What we found
At every step along the value chain, we found increased signs of physical climate risk, and particularly so in the four-degree warming scenario outlined by the Intergovernmental Panel on Climate Change (IPCC) in which little or no mitigation action is assumed to be taken. Yet it’s important to note that in both warming scenarios we looked at (two- and four-degree warming, respectively3), the climate perils become more frequent and severe than they are today, and thus threaten the ability of our notional smartphone maker to reliably source, produce, and distribute its product.
The threat ultimately comes from two main sources: the direct effects of the peril itself (for example, the flood that knocks out a manufacturing site) and the substantial second-order effects (the same flood destroys bridges to the manufacturing site and inundates workers’ homes throughout the area). Let’s look at how risk plays out across the smartphone’s value chain.
Raw materials sourcing. The starting point of our value chain is raw materials sourcing, and the gold mine in Australasia. This mine supplies the ore needed to make some of the smartphone’s connectors, pins, and relays. By 2030, under a two-degree warming scenario, the mine workers are likely to be exposed to 262 days per year of excessive heat, defined as a wet-bulb globe temperatures (WBGT)—a widely used measure of heat stress that considers the humidity, wind speed, sun angle, and solar radiation to provide an accurate human perception—of 32 degrees Celsius or more. In the four-degree warming scenario, the mine would experience 353 days of high WBGT a year. This would increase the likelihood of heat-related illness, and potentially raise the mine’s operating costs as it sought new ways to cool the mine and keep workers safe.
Manufacturing and assembly. When it comes to the manufacturing and assembly of our smartphone (the next step in the value chain), the most notable risks were heat and extreme rainfall. Under a four- degree warming scenario, a manufacturing site in Japan faces a 60% increase in days with high WBGT, and one assembly site in Eastern China faces a 26% increase in the number of so-called hundred-year rainfall events each year between 2020 and 2050. Increased flooding poses obvious business risks for this site, but also threatens the people living nearby—indeed, parts of Eastern China have already experienced bouts of deadly flooding in recent years.
Transport. Extreme heat could disrupt the operations of the port in Australasia—a key transport site in our notional value chain. In a four-degree scenario, the port will likely experience 116 high-heat days a year in 2050, a fivefold increase from 2020. Meanwhile, the airport in the Southern US would face a smaller relative increase (28%) but an even larger number of annual high-WBGT days in 2050 (122 days per year). Extreme rainfall and flooding could also threaten the main port in Eastern China. In a four- degree scenario, the port faces a 7% increase in “hundred-year” rainfall events per year between 2020 and 2050.
Warehouse. Drought-fueled wildfires are the most worrying risk for the Sacramento, Calif., warehouse location we studied. According to the US Drought Monitor, 97% of California is already in a state of severe drought today, which increases and intensifies the area’s wildfire season. Further global warming would make things worse. In the immediate vicinity of the warehouse, a four-degree warming scenario translates into a 24% rise in the number of annual wildfires per square kilometer between 2020 and 2050.
Distribution and retailing. Finally, high wind poses a risk to certain distribution and retail sites, including one on Florida’s Gulf Coast. Already in an area at high risk of hurricanes, the site has a 1% chance each year of facing a Category 2 storm (translating to winds of over 96 mph). By 2050, the stakes will likely be higher still—with the same odds each year of encountering the more deadly Category 3 storms, which usually cause extensive damage and serious coastal flooding. The 1% odds implied by the term hundred- year event may seem low, but consider that over a 100-year span, the probability equates to a 63% chance that the event will occur at least once. And of course, increasing wind speeds in an existing storm zone will increase the detrimental impacts to people and businesses throughout the area.