Risk management is a bigger priority than ever before, and climate change is right at the top of the list, writes Dr Mike Redwood on ILM.

Filling in the risk management pages on an annual budget used to be an automated process. Areas such as currency risks, a major customer bankruptcy or the implications of a chemical being restricted for unexpected environmental reasons might be included.

However, as the last three years have shown, unexpected events are cropping up at an astonishing regularity and all appear to be loaded with interrelated, catastrophic outcomes. As you are finalising your 2024 budget, this historically routine section is the new priority nightmare. And all three items on the original list – currency, customers and chemicals – will have moved into the very high-risk segment.

An additional risk area now firmly on the agenda is climate change. For a while, it has been a matter more of social responsibility, but now shareholders and lenders want assurances that all associated risks have been considered. This starts with checking whether extreme weather might impact plants with floods or power outages. A lot of tanneries have been built beside rivers or in other low-lying areas, so are vulnerable to increasing flooding and landslides.

At the other extreme, high temperatures and droughts are also becoming significant and starting to create a potential threat to leather’s fundamental raw material – hides and skins.

Weather charts

We regularly see weather charts published in the United States analysing the implications of current conditions for livestock. It seems crazy that, at the same moment, we worry about hides being thrown away because their value does not add up alongside the costs of storage and collection. However, we do need to start worrying that increasing temperatures and associated droughts will lead to reduced livestock numbers from one of the leather industry’s best sources.

A huge proportion of vital pasture has deteriorated to “poor” or “fairly poor” condition, according to experts, and this is playing a big part in persuading some farmers to exit the industry or to postpone herd rebuilding. Given that beef demand and prices are currently very high, the threat of herd reduction is mounting.

“Drought is on the verge of becoming the next pandemic”.

It is no surprise that a year or so ago, Head of the United Nations Office for Disaster Risk Reduction Mami Mizutori noted that “drought is on the verge of becoming the next pandemic, and there is no vaccine to cure it”.

Meanwhile, recent droughts in Brazil have created unprecedented problems in the Amazon and even the inland port of Manaus is unable to function properly. Whole communities dependent on the river are struggling and hundreds of thousands of people are impacted. The concern is that, if these conditions continue over future years, a large part of the forest will start to die off, greatly accelerating the long-term climate problem.

Additionally, Brazil’s Savanna lands, the Cerrado, are important for livestock and require regular grazing to keep it strong and capable of sequestering huge amounts of carbon dioxide. Drought would be catastrophic if it became a regular feature.

The world looks at these issues in terms of an existential threat for humankind and we must battle harder to avoid that. Yet it is a more immediate threat for the leather industry if we lose larger and larger volumes of our raw material at a time when we need long-lasting, renewable materials to make our goods.

So, as risk management rises to the top of any budgetary or future planning work, the changing climate is now a top priority. We are already feeling its impact in our supply chains and need to start adapting. And, with COP28 only a few days away, all of our trade bodies and leaders need to take action to ensure the voice of leather is heard loud and clear.