Many Supply Chains at High Risk of Climate Disruption

The risks of global warming have been increasingly mapped out in recent months, highlighting the impacts weather events and a warming world would have on populations and industries. A recent study published in the Harvard Business Review did a more detailed analysis of the impacts of climate change on supply chains located in the U.S., China, and Taiwan and found that only 11% of sites surveyed were adequately prepared for climate change disruptions.The research project was a collaboration between the University of Maryland’s Supply Chain Management Center, the Earth Systems Science Interdisciplinary Center, and Resilinc, a supply-chain-mapping firm. The study analyzed over 12,000 supplier sites in the three countries that all collectively supply parts for 100 original equipment manufacturers within the auto, high tech, and consumer goods industries.For the study, 35 years of satellite data about temperature and 20 years of precipitation data were gathered and then collated with Resilinc data about the business impacts of a particular site going offline and a business’ resilience to such an event. The measure of resiliency included if there were continuity plans for the business, backup manufacturing plans if one site goes down, and how long it would take a particular supplier’s site to get back up and running following a climate-related catastrophe.“It is important to note that climate risk is not determined solely by geography. Making an effective decision about site-level risk requires having visibility into additional factors such as revenue at risk of being lost if the supplier site went down and resiliency,” the authors of the study say.Sites most at risk within the supply chains were those whose disruptions would have the highest impact on the OEM’s revenue, that had the greatest exposure to climate variability, and had deficient resiliency measures in place. The study found that 18% of sites in the U.S. and 11% in China and Taiwan fall within this high-risk category.More telling, 80% of the U.S. sites surveyed and 48% of sites in China and Taiwan currently have no business continuity plans or alternate means of production should a site go down. Perhaps more surprising, 72% of the high-revenue-at-risk sites in the U.S. (sites whose operations contribute significantly to the OEM’s revenue) and 38% of those in China and Taiwan lack continuity plans and alternative production plans.“Overall, just 11% of all sites in the three countries were fully prepared for climate-related disruptions — i.e., they had identified and pre-arranged available backup sites that could be put into action quickly and had formal business continuity plans and incident response playbooks in place,” write the authors. “Within this elite group of sites, managers had embraced the challenge of gathering, integrating, interpreting, and acting upon climate and business threat data to improve resiliency.”Recommendations by the authors for supply chains to better ready themselves for climate risks included creating a detailed map of the entire supply chain, fully assessing each site’s risks, being cognizant of companies and suppliers that are sometimes a few links down the supply chain and their risks, create a climate-resilient footprint for the supply chain, and many other suggestions.Positioning Portfolios for Climate Change with KraneSharesKraneShares offers a bevy of climate-related products that seek to capture the transition to a zero-emission world by 2050, whether through a focus on carbon emissions or the transition of industries.KraneShares’ carbon allowances suite of funds includes the KraneShares Global Carbon Strategy ETF (KRBN), an ETF that invests in carbon allowances futures globally from the EU, California, RGGI, and the U.K., the more targeted KraneShares European Carbon Allowance Strategy ETF (KEUA) and the KraneShares California Carbon Allowance Strategy ETF (KCCA). The newly launched KraneShares Global Carbon Offset Strategy ETF (KSET) is the first U.S.-listed ETF offering investors exposure to the voluntary carbon markets.For an approach that targets transitioning companies, KraneShares Global Carbon Transformation ETF (KGHG) seeks to capture the true potential within the carbon transition by focusing on companies from within industries that are traditionally some of the highest emission offenders, but are on the precipice of transitioning to renewable technologies.For more news, information, and strategy, visit the Climate Insights Channel.