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Climate disruption of supply chains: why business-led adaptation is needed in the Nordics

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Climate disruption of supply chains: why business-led adaptation is needed in the Nordics

On 9 May 2024, SEI Policy Fellow Mikael Allan Mikaelsson shared key findings from his work on the European Climate Risk Assessment at the Nordic Environment and Climate Ministerial spring meeting.

His presentation highlighted the urgency for business-led adaptation to safeguard Nordic countries from the increasing threat of supply chain disruptions due to climate change.

Read on to discover key strategies and insights for navigating these challenges.

Climate disruption of supply chains: why business-led adaptation is needed in the Nordics / Published on 15 May 2024

Mikaelsson outlined how extreme weather events and degraded ecosystems – exacerbated by climate change – are disrupting key global supply chains. This disruption poses severe risks, including shortages of essential goods like food and medicine, halted production lines and soaring prices. Such impacts could precipitate dire consequences for food security, access to healthcare, and the overall continuity of business operations across the Nordic region.

Europe’s vulnerable position

Highlighting Europe’s particular susceptibility, Mikaelsson pointed to the continent’s heavy reliance on imports and the concentration of critical production in climate-vulnerable regions. The EU, for instance, sources a significant proportion of its agricultural products and pharmaceutical ingredients from outside its borders, placing essential sectors at high risk in the face of climate volatility.

Recent findings by UCL researchers reveal that global GDP loss from climate change could drastically increase when considering the cascading impacts on global supply chains. The study, which for the first time charts “indirect economic losses” from climate change, projects a potential net economic loss of between USD 3.75 trillion and 24.7 trillion in adjusted 2020 dollars by 2060.

Mikaelsson’s presentation highlighted three specific areas of vulnerability:

  • Agriculture: a significant percentage of the EU’s agricultural imports come from countries like Brazil, the United States, Malaysia and Indonesia, making food security highly susceptible to climate impacts in these regions.
  • Pharmaceuticals: with a considerable portion of active ingredients and finished medicinal products being sourced from climate vulnerable regions in Asia, Europe faces a looming public health crisis should these supply lines be disrupted.
  • Critical raw materials: the EU’s dependency on critical raw materials such as rare earth minerals from China poses additional risks to its economic stability and industrial supply chains.

Barriers and solutions

Existing data suggests a glaring lack of preparedness among businesses for handling these emerging risks. Only a minority of companies have implemented robust plans to manage climate impacts, indicating a crucial gap in corporate risk management strategies. Mikaelsson emphasized the necessity for public policies that motivate the private sector to adopt proactive adaptation measures. He suggested that mechanisms such as mandatory due diligence on adaptation and incentivized public procurement could play pivotal roles in fostering a more resilient business environment.

Despite the clear risks, several barriers hinder effective business-led adaptation. These include the perceived irrelevance of immediate climate risks, insufficient climate data and the high costs associated with implementing adaptation strategies. To overcome these obstacles, Mikaelsson advocated for a collaborative approach involving enhanced governmental support through policy adjustments and financial incentives to facilitate essential adaptations.

Mikaelsson concluded his presentation, the call to action was clear: it is imperative for both policymakers and business leaders in the Nordics and beyond to forge robust adaptation strategies that safeguard essential supply chains against the inevitable impacts of climate change.

Design and development by Soapbox.