for the hills – that’s not going to happen either,” says Slap. “So we need to adapt. But to do that we need better information and that’s what technology can bring us.”

An early entrant to this emerging market for sea level related risk analysis is Acclimatise. Since setting up in 2004, the London-based firm has provided advice on flood vulnerability to a range of businesses, banks and governments. Acclimatise’s chief executive, John Firth, says: “The causes [of sea-level rises] are clear and the effects are becoming clearer and clearer, and this drives demand.”The insurance sector is another increasingly vocal group. Insurers have better reason than most to worry. Recent analysis by Risk Management Solutions and Lloyd’s of London calculates that annual losses from storm surge for properties in the UK could double by 2035 (pdf).

Insurers’ clients face potentially costly damages too. Companies with commercial properties or operations in low-lying coastal areas may find it increasingly difficult to insure their assets, for instance. Those with insurance, meanwhile, might find themselves in violation of their terms if they fail to invest in flood protection measures.

Much depends on time frames, says Trevor Maynard, head of exposure management and reinsurance at Lloyd’s of London. Progressive adaptation steps, such as the use of flood-resilient building materials or locating key assets on higher ground, could actually bring risks down to below current levels.

Yet if global action on climate change fails and extreme sea-level rises occur as predicted, then the impacts would be of a greater magnitude. “We wouldn’t be talking about insurability at that point,” Maynard concedes. “We’d be talking about relocation.”

But who exactly is listening to all this advice? Tangible examples of large-scale adaptation measures are few and far between, and those that do exist typically relate to publicly funded infrastructure projects.

In the UK, this comes as little surprise. Under the 2008 Climate Change Act, businesses that perform functions of a “public nature”, such as port authorities, water utilities and power producers, could be required to publish a climate-related risk assessment and adaptation report. Included in this would be a requirement to evaluatetheir vulnerability to long-term sea-level rises.

Similarly, in the US, regulatory intervention rather than commercial opportunity characterises most major adaptation efforts. Repairs to Miami’s Virginia Key sewage plant is a case in point. A $300,000 slice of the overall project budget has been earmarked to help the county plan for a sea-level rise of between 2ft and 4ft – but only after a court order.

Innovators in this space need to look small. Out in front is a band of ecologically minded architects such as UK-based Baca, which helped develop the LifE (long-term initiatives for flood-risk environments) project. Baca is also behind the UK’s first amphibious house, as well as a waterspace strategy for the Liverpool South Docks.

One of the breakthrough ideas of Baca’s co-founder Richard Coutts and his colleagues is to design buildings and civic infrastructure in high-risk areas not with a view to keeping flood water out but to allowing water in and then managing it intelligently. “This means anticipating that they [buildings in vulnerable areas] may either get wet or entirely flooded, and that they are designed for fast recovery,” Coutts says.

It’s a theory that the Dutch delta-city of Rotterdam is already putting to the test, with public infrastructure such as plazas and underground parking garages being used to catch and store excess water.

Evidence of action from other sectors – retailers whose supply chains could be severely disrupted, say, or travel companies that might find popular tourist destinations uninhabitable – remains scant. A rare example comes from the Philippines, where rice farmers are experimenting with new salt-tolerant rice varieties.

Acclimatise’s Firth is wary about accusing the private sector of not taking the threat of sea-level rises seriously. Many corporations are undertaking risk assessments behind the scenes, he insists. Such is the extended horizon of the issue, however, that few as yet feel compelled to take action.

Indeed, Firth says that companies that respond too quickly run the risk of deploying capital on mitigation measures that might prove unnecessary or excessive. “[When] you identify what the risks and likely consequences are, then you can take the decision as to when is the appropriate moment to undertake an investment,” he says. “And it may not be now.”