Risks to global supply chains rising as climate change worsens, IPCC warns

Risks to global supply chains are rising from the increasingly severe effects of climate change laid bare in a landmark UN report this week, and could place extra pressure on fuel stability and essential goods worldwide.

Recent crises have thrown the vulnerability of supply chains into sharp focus, as Russia’s invasion of Ukraine has highlighted Europe’s dependence on oil and gas imports, while the international manufacture and distribution of goods remains chaotic following the pandemic.

Climate-related shocks such as extreme weather events will become more common and severe as the world warms, and could further upend interconnected supply chains if governments do not act to build resilience, the latest analysis by the UN’s Intergovernmental Panel on Climate Change says.

That could drive up the price of critical items such as food and hamper international development, said the report, which was authored by 270 scientists from 67 countries.

The world has warmed by 1.1C since the pre-industrial period and is on track for 3C by 2100, the IPCC said. Beyond 1.5C the effects are expected to be exponential for each fraction of a degree of warming.

Among the risks highlighted was the potential for climate-related hazards such as floods, droughts and energy outages to disrupt global trade, and the effects that could have on economies and food security.

Damage to food storage, caused by electricity failures, and to transport routes could “significantly decrease availability and increase the cost of 22 highly perishable, nutritious foods such as fruits, vegetables, fish, meat, and dairy”, the report said.

One-third of China’s population, and its manufacturing capability as a result, was vulnerable to electricity supply disruptions caused by floods or droughts, it warned.

The globalised nature of supply chains meant risks were “interconnected and systemic. One leads to another,” said Mami Mizutori, head of the United Nations Office for Disaster Risk Reduction. But risk management was often siloed and reactive, she said. “We are caught continuously in this vicious circle of disaster, response, recovery and then again disaster.”

Global beverage company Coca-Cola said 21 per cent of the water used by the facilities it owned came from “areas of high or extremely high water stress”, in a recent climate disclosure to non-profit monitoring group CDP.

“Approximately $946mn of annual revenue is dependent upon bottling facilities in India that operate in areas considered to have high baseline water stress,” the company added.

Daniela Schmidt, a lead IPCC author, warned of the risk of “simultaneous failures” of breadbasket commodities, that could drive up global food prices.

Wildfires devastated agricultural crops in Russia in 2010 and 2011, upending wheat supply chains and causing a spike in food prices.

Floods in Bangkok in 2011, meanwhile, hit the manufacturers of car parts and computer chips, which had a knock-on effect to Silicon Valley and beyond as it rocked the global automotive and tech sectors.

Patrick Verkooijen, chief executive of the Rotterdam-based Global Center on Adaptation, said climate considerations needed to become part of everyday “risk management” for companies.

Nina Seega, from the University of Cambridge’s Institute for Sustainability Leadership, said “just in time” supply chains were particularly vulnerable. “If you can work to allow some slack in the system, that will create a more resilient system overall,” she said.

Scientists conclude: five areas for future climate adaptation

Feasible options cited by scientists with “high” to “very high” confidence, IPCC 2022 report

Land and ocean systems

Farm water management, water storage, soil moisture conservation and irrigation management.

Cultivated plant improvements, agroforestry, farm and landscape diversification.

Forest conservation, protection and restoration, including diversifying and adjusting tree species for resilience.

Restoring natural forests and drained peatlands and improving sustainability of managed forests. Co-operation with local communities and indigenous people.

Urban greening, using trees and other vegetation for local cooling.

Pest control, pollination, buffering of temperature extremes, and carbon sequestration and storage.

Aquaculture and fisheries management.

Coastal

Build and harden coastal defences.

Protect against coastal erosion and flooding associated with storms and sea level rise where sufficient space and adequate habitats are available, until rates of sea level rise exceeds natural adaptive capacity to build sediment.

Urban infrastructure

Green infrastructure, improved water use efficiency.

Inclusive, integrated and long-term planning at local, municipal, subnational and national scales, together with regulation and monitoring, and financial and technological resources to foster urban and rural system transition.

Energy systems

Resilient power systems, energy reliability.

Energy generation diversification, with renewable energy resources and generation that can be decentralised depending on context, via wind, solar, and small-scale hydroelectric. Demand-side management via better storage, and energy efficiency. Climate responsive energy markets, updated design standards on energy assets based on current and projected climate change, smart-grids, robust transmission systems and improved capacity to respond to supply deficits.

Cross sectoral

Disaster risk management, early warning systems and climate risk education.

Livelihood diversification and social safety nets that take climate risks into account.

Voluntary, safe and orderly human migration.

Improving access to potable water, reducing exposure of water and sanitation systems to flooding and extreme weather. For vector-borne diseases, effective adaptation options include surveillance, early warning systems, and vaccine development.

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