Summary

Climate risks to nine key commodities

Anna Triponel

May 3, 2024
Our key takeaway: The link between climate-driven hazards - like droughts and heat stress - and supply chain-related disruptions and risks is undeniable in nine key commodities: vital metals (iron, aluminium and zinc); critical minerals (cobalt, copper and lithium); and food crops (maize, rice and wheat). A recent report by PWC finds that extreme heat stress reduces labour productivity by at least 75% and is dangerous to outdoor workers’ (such as miners and farmworkers) heath, safety and wellbeing. Not to mention that certain key commodities (such as 90% of rice production) will face greater heat stress risk by 2050 in a high emissions scenario. Underpinning all of this is the fact that commodity production is highly concentrated in specific regions within a handful of countries. This exacerbates the risk of climate-related disruptions to global commodity supply chains. With this in mind, the report emphasises the importance of adaptation measures, alongside mitigation measures such as emissions reduction, to secure global commodity supply chains. Gim Huay Neo, Managing Director of Centre for Nature and Climate at the World Economic Forum, issues a call to action: “Businesses need to prepare for a climate reality where production and supply chains, including that of critical commodities, will be increasingly at risk of significant disruption.”

PWC published its report on Climate risks to nine key commodities: Protecting people and prosperity (May 2024):

  • Climate change threaten key nine commodities: The report identifies nine commodities that are essential to the global economy and highlights how climate change significantly impacts the supply chains of these commodities. The nine commodities are: 1) vital metals (iron, aluminium and zinc); 2) critical minerals (cobalt, copper and lithium); and 3) food crops (maize, rice and wheat.) The supply chains of these commodities are highly concentrated in a few countries. For each commodity, at least 40% - and as much as 85% - of it is produced in just three countries. Within these countries, production is concentrated further still in specific regions. For instance, in 2020, just five mines in the Democratic Republic of Congo produced most of the world’s cobalt. The effects of climate change on these highly-concentrated supply chains can be of particular risk to businesses: “[t]hese geographic concentrations could potentially heighten risks to global supplies because, with fewer locations providing each commodity, disruption at any single location could have a more substantial impact on global supply.”
  • Climate-driven drought and heat stress presents significant risks to workers: The report shines the spotlight on two climate change hazards - drought and heat stress - due to their severe impacts on supply chains and workers. Drought presents serious risks to mining because activities, such as ore extraction, mineral processing and dust control, are water-intensive. Drought also presents risks to farming, which accounted for 70% of freshwater consumption in 2022, and markedly reduces crop yields. Heat stress have particular risks for miners and farmworkers, who often spend a significant amount of time working outdoors and are consequently exposed to heat and humidity. This can have a major impact on labour productivity. For instance, the report found that extreme heat stress risk (defined as an average daily Wet Bulb Globe Temperature (WBGT) of 32.2°C occurring on one or more days per year) “[r]educes labour productivity by at least 75% and is dangerous to outdoor workers.” Furthermore, the report found that even under a low-emissions scenario for 2050 (defined as global average temperature increase below 2°C and where substantive action is taken to curb emissions), the proportion of some essential commodities impacted by heat stress and drought will likely substantially increase. The impacts are even more significant under a high-emissions scenario for 2050 (defined as global average temperature increase of 4.4°C by 2100 and where no action is taken to follow a low-emissions pathway). For example, 90% of rice will face significant or greater heat stress risk by 2050 in a high emissions scenario. Thus, the report emphasises the importance of adaptation measures, alongside mitigation measures such as emissions reduction, to secure global commodity supply chains.
  • Recommendations for companies: The report recommends several measures the companies can take to adapt to the effects of climate change. These are grouped into three pillars: 1) “[e]nhance resilience by identifying and managing risks”; 2) “[c]apitalise on opportunities; and 3)  “[s]hape collaborative outcomes.” Core actions under pillar 1 include a) to “[a]ssess the impacts of climate risks on business and act to adapt and build resilience” and b) to “[w]ork with suppliers and communities connected to the value chain to enhance business resilience.” Core actions under pillar 2 include a) to “[l]everage products, services and business models that help businesses, communities and ecosystems adapt to and build resilience” and b) to “[p]ursue adaptation opportunities that contribute to efficiency, sustainability and climate change mitigation.” Core actions under pillar 3 include a) to “[p]articipate in multistakeholder efforts that promote action on climate change adaptation” and b) “[d]eliver transformative projects to build community and ecosystem resilience.” Underlying all three pillars are three enabling actions: 1) “[e]stablish a climate strategy that integrates climate change adaptation and net-zero transformation”; 2) “[m]ainstream climate risk considerations into business decision-making”; and 3) “[m]ake comprehensive and transparent climate disclosures.”

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