Editor’s note: This commentary is by John Pimental, of East Randolph, who is a business owner and a member of the Randolph Area Climate Alliance.
Traditional small businesses are conservative in their approach to credit and the availability of cash, as well as their approach toward having access to the commodities or goods needed for their specific business to operate. Rightfully so, as the consistent and timely access to credit and raw goods is essential to the survival and success of a business. One would therefore think that small businesses would be laser focused on ensuring access to those two things. However, climate change may represent a giant blind spot in their planning. Events happening far from our hills and valleys will have a dramatic effect here.
So what is a small business? Typically in the U.S. a business is considered small if the number of its employees is under 500. That probably covers the vast majority of Vermont businesses. Most small businesses require access to credit, often in the form of a line of credit with some type of banking institution. This necessary access to credit is the achilles heel in an economy impacted by climate change.
Recently the McKinsey Global Institute published a report titled, Climate Risk and Response. McKinsey is an American management consulting firm; they help businesses and governments to reduce risk and manage disruption. McKinsey advises 90 of the world’s 100 biggest companies. If any company understands risk and its impact to business, it is this company.
So, what does their report say? For one, it says that extreme weather events, some of which we have seen here in the last 10 years, will become more common, with an exponential increase in force and precipitation. Intense storms have increased 71% in the last 50 years. Fifty and 100 year weather events will become more common, and more severe.
“The socioeconomic impacts of climate change will likely be nonlinear as system thresholds are breached and have knock-on effects.” Translation: As we reach key tipping points, the damaging effects of climate change will become exponential.
“Financial markets could bring forward risk recognition in affected regions, with consequences for capital allocation and insurance.” Translation: Long duration financial borrowing could become unavailable, insurance costs will skyrocket, and the availability of insurance will be increasingly limited.
Financial borrowing and insurance make our economy possible, both of which depend on capital for leverage. One of the outcomes of the exponential impacts of climate change are enormous capital losses. Capital comes in the form of buildings and infrastructure, such as our electrical grid, and in the form of owned items such as planes, trains and automobiles. With existing capital being lost or at greater risk, as noted in the McKinsey report, credit availability will become significantly tighter. For a business, that means access to credit will dry up quickly.
Most businesses, which invariably do not carry sufficient cash reserves, will no longer be able to meet their payroll. Most businesses will no longer be able to purchase the commodities or goods needed for their business to simply operate. A credit crunch can result in the closure of many businesses, which then impacts the businesses that purchase their goods. For example, a large business that manufactures jet engines has an enormous supply chain that includes a multitude of smaller businesses. When credit becomes tight, these small businesses begin to fail. This results in supply chains collapsing, a loss of employment in the manufacturing sector, and on and on.
Suddenly a catastrophic weather event in the U.S., far from our state, disrupts every facet of our life. More extreme events means more potential disruption. Climate change is leading toward catastrophic impacts to humanity and will outstrip our ability to react to them and absorb its financial and human impacts. We will no longer have the luxury of talking about taxes or health care costs. We will be fighting for the survival of our way of life and literally fighting to give our families a place to live.
We need to recognise that our economy is an extremely fragile thing! It is not at all resilient. It is literally a house of cards that can come tumbling down. The 2008 recession proved how fragile it is and almost outstripped our ability to repair it.
Do not take this relatively comfortable time in our lives lightly. Even having a chance to keep it requires sacrifice by all of us. Climate change knows no boundaries or demographics. Climate change is not just about extreme weather happening in some far off place. Climate change is a Main Street and Technology Park issue! If you are a business owner, then you need to be a climate activist. If you care about the future, then you need to be a climate activist. We all need to find a way to recognize this and be willing to lend a hand in creating forward thinking solutions.
