Business Continuity and Climate Change (Part 2)

SSON News and Analysis
Posted: 07/09/2012

(To read the first part of this article, click here.)

One of the ramifications of climate change which is frequently overlooked during discussion of the topic, but which has great relevance for businesses - especially those setting up infrastructure of any value in the developing world - is the impact of increased climatic volatility and the consequences thereof on the insurance industry. The cost of Hurricane Katrina has been estimated at in excess of $150 billion; while it’s important to be clear that this was not an event many would attribute to global warming, it’s indicative of the immense economic toll that even a solitary storm can take, and with many scientists predicting that global warming will be accompanied by an increase in the frequency and intensity of severe storm events worldwide, it’s understandable that the insurance community is eying the future with trepidation.

Earlier this year the Association of British Insurers reported that premiums for firms operating in storm-susceptible areas may have to rise by up to 100% over the next decade; in an article released by Reuters prior to the Copenhagen summit, the ABI was quoted as saying that "even a modest systematic change in storm tracks could increase average annual insured losses from windstorms by 25 percent". While still making up a comparatively small portion of overall costs for shared service centers, any significant rise in premiums would nevertheless have an impact on budgeting for any such infrastructure, whether existing or in planning: once again, the need to consider the exposure of any location to possible damage becomes paramount not just in terms of the actual risk posed but in terms of the financial impact of the coverage required to allow the center’s top brass to sleep soundly at night. As margins grow ever tighter thanks to the competition posed by outsourcers and the general move towards greater efficiencies, this is an extra headache which all concerned could well do without.

Tech-enabled activities such as those carried out by a typical shared service center rely heavily on the kind of equipment particularly susceptible to flooding in particular. Insurance is obviously an absolute must - but if premiums really are to rise so significantly within such a comparatively short timeframe then it seems logical that there should be an increased focus on the part of those owning and operating centers upon developing infrastructure designed to help keep those premiums down as far as possible. Extra bucks spent "weather-proofing" existing infrastructure or incorporating within designs for new-build projects an extra degree of security might not come easy - especially post-crisis - but can companies really afford NOT to demonstrate to insurers that they’re doing everything within their power to minimize risk?

As noted in the first part of this article, thanks to labor arbitrage much of the activity now carried out by service centers takes place in locations which aren’t necessarily the best prepared to cope with sudden catastrophe in terms of maintaining access to power, water and communications; as well as increased premiums for insuring the actual buildings and hardware of a center, it’s also inevitable that we’ll witness a rise in the cost of insuring service provision even in cases where company infrastructure is relatively - or completely - untouched. Yet again this will have a direct bearing on site-location for those looking to establish new centers; meanwhile those managing facilities already in operation will need to reassure their insurers that the necessary measures are in place to keep services delivered, possibly for an extended period, even in the worst-case scenario of utility connections being destroyed. The back-up generators and similar safety nets mentioned in the first installment of this feature are thus doubly important: not only will they serve to keep business ticking over if catastrophe does hit; they’ll also help keep costs down even when it doesn’t.

Infrastructure isn’t just at risk from the biggest, most obvious impacts of climate change, however. Buildings in many areas will also become increasingly susceptible to changes at a much smaller level: warmer, wetter environments will create new challenges related to humidity - hence the need for a review of air-filtering systems etc (which will also have to cope, along with other elements of the infrastructure, with widening temperature ranges and their attendant structural stresses) especially near critical hardware - and even exotic fauna, particularly insect life which can wreak havoc with employees and systems alike. If that sounds too sci-fi, consider this: not only does "the preponderance of evidence indicates that there will be an overall increase in the number of outbreaks of a wider variety of insects and pathogens"  according to researchers Curtis Petzoldt and Abbey Seaman, authors of Climate Change Effects on Insects and Pathogens1, but climate change could also disrupt the balance between insects and their predators to the extent that pests could experience population explosions even in locations which currently do not even constitute their habitat at all. The impact of such events wouldn’t be confined within the pages of horror stories; at a very minor level we could see insect-protective screens becoming standard for centers even in temperate climates while, at the other end of the spectrum, large numbers of previously foreign species could threaten to render buildings uninhabitable through actual structural damage or the discomfort caused by their presence.

(Incidentally, those responsible for designing shared services infrastructure should also bear in mind the development of future policy - and future levies - with regards to sustainability, in that "green" buildings may well become significant assets in terms of reducing a companies exposure to eco-taxes while environmentally unfriendly structures may become rather expensive millstones, in punitive tax terms, around the necks of those organizations unfortunate enough to be maintaining them. It’s too early to predict what might emerge from the vast summit taking place in Copenhagen this month - and much too early to predict how successfully any agreements might be enforced - but presumably any "pay as you pollute" taxes created further down the line would be just as applicable to shared services as to any other area of business. For more on this topic, check out SSON’s interview with Jairo Rojas of BASDA: "Green IT: the Impact of Business in a Low-Carbon Economy".)

The impact of climate change on the workforce will not of course be limited to coping with bugs in the office. The gloomier prognostications for the future (and that’s saying something) predict a significant rise in incidences of debilitating disease, partly as a consequence of said bugs, but also as a result of a host of other factors including a decline in the quality of drinking water and - not related to climate change but in some eyes even more perilous - a rise in the prevalence of antibody-resistant nasties. In consequence, absenteeism and turnover are expected to rise - especially in temperate areas experiencing an influx of new pests, and tropical locations subject to growth in the populations of existing ones. The potential costs of such developments are clear; it may well be that some of the huge gains generated by increased automation and general efficiency improvements are negatively offset by the need as a contingency to retain (and train) a larger staff than would be expected, or hoped for. This problem will also, presumably, only be made more severe by other consequences for the workforce: the impact of climate change on family life (especially problematic for expatriate workers who may have to cope with serious issues in their home countries), on mental health, on nutrition and many other areas directly affecting individual workers has yet to manifest itself.

This appears to be one of the issues relating to climate change being least addressed by employers. A survey conducted by Britain’s Trades Union Congress this year found that of 134 organizations questioned, only one had "given serious attention" as to how their staff might be affected by climate change in the years ahead. Shared services will be just as susceptible - perhaps even more so, given the downward pressure on headcount inherent in the model - to such effects as any other elements of a business: perhaps one area where SSOs have the greatest opportunity to benefit their parent organizations in terms of minimizing the impact of climate change is in helping formulate - and put into practice - strategies for limiting the effect on the workforce of some of the potentially devastating challenges which lie ahead.

1 "Climate Change Effects on Insects and Pathogens", http://www.climateandfarming.org/pdfs/FactSheets/III.2Insects.Pathogens.pdf

SSON News and Analysis
Posted: 07/09/2012

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