Climate forecasters breathed a collective sigh of relief earlier this month as predictions of a “mega El Niño” on par with severe incidents that took place in 1997-98 were downgraded. Scientists now believe a more modest event will develop later this year and run through the winter of 2014/2015.

Nonetheless, the revised “60-65% chance” forecast of an El Niño issued by the Climate Prediction Center, an agency of the National Weather Service, still translates to a period of heightened likelihood that extreme weather conditions will occur in specific regions and seasons around the world with associated social, economic and environmental impacts.   “It’s definitely still on the cards” according to climate forecaster Tony Barnston, of the International Research Institute for Climate and Society. Typically, El Niño results in an increased likelihood of heavy rains and flooding in the late fall and winter in the southern U.S, Eastern Africa and parts of South America. It also enhances the chance of drought conditions in Northern Brazil, Indonesia, Southeast Asia and Australia.

Here we argue that companies can mitigate immediate risks and improve long-term sustainability by understanding and monitoring the emerging climatic conditions and identifying and implementing appropriate response strategies.

In the last 25 years, there have been six moderate-to-strong El Niño events: 1991-2, 1994-5, 1997-8, 2002-3, 2006-7, and 2009-10. The impacts of El Niño are felt most strongly in the tropics. Previous events have been associated with drier-than-normal conditions in some regions and seasons, and wetter-than-normal conditions in others (Fig. 1).  El Niño also tends to increase atmospheric temperatures across the tropics, but local effects are in part driven by local rainfall.

What is El Niño?

El Niño-Southern Oscillation (ENSO) is a periodic appearance of unusually warm and cool sea-surface temperatures (SSTs) in the central and eastern Pacific Ocean. It is the most prominent known driver of interannual variability in weather and climate around the world. ENSO events are associated with increased probability of drought in some areas and excess rainfall in others, together with temperature anomalies in many regions. El Niño refers to the period of warmer-than-average SSTs that occurs as part of ENSO. This situation is the opposite of La Niña, which is associated with a cooling of the SSTs.

El Niño and Rainfall: Risk and Opportunity

Figure 1: Areas of likely El Niño rainfall impacts
Areas of Likely El Nino Rainfall Impacts

Additionally, Figure 1 shows that areas of likely El Niño rainfall impacts are also those where seasonal climate forecasts will be more skillful during an El Niño year.

Once developed, El Niño conditions in the Pacific typically persist for  9-12 months or longer, starting around June and peaking between November and February. Peak impacts do not necessarily coincide with the peak of the El Niño period: impacts generally occur during a region’s main rainy season. Because the progress and strength of the El Niño can be monitored through near-real-time ENSO observing systems, it is possible to generate probabilistic seasonal climate forecasts of the climate months in advance. Such forecasts may be useful for planning for and mitigating health impacts associated with climatic extremes. A major potential benefit of ‘El Niño years’ is that the seasonal climate is likely to be more predictable.

Climate extremes pose a risk to agricultural production, infrastructure reliability, workforce health, insurance costs and many other factors. Not only is there a risk to production but climate anomalies may also impact consumption patterns, price hikes of food staples and social stability. Furthermore, forecasts of a forthcoming El Niño event may alone increase hoarding and speculation because of known effects on commodity pricing. Here we identify climate risk management strategies for enhancing both short-term planning cycles and longer-term sustainability.

Cost-effective supply chain management is critical in modern companies, many of which are much leaner and meaner than they were 10 years ago. For instance, many companies (especially manufacturing) have found that sole sourcing provides multiple benefits; there are also risks to be considered. Extreme weather events can shut down such suppliers for days — even months, disrupting supply chains and removing products from the market — with severe consequences for customer confidence and revenue.  Thus reducing exposure to extreme weather events is an important part of managing reputational risk. This involves proactive strategies for increasing resilience through understanding and minimizing exposure (e.g. diversification), managing residual risk (e.g. insurance) as well as maximizing opportunities when possible.

Corporate social responsibility, a hallmark of modern best practices for both the private and public sector, can also suffer from reputational risk associated with climate. For instance, the current billion-dollar global malaria program has significant investments from government entities, foundations, international agencies and the private sector.  Success of this global initiative is predicated on consistent declines in cases and deaths associated with this climate sensitive, mosquito-borne disease in affected countries. In some regions, such as eastern Africa, the impact of interventions has been aided by recurrent drought. But an increase in rainfall, predicted for this October-December rainy season, may in part reverse these positive trends, in effect, undermining donor and private sector partner expectations. Ensuring appropriate attribution of both successes and failures (i.e. transparency) helps manage expectations, thus reducing reputational risk.

As already indicated, El Niño is not all bad news. This climate phenomena has a positive benefit in that seasonal climate forecasts – indicating above or below normal rainfall and temperatures – are consistently more skillful during El Niño years. These enhanced forecasts can be used to provide early warning of large-scale energy impacts months in advance in specific regions and seasons (Fig 1.).

Consider a potential disruption to energy supplies which might result from an extreme climate anomaly: a drought diminishing hydropower capabilities in a developing country; a flood disabling low-lying power stations and transport systems in a mega city; or an excessive heat episode increasing demand beyond supply capacities. Risk management strategies must identify and prepare for such multi-scale and diverse disruptions resulting from vulnerability to such climate extremes and the potential of cascading interconnected impacts on health, livelihoods and security.

Health impacts associated with El Niño may result through multiple routes. For example, while heat waves can cause individual heat stress and associated cardiovascular crises, lower hydropower capacity can reduce electricity available to health facilities, disrupt cold chains and impact on local and global manufacturing of essential (often plant based) healthcare products. Loss of agricultural production triggered by drought can impact livelihoods, tax revenues, and the ability to access nutritious foods and health-related goods and services. Loss of livelihood further impacts social cohesion as desperate populations can migrate from rural to urban areas in search of available resources. Not all impacts are negative, however. Many areas will expect drought relief and enhanced harvests as a result of the increased rainfall associated with El Niño[1].

What should matter to investors is how companies understand, manage and incorporate these climate related risks and opportunities in both their core business portfolios and corporate social responsibility initiatives. Transparency in terms of exposure and response to climate risk (both short and long term) should be part of Environmental, Social and Governance standards. Climate disruptions are inevitable, of course, but better recognition and preparation should limit their impact and help with both current and future business challenges in the context of a changing climate.

Madeleine Thomson is a Senior Research Scientist at the International Research Institute for Climate and Society (IRI) and Senior Scholar at the Mailman School of Public Health, Department of Environmental Health Sciences – at Columbia University. She is also the Director of the IRI/PAHO-WHO Collaborating Centre (US 306) for Early Warning Systems for Malaria and Other Climate Sensitive Diseases.
 
Aisha Muhammad, who is pursuing her Masters in Climate and Society at Columbia University, contributed to this report.
 
[1] Information about the latest IRI ElNiño briefing and tools for monitoring updates on the strength of the El Niño can be found at: http://iri.columbia.edu/enso. Follow #ENSOQandA and #IRIForecast onTwitter to monitor updates.