Cluster Trade and industry | Umweltbundesamt

On the relevance of the action field

Trade and industry (in this context defined as processing industry) constitute an important economic sector of Germany’s national economy. In 2022 roughly a sixth of employees in Germany generated more than 20 % of Germany’s Gross Value Added. Companies active in the processing industries are therefore highly integrated in global production and supply chains. Raw materials and intermediate products from numerous countries are imported to Germany to be processed here. By the same token, numerous products manufactured by German companies are exported worldwide. It is thanks to the high demand for products ‘Made in Germany’ – especially for machinery, motor vehicles and associated components as well as chemical products – that Germany’s balance of trade is regularly boosted by export surpluses.

In many respects, the intensifying climate change is a major challenge to companies. Apart from changes in the market environment owing to increasing requirements for protection from climatic changes, companies also face – according to their individual branch of industry, location and size – increasing risks from climate change impacts. This applies to both risks of damage or limitations caused by weather extremes and risks from changing market conditions jeopardising value-added and business models. Forward-looking entrepreneurial action can mitigate such risks at the same time as providing opportunities to develop new value-added potentials.

DAS Monitoring –what is happening due to climate change

The general rise in temperatures resulting from global warming is apt to affect the efficiency of employees in their workplace. Scientific research exploring the scenario prevailing in central Europe has indicated that productivity at work – depending on the intensity of heat stress – can in some cases fall by up to 12 %. For 2018 and 2019 it was estimated that – on the basis of this assumption – direct damage resulting from productivity losses owing to summer heatwaves amounted to a total of 5 billion Euros.^{173, 173, 173} Looking towards the future, residents in Germany expect that stress from summer heat at their place of work – both within buildings and outdoors – will increase, thus affecting their productivity either severely or very severely (cf. Indicator IG-I-1).

Summer heat, combined with extended drought periods, was also one of the main reasons why the Rhine was subject to an unusually long phase of low-water levels in late summer and autumn 2018. Consequently, this led to draught restrictions having to be imposed on inland shipping. As a result, goods transport on the Rhine was for a long time possible only to a limited extent, thus declining compared to 2017 by 11.1 % (cf. Indicator VE-I-2). 2018 witnessed the beginning of a prolonged drought period which impacted companies active in various industries. Apart from goods transport, these impacts also included a reduced availability of coolant and production water as well as restrictions on the discharge of waste water and heated coolant water.

Future climate risks – outcomes of KWRA

In respect of the action field ‘Trade and industry’ the 2021 Climate Impact and Risk Analysis (KWRA) identified high risks with regard to three climate change impacts. As expected, there is a high risk of impacts on goods transport via inland shipping lanes by the middle of the 21st century. This also applies to a high risk regarding impacts on the supply of raw materials to companies and the supply of intermediate products from abroad such as coffee, cacao or cotton. However, as far as the last-named climate change impact is concerned, a low degree of certainty has to be taken into account. Moreover, a high risk of productivity losses is expected to affect employees by the end of this century. In the run-up to the middle of this century the relevant risk – according to a three-tier assessment grid (low – medium – high) – is assessed as medium.

As far as other relevant climate impacts on trade and industry are concerned, the risks expected to arise by the middle of this century are also categorised as medium. This refers to adverse effects on the international goods transport and the release of hazardous substances. Furthermore, a medium climate risk is estimated to arise with respect to international sales markets, adverse effects on land-based goods transport and increased demand for the supply of water by the middle of this century. However, these estimates are subject to low certainty; the same applies with regard to the medium risk estimated for adverse effects on production processes estimated to occur by the end of this century.

Where do we have gaps in data and knowledge?

It should be noted that companies in the field of trade and industry can be affected by climate change impacts – and any ensuing requirements for adaptation – in very different and highly specific ways. Both factors depend, among other aspects, on the size of the enterprises concerned, their location, the type of products and services offered, and it also matters to what extent they are integrated in regional, national or international production and supply chains. Economic data available in official statistical records in respect of climate change impacts do not permit interpretation, primarily as they are influenced by multifaceted factors. Apart from official statistics, there are only few sources reporting in a synoptic way on the basis of quantitative data in respect of trade and industry. These sources define the companies considered in different ways, for example regarding size or branch of industry; it follows that also the frames of reference used as the basis for indicators tend to differ. Consequently, the significance and comparability of any data available are limited overall.

