ENVIRONMENTAL VULNERABILTY, RISK & COST A White Paper

Karsten A. Shein, PhD

Donewell, LLC

March 2019

DONEWELL

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In 2011, monsoon rains flooded Thailand and

caused a 2-year shortage of computer hard disk

drives. One manufacturer reported the floods

cost them around $250 million dollars.

Record setting heat in Australia triggered power

outages in an overwhelmed electrical grid. Sev-

eral cold storage warehouses lost power, ruining

millions of dollars in perishable product.

Whiteout conditions in a Nebraska blizzard

forced authorities to close several hundred

miles of interstate highway, disrupting trucking

for three days.

Entire communities were devastated when su-

perstorm Sandy took aim at Long Island. New

York’s airports were closed and its subway

flooded. Seaside communities that had wid-

ened beaches for tourism at the expense of

protective sand dunes were virtually wiped

away.

A rare 6-inch snow event brought Seattle to a

virtual standstill, cancelling hundreds of flights

and costing businesses over $10,000,000 in

lost productivity.

High winds rocked transmission lines in Cali-

fornia, sparking wildfires that cost millions to

contain, and bankrupted a major energy utility

due to their liability in the event.

Take a moment to think about your community

or your business. In what ways is it dependent

on the environment, either directly or indirectly.

Chances are pretty good that your assets, in-

frastructure, operations or resources are all vulnerable to environmental events. It doesn’t even have

to be a major natural disaster.

Think about what a 1-degree increase in average summer air temperature might mean for your cool-

ing bill? What would an extra 2 or 3 snow events do to your snow removal budget? Are more fre-

quent heatwaves going to reduce your ability to move cargo by air? Do you have a plan in place for

mitigating your costs associated with a changing climate?

Now, think about your business or community growth. As you build assets and infrastructure, and

your operations take on a more complex and extensive geographical presence, you will want to be

WHAT ARE YOUR ENVIRONMENTAL

RISKS?

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sure that you’ve accounted for environmental

risk.

For example, you own a small chain of beach

resorts. You’ve gotten a good deal on some

beach front property on a tropical island and

want to build a resort there. Without a good un-

derstanding of how conditions may change over

the life-cycle of the property, the property may

become revenue negative before it has even

paid for itself. Is the property in a zone where

shifting currents mean accelerating beach ero-

sion? Is the area at increasing risk for tropical

cyclone impacts? Can people get to and from the resort year-round? Guests simply won’t visit a re-

sort where the lobby floods once a week, where the corals reefs are dying from warming oceans, or

where a future climate brings an increased risk of contracting some mosquito-borne disease.

YOUR FOOTPRINT

We make great plans for growth. We want to

grow our communities and our businesses.

We want to grow revenue and profit. But

while we spend a great deal of time focused

on growing income (for communities its’ tax

base), we tend to spend far less time explor-

ing ways to cut costs. When we do, we often

focus on easily quantified costs such as la-

bor, supplies, etc. and tend to ignore one of

the greatest sources of cost – disruptions and inefficiencies. Unfortunately, many of these factors are

tied to the environment.

Think also about your operations. What resources do you consume. What energy do you use? How

efficient are your processes? It is likely that each of these things, which contribute to your overall en-

vironmental footprint can be measured, evaluated and optimized, often at little cost. Reducing foot-

prints sometimes requires up front investment, but the cost-savings can be significant, while at the

same time, making you more resistant and resilient to environmental impacts.

For example, lighting a small 24-hr-a-day factory with 1000 75W fluorescent lamps uses 75kW of

electricity. Over a day, you’ve used 1800 kWh, and over a year, that’s 657,000 kWh. At a rate of, say,

10 cents per kWh, you are spending $65,700 on lighting alone each year. Let’s replace those fluores-

cent lights with LEDs using just 20W each. You’ll spend $10,000 to make the switch, and then it costs

you $17,520 for a year’s worth of lighting. You’ll recover your installation costs in 76 days and save

$38,180 in the first year. You’ve also reduced your carbon footprint by around 770,000 pounds of car-

bon dioxide each year.

RISK MANAGEMENT

Risk is an inherent part of operating in an environment that contains uncertainty. The key to minimiz-

ing the impact of any risk is to know the risk and identify realistic ways to address the impact. This be-

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gins with identifying a risk. For ex-

ample, if you run a bakery, one risk

may be that high wind events fre-

quently knock out power to your

electric ovens. Another might be

that flooding rains ruin the wheat

harvest, raising prices on flour.

Once you have identified the risk,

the question then becomes one of

importance. How critical is a risk to

the continued functioning of your

business or community? Will it put

you out of business? Is it more of a

nuisance?

If you’ve gotten this far, the next

step is to quantify the risk. How likely is it to happen? Is that probability going to change over time?

How much confidence do you have in your assessment?

Lastly, you must identify possible strategies that will lower the risk. This can be just about anything

that will make you less vulnerable to the risk, help you recover more quickly, reduce the impact or

cost of the risk, or help you avoid the risk altogether.

Because many of the most effective solutions are also the most costly, they may not be the right

ones to implement. In fact, for some risks, the best option may be to do nothing but respond to them

when they occur (of course that means having a plan in place for how to respond). The key to suc-

cess is to seek the advice of someone who truly understands the environment and how it behaves

relative to your business. Such consultants can cut through a great deal of the noise surrounding en-

vironmental information and help you hone in on actual vulnerabilities and suggest cost-effective

strategies for addressing them.

