The importance of government and business in managing the climate risk to UK supply chains

Supply chains represent the core of our economic system, spreading across our globe and often consisting of complex and specialised networks. Designed with a focus on speed and efficiency means, supply chains are particularly vulnerable to potential challenges or disruption.

Recent events like the pandemic and Russia invading Ukraine have escalated the challenge of disruption, significantly impacting people and the economy, resulting in rising energy and food prices, and impacting the production, transportation and distribution of many goods.

A rising challenge for global supply chains relates to the physical impacts of climate change and the associated increase of climate-related events like floods, heatwaves and droughts, having a local and international impact. This year we’ve witnessed the lowest river levels in Europe, China and North America, causing businesses and agriculture to reduce production, freights to reduce their loads and a rising risk of power blackouts for millions.?

All of the UK Climate Change Risk Assessments (CCRA) have highlighted the necessity for more action to improve the resilience of domestic and international supply chains in the UK. With mounting pressure, the CCC has proposed a new supply chain plan that determines actions for the UK government and businesses. The findings by the CCC suggest that we are already witnessing significant disruption to our supply chains from climate-related extreme weather events in the UK. For example, the poor weather conditions in 2020 were highly detrimental to wheat production. The extreme wet conditions, followed by contrasting dry periods, resulted in the lowest wheat yields since 1981 and a ￡500 million reduction in value from the average for previous years. A recent survey by the Business Continuity Institute found that over 40% of respondents felt that extreme weather had disrupted supply chains.

The UK is vulnerable to extreme weather and climate events worldwide through the direct impact on international supply chains. The location of vital inputs and products means a higher potential for impact from weather-related events. For example, critical minerals come from East Asia, and many of our daily dependables are exports from a select few countries. Climate change is escalating the risk of disruption, and while we are focused on achieving net zero, the short-term impacts mean the exposure of UK supply chains to climate impacts in the UK and worldwide will likely increase.

Some parts of supply chains will endure further pressure. For example, supply chains which involve significant amounts of activities such as agriculture or construction may be affected by frequent disruptive weather patterns. One plus is that businesses and the UK Government can achieve a lot to reduce our exposure to these risks. The CCC has determined several actions that increase resilience in our supply chain. One vital factor is the lessons learned from the recent disruptive times. We cannot consider different supply chain risks in isolation. A plan to improve resilience must incorporate the potential for another interactive and rising risk. They must also consider climate risks as with other trends, such as the movement to Net Zero, increased technology and changes in trading patterns.

There are several strategies that businesses can implement to ensure their supply chains are more resilient and capable of withstanding the risks of climate change. Some of these variables may be controllable within a business, and others may be outside of their control and will involve collaborating with service providers and suppliers. Diversifying the location of suppliers can spread supply disruption risk across additional areas. Diversifying supply routes spreads supply disruption challenges across various parts of the transport network.

As detailed in the CCC Adaptation progress report, the UK Government plays a vital role in supporting and delivering capacity. Government actions to ensure supply chains are resilient come within several responsibilities of various departments. These responsibilities include reporting risk and adaptation by businesses and monitoring supply chains. These adaptation strategies can protect people and the economy from further disruption and make the UK more appealing to companies for their supply chains.

A resilient supply chain is critical in producing an adaptable country. If our government and businesses take decisive measures, we can benefit from an improved and secure supply of food, energy and other dependable services.