Currently, there is a complete lack of any data-based representation of weather- and weather-pattern related physical damage to buildings, premises or infrastructures owned by companies. Unfortunately, it is not possible to illustrate this scenario in a similar way to the action field ‘Building sector’ – regarding the extent to which companies have been affected by weather and weather-related events as far as the development of insured damage is concerned – because businesses tend to insure specific risks according to their particular requirements rather than signing up to any standardised insurance products. So far there seem to be no representative surveys available regarding weather or weather-pattern related physical damage that might provide an alternative source of information. Another potential source of relevant information might be a continuous collection of data on the impacts of heat on the efficiency of employees. The Länder’s health reports provide a starting point for this as they present data collected on four occasions in the period from 1998 to 2018. A sub-indicator contained in these health reports covers the environmental conditions at the workplace on the basis of a survey conducted by the Federal Institute for Vocational Education and Training (BIBB) and the Federal Institute for Occupational Safety and Health (BAuA). This includes the parameter concerning heat.

However, these data cannot be used unless they are subjected to some fine tuning. There is no data collection available illustrating any heat-related absences from the workplace or heat-related accidents.

Neither is there a data source available for an illustration of economic impacts of low-water levels on production and supply chains. So far some information on this subject has been collected in the course of studies, but it is few and far between.¹⁷⁴ In order to obtain reliable data for a description of this scenario, it would be necessary to develop a continuous and regular collection of data. This is true likewise for any impacts of meteorological events on the international flow of goods and, generally speaking, for the security of supply in terms of raw materials and intermediate products or distribution channels used by companies.

Moreover, there are crucial data gaps regarding evidence of actual adaptation activities and measures taken by companies, for example, in respect of hazard prevention or emergency provisions for safeguarding production processes or for the protection of industrial and processing plant. In accordance with new sustainability reporting obligations on the basis of the Corporate Sustainability Reporting Directive (CSRD) – comprehensively supplemented in 2022 – and the EU Taxonomy Regulation, companies will in future have to declare their climate-related risks and measures; this involves, among other things, carrying out systematic climate risk and vulnerability analyses of their taxonomy-compliant economic activities. This promises to bring about a much improved data scenario in the future.

Generally speaking, the indication of climate change impacts and entrepreneurial responses for the purpose of adaptation are confronted with difficulties owing to the fact that there are always several influencing factors interacting in complex ways. For example, apart from climate change, businesses are facing many other strategic challenges. Apart from an increasing shortage of skilled employees in a growing number of sectors, this also includes the aftermath of the Covid-19 pandemic and the energy-price crisis resulting from the war in the Ukraine. These crises have demonstrated convincingly to what extent companies are affected in their business activities when national and international production chains and the flow of goods stop functioning smoothly.

What’s being done – some examples

As far as companies in the field of trade and industry are concerned, it is a vital prerequisite for executives to hone their awareness of climate-related risks that might threaten their company’s economic activities. If physical climate risks are ignored or if companies do not adequately recognise any direct and indirect consequences of extreme weather events and associated impacts as well as any gradual changes in climatic conditions, it is most likely that preventive measures will either fail or prove to be inadequate. However, the potential consequences of inadequate provision can also go beyond individual companies when they affect production and supply chains as a whole (cf. Indicator IG-R-1).

There is no doubt that physical climate risks exist for Germany’s export-oriented national economy in respect of climate impacts not only inland but also abroad. Given the great importance of export trade, international sales markets and international production and supply chains, the global dimension of climate risk is no less relevant. An assessment of the exposure to climate change of Germany’s foreign trade shows that roughly one third of the country’s 35 most important international trade partners outside the EU are located in countries faced with a particular climate risk. The volume of foreign trade with those countries and its proportion of all imports and exports has increased since 2008 (cf. Indicator IG-R-2). Owing to the globally increasing impacts of climate change, it is possible that the number of foreign trade partners facing a particular climate risk may rise too. Overall it is to be expected that strategies aiming at an appropriate handling of cross-border climate risks will gain in importance. Such strategies might benefit from including a more detailed differentiation of trade relations or risk-mitigating measures in specific countries particularly exposed to the hazards of climate change.

To the same extent as individual companies may be affected by various potential climate change impacts, there may also be differences in the requirements they face in order to adapt to changing climatic circumstances. At least in parts, any existing regulations will dictate the relevant framework or prompt the implementation of measures. This applies, for example, in respect of the impacts of heat on employees. For employees who work in buildings, the relevant workplace regulations stipulate various requirements to be met in order to maintain employees’ good health and their efficiency while outdoor air temperatures are high. For outdoor work the industrial safety legislation stipulates appropriate measures. Adaptation measures also play a role with regard to standardisation.

For example, DIN and ISO standards to be observed by companies constitute important working requirements in respect of the implementation of measures for adaptation to climatic conditions¹⁷⁵.