Environmental risk

and vulnerability is a

special case. While

you are great at see-

ing and managing

business risks, you

are not in the envi-

ronment business.

You manage a city.

You run an airline.

You farm shellfish.

You generate elec-

tricity. You bake

cakes. So, while you

may see where you

have environmental

risk, you have nei-

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ther the time nor expertise to quantify that risk and

evaluate possible strategies to mitigate or adapt to

that risk. Your also less likely to differentiate actual

risk from perceived risk or to determine variability in

environmental risk over time and space.

Consider the baker again. She knows from experi-ence that wind storms knock out her power at least 4 or 5 times each year – sometimes for hours at a time. When they happen in the evening, there’s little risk. But if they happen during baking hours or at peak mid-day sales time, they can be very costly. The baker would like to manage her risk and mini-mize any losses from these wind storms. To do this, she needs to understand the frequency and tim-ing of those wind events and how they may change over the next 5 to 10 years. After receiving a vul-nerability assessment, she learns that the wind storms are becoming more frequent but that peak winds most often occur around mid-day, and only about 20% of the time during early morning baking hours. She decides that installing a small wind turbine on the roof will pay for itself in a couple of years of keeping the lights and register running when the power goes out, but simply closing on days when an overnight windstorm is forecast makes more economic sense than investing $200,000 in new natural gas ovens.

ENVIRONMENTAL VULNERABILITY (RISK) ASSESSMENTS

A vulnerability, or risk assessment is a comprehensive evaluation of a business or community exposure to a variety of environmental factors and a summary of the roles that those factors play on the workforce, assets, resources, logistics, opera-tions, and other elements. Donewell assessments do a deep dive into the environmental data to describe past, present and estimated future behav-iors in the environmental elements of concern. This information is integrat-ed with organizational information to arrive at a vulnerability index score

and inform suggestions on actions and decisions which, if taken, could produce the desired effects of reducing vulnerability, increasing resilience, or mitigating costs. Because each assessment is unique to your needs, there is no typical one-size-fits-all solution common to many consultancies.

From the vulnerability assessment, which paints a broad picture, you may wish to examine certain risk factors more closely. In these cases, a secondary assessment will focus greater attention on just a single risk with greater details about behavior, likelihood, mitigating circumstances, alternative op-tions, and more.

FOOTPRINT (CARBON) ANALYSES

Footprint analyses differ from risk assessments in that they are designed specifically to help you to understand and quantify your business’ or community’s impact on the environment. This is essential

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to any business or community that wants to become more efficient, reduce costs, and present them-selves as “green” to their customers, investors, constituents, or stakeholders.

In addition, a footprint analysis is critical to anyone who seeks to engage in a carbon trading system. You cannot trade in what you cannot quantify. If you have significant assets that present carbon se-questration opportunity, those assets have great value and you will want to alert others to their avail-ability. Similarly, if you own significant carbon sources, a footprint analysis will let you identify areas where you can reduce your carbon liabilities at the lowest costs.

ENVIRONMENTAL MONITORING

Often, assets are sufficiently remote that little environmental information ex-ists to allow your consultant to accurately describe the environmental fac-tors affecting it. Similarly, decisions that are designed to reduce risk, im-pact, or footprints are only as good as their performance. You need before and after observations that can prove the efficacy of your decisions. These goals can be achieved through comprehensive environmental monitoring which can easily be implemented by your consultant.

Monitoring typically consists of professionally installing environmental sen-sors at appropriate locations and gathering observations over a period of time. The data are integrated with existing data sources to provide a com-plete picture. In most cases, real-time monitoring also has the benefit of im-proving forecasts and alerting you to potentially impactful conditions.

EXPERT GUIDANCE

Beyond the business or community specific information a con-sultant will provide you, you may have need to more fully un-derstand an environmental concept or behavior. Here is where it is important to select a consultant who is a bona fide expert in an environmental science. There are many environ-mental consultants who do not actually have a background or experience in environmental science. They may have come to the field from biology, chemistry, physics, or even from politi-cal science, sociology, or medicine. There is a mistaken belief among scientists from other disciplines that anyone can “do” environmental science. They are wrong. The environment is a

complicated system and the data are anything but easy to use. In fact, it can be a challenge to even find and obtain the right data.

Many businesses and communities also need subject matter experts for other legal reasons. There is often a need for expert witness testimony to defend or prosecute an environmental-related decision, policy or action in court. Other times, a Board may want to hear expert testimony before making a decision. For these reasons and more, you will want to select an environmental consultant with a de-fensible resume. Strong environmental consultants will have backgrounds such as:

• Climatology / Meteorology • Geography / Geology • Environmental Science / Geophysics • Natural Resources • Oceanography/Marine Science

Whatever background your consultant has, it should be relevant to the need you have from them.

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This document was prepared by Dr. Karsten A. Shein of Donewell, LLC, an environmental consultancy. The document and all written contents are copyright 2018 by Donewell, LLC, with all rights reserved. All views and opinions expressed herein are those of Dr. Shein and Donewell, and do not represent binding advice or guidance, contractual obligation, or an offer of goods or services. Any information contained herein is used at the readers sole risk. If you should have any questions about this document or its contents, or wish to retain the services of Dr. Shein and/or Donewell, please con-tact Donewell at +1 (360) 820-8234 or donewellcompany@gmail.com

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