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Core Council Business Under Radical Uncertainty. Dr. Geoff Wells Academic Director, Sustainable Business International Graduate School of Business University of South Australia. Uncertainties in climate science. Early stage of development Role of climate factors; cascading uncertainty
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Dr. Geoff WellsAcademic Director, Sustainable BusinessInternational Graduate School of BusinessUniversity of South Australia
Uncertainties in climate science • Early stage of development • Role of climate factors; cascading uncertainty • Feedback effects • Prediction of ecosystem risks • Adaptive and technological responses; fertilisation of crops • IPCC process • Rebuttal
Uncertainties of human impacts • More dramatic IPCC scenarios • Human impacts: first level effects • Human impacts: second level effects • Distributional effects • Mass movements of people
Uncertainties of economic analysis • Time horizon • Averaging and assumptions • Range of business-as-usual estimates • Mitigation cost estimates • Critique • Other scenarios • Overstating costs of climate change • Understating costs of mitigation • Uniquely low interest rates • Overall judgement of Stern Review
Relevant management frameworks • Local Government Act 1999 • Strategic management plans • Annual business plans and budgets • Australian Accounting Standard #27 • Component functions and activities of local government • Depreciation of non-current assets
Climate impacts & risks • Increased erosion, landslides, sinking of ground surface, disruption and damage to buildings and public utilities or other infrastructure caused by global warming impacts. • Increasing incidences of respiratory illness, heat mortality, and other public health impacts associated with climate change. • Impacts to private lands or resources that detract from commercial uses such as recreation, e.g. loss of use of property used for skiing, tourism based on coral reefs, or terrestrial wildlife. • Impacts to agriculture, including decrease in agricultural water supplies, lower water quality, increase in agricultural operational costs (fuel, pesticides, fertilisers), and increase in food prices. ( Ross, C, Mills, E & Hecht, S 2007, Limiting liability in the greenhouse: insurance risk-management strategies in the context of global climate change, Public Law & Legal Theory Research Paper Series, Research Paper No. 07-18, UCLA School of Law.)
Climate impacts & risks • Impacts to lands or resources that detract from resource consumptive uses (e.g. timber production). • Mobilisation of chemical wastes, sewage, petroleum products by natural disasters. Post-event mould after flood events. • Poor financial performance or other consequences of businesses' failure to reduce carbon emissions or to reduce risks attributable to climate change. • Interruptions to operations, communications, transportation, or supply chains due to failure to prepare for extreme weather events.
Climate impacts & risks • Economic losses to businesses due to failure to prepare for weather-related disruptions of energy, water, or other utility services. • Weather extremes involving changes in precipitation, ice, temperature, or visibility have impacts on vehicle accident incidence, which, in turn, includes a component of liability insurance losses. • Cross-border economic damages arising from new regulations or taxes, policy on carbon markets. • Risks associated with supply-side energy measures to reduce greenhouse-gas emissions, e.g. from use of nuclear power, hydrogen, or carbon capture and storage.
Climate impacts & risks • Impacts on ecosystems: degradation of habitats, increased threats to species, changes in geographical distribution, changes in locations of parks and reserves. • Impacts on demographics: • Significant population movements, away from higher temperatures and water deficit, towards lower temperatures and water availability. • Demographic cascades from relocation of industry. • Potential for significant numbers of climate change refugees from Pacific nations.
Four Levels of Uncertainty Courtney, H 2001, 20|20 foresight: crafting strategy in an uncertain world, Harvard Business School Press, Boston, MA.
Level 1: A clear enough future • Business strategists face opportunities where the range of possible future outcomes is narrow enough that this uncertainty doesn’t matter to the decision. • Point forecasts can be developed that are precise enough for strategy development. • Future path of main drivers relatively clear. • Market not prone to external shocks or internal upheaval. .
Level 2: Alternate futures • Set of possible future outcomes that are mutually exclusive & collectively exhaustive (MECE), one of which will occur (cf. multiple choice). • Analysis can help establish relative probabilities but can’t tell you which one will occur. • Most common business strategy challenge.
Level 3: A range of futures • A range of possible future outcomes can be identified, but no obvious point forecast emerges. • Strategists can only define a representative set of outcomes within the range of possible outcomes (set is not MECE). • Unstable macroeconomic conditions—unpredictable GDP growth, inflation and interest rates, currency fluctuations, etc.
Level 4: True ambiguity • Uncertainties are unknown and unknowable. • Analysis cannot identify the range of potential future outcomes or scenarios within that range. • Not possible to identify all the relevant variables that will define the future. • Limitless range of future outcomes. • Typical of new political, scientific, technological developments and environments.
Uncertainty & decision-making • The precautionary principle • Radical uncertainty and irreversibility • Converting radical uncertainty to subjective risk • The conservative maximin decision rule • Keeping options open • Increasing the resilience of the system • Integrating and aggregating • The strengths and limitations of modelling • Deliberative decision-making • Approaches to coordination • Emergent decision-making