A provident use of resources such as water – which is potentially becoming scarce – is also of benefit to businesses. In the processing industry water efficiency, in other words the value added per unit of water, has already been increasing since 1991, and water procurement has decreased (cf. Indicator IG-R-3). This is to be seen as positive in the context of climate adaptation as water-saving companies are generally better equipped to withstand the impacts of heat and drought. In cognisance of the fact that this industry is among the sectors using large volumes of water, the National Water Strategy contains objectives and measures intended for trade and industry. These include minimum standards stipulating an efficient utilisation of water, examining opportunities for the increased use of process water, rain- or grey water and for the advanced development and harmonisation of water abstraction remuneration.¹⁷⁶

In order to support companies, the UBA has been providing since 2022 – with reference to EU taxonomy regulations – recommendations for establishing a legally compliant climate risk and vulnerability assessment to serve as an essential foundation for the systematic climate risk management in companies¹⁷⁷. Building upon this, a brochure is available which provides useful information enabling a company to integrate climate risk management in its organisational structure.¹⁷⁸

Furthermore, many Länder provide information materials on the adaptation to climate change for companies; in addition, many Länder organise company networks on the subject of adaptation to climate change. These networks provide support to companies if they have questions regarding the analysis of issues arising in-house or in respect of appropriate precautionary measures and associated finance.

^{173 - Trenczek J., Eiserbeck L., Lühr O., Sandhövel M., Ibens D. 2022: Schäden der Dürre- und Hitzeextreme 2018 und 2019. Eine ex-post-Analyse. Prognos AG. 71 S. https://www.prognos.com/sites/default/files/2022-07/Prognos_KlimawandelfolgenDeutschland_Detailuntersuchung%20Hitzesommer%2018_19_AP2_3a_.pdf.
173 - Kjellstrom T., Briggs D., Freyberg C., Lemke B., Otto M., Hyatt O. 2016: Heat, Human Performance, and Occupational Health: A Key Issue for the Assessment of Global Climate Change Impacts. Annual review of public health, 37: 97-112. doi: 10.1146/annurev-publhealth-032315-021740.
173 - Parsons K. 2014: Human Thermal Environments: The Effects of Hot, Moderate, and Cold Environments on Human Health, Comfort, and Performance. Boca Raton, 635 pp. https://www.taylorfrancis.com/books/mono/10.1201/b16750/human-thermal-environments-ken-parsons.}

^{174 - Scholten A., Rothstein B. 2012: Auswirkungen von Niedrigwasser und Klimawandel auf die verladende Wirtschaft, Binnenschifffahrt und Häfen entlang des Rheins. Untersuchungen zur gegenwärtigen und zukünftigen Vulnerabilität durch Niedrigwasser. Würzburger geographische Arbeiten 107, 352 S.
174 - Ademmer M., Jannsen N., Kooths S., Mösle S. 2018: Zum Einfluss des Niedrigwassers auf die Konjunktur.Institut für Weltwirtschaft Kiel (Hg.). Kiel, 4 S. https://www.ifw-kiel.de/fileadmin/Dateiverwaltung/IfW-Publications/-ifw/IfW_Box/2018/box_2018-17_niedrigwasser.pdf.}

^{175 - UBA – Umweltbundesamt (Hg.) 2022: Normen, technische Regeln und Richtlinien zur Anpassung. https://www.umweltbundesamt.de/themen/klima-energie/klimafolgen-anpassung/anpassung-an-den-klimawandel/anpassung-auf-kommunaler-ebene/normen-technische-regeln-richtlinien-zur-anpassung#deutsches-institut-fur-normung-ev-din-international-organization-for-standardization-iso.}

^{176 - BMUV – Bundesministerium für Umwelt, Naturschutz, nukleare Sicherheit und Verbraucherschutz 2023: Nationale Wasserstrategie. Berlin, 119 S. https://www.bmuv.de/wasserstrategie.}

^{177 - Dorsch L., Kind C., Fleischmann D., Loew T., Schauser I. 2022: Durchführung einer robusten Klimarisiko- und Vulnerabilitätsanalyse nach EU Taxonomie. Empfehlungen für Unternehmen. Dessau-Roßlau, 58 S. https://www.umweltbundesamt.de/publikationen/durchfuehrung-einer-robusten-klimarisiko.}

^{178 - UBA (Hg.) 2023: Physische Klimarisiken managen. Eine Einführung für Unternehmen. Dessau-Roßlau, 26 S. https://www.umweltbundesamt.de/publikationen/physische-klimarisiken-managen.}