Frontiers North Adventures

In 2015, Frontiers North Adventures adopted a proactive approach to managing climate change risks by creating an adaptation strategy. Frontiers North Adventures (FNA) runs programs for small groups keen on exploring the North’s wildlife and culture. Climate change and its challenges are not merely probabilities with a negative connotation, but a reality for the family business in Canada’s North. The team had to devise a focused strategy to accommodate to the risks and opportunities presented by climate change. Through a comprehensive optimization of current operations, the business directed its efforts toward an adaptation strategy to climate change so as to guarantee its viability for the future. The accounting team had a substantial contribution to FNA’s climate change adaptation strategy. They applied a wide range of “traditional” accounting know-how to be of assistance to the FNA’s team to put their business on the right track to account for climate change. The result is an adaptation strategy that involves optimizing current operations and exploring future opportunities. Being a small to medium enterprise (SME) meant that cash flow management and forecasting were vital to ensure liquidity and business viability. Given the size of the firm, the adaptation strategy was not a lengthy formal document but rather a commitment and way of thinking. FNA has identified future roles for their accounts to pursue these identified strategies, such as interpreting scientific reports to communicate the business risks, and use a climate change framework in their evaluation models.

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Understanding and Assessing Impacts

FNA used case studies and scientific articles to assess the variations in sea ice in their area of interest. As polar bears rely on this ice to hunt, eat and mate, their population in FNA’s area of interest has the potential to deteriorate. Since FNA’s flagship product is an adventure trip in this polar bear-populated area, the changing in sea-ice formations pose a critical business risk. Careful supply chain planning was vital to FNA because they operated a base in Churchill, Manitoba, to which they needed to bring in materials. They had three options for transporting materials: fight, rail or barge. Barge and airfreight are expensive, so FNA relied predominately on rail. That approach ran into problems due to a changing climate. In 2015, the transfer of materials to Churchill by railroad was disrupted for five to six weeks because of changes in the permafrost layer. The team performed a collaborative risk and probability-based evaluation and scenario-planning exercise to develop recommendations. The team considered the operational and financial risks that FNA could face due to their assets being compromised due to environmental events, as well as the likelihood of occurrence. FNA also worked with scientists and NGOs to understand more impacts of climate change. The finance team used cost-benefit analyses, forecasting and scenario planning to detail risks and opportunities.

For additional climate information, look at the Resources section of this example (below).

Identifying Actions

FNA’s adaptation strategy covered the following operational aspects:

  • Infrastructure investment planning – FNA’s fleet — e.g. vehicles taking clients to the tundra — was aging. The business needed to decide how best to invest in new infrastructure. A reduction in the polar bear population could make the payback period on infrastructure investments unattractive if, for example, the from operated fewer trips. Jennifer Ash, VP Finance & Operations worked with both FNA’s finance and operations teams in a collaborative risk- and probability-based valuation and scenario-planning exercise to develop a set of recommendations for a way forward. During this process, the teams considered the operational and financial risks that FNA would face if certain assets were compromised as a result of environmental events, as well as the likelihood of occurrence. They ran scenarios — such as a shift in sea-ice formation — and conducted both qualitative and quantitative analysis to generate recommendations for a way forward.
  • Delivery Planning – FNA needed to consider physical constraints in delivering services. One constraint was the thickness of the sea ice, especially where vehicles needed to pass. Before any trips, FNA carried out careful tests by examining ice thickness. Scientific ice charts and reports complemented their tests. FNA accountants also generated “what if” scenarios: if vehicles could not travel over the ice, what alternatives would optimize both the guest experience and profitability?
  • Supply Chain Planning – FNA examined alternative supply chain options and ran cost-benefit analyses to evaluate their attractiveness.
  • Forecasting – FNA worked closely with researchers, scientists and non-profit organizations examining climate change so that they could plan ahead for market trips, often up to 18 months in advance.

Implementation

FNA adopted a proactive approach to managing climate change risks by creating an adaptation strategy. The strategy consisted of two main components: optimizing current operations and exploring future opportunities.

Optimizing current operations involved infrastructure investment planning, such as addressing their aging fleet of vehicles. FNA also identified that the thickness of sea ice could become a problem for their trips, and identified that careful tests should be performed before any trip. FNA also identified strengthening relationships with the local community and leveraging the community’s surplus capacity to deal with supply chain issues that may arise. For example, in 2015, railroad transfers were disrupted for 5-6 weeks due to changes in the permafrost layer. Frontiers North Adventures defines themselves as a tourism company rather than a polar bear tourism company. They looked at other opportunities within the province of Manitoba in an effort to diversify their portfolio and adapt to the impact of a changing climate. For example, they considered taking better advantage of a summer product, visiting the thousands of beluga whales in the area, which was growing in popularity. FNA used scenario-planning exercises to understand and quantify the effects of investing in new products for different destinations, or different products in the same destinations. Each scenario was treated as a new business opportunity, so the finance team modelled the effect of resource shifts, identified necessary investments and infrastructure, created budgets and clarified risks associated with creating new trips and replacing old trips. These scenario-planning exercises aimed to assign hard dollars to each decision’s business impacts.

Outcomes and Monitoring Progress

FNA’s journey to climate change adaptation has faced many challenges, including the following:

  • Uncertainty – In evaluating different options, FNA did not always have all the desired financial data. They had to determine whether they needed situation-specific numbers or whether they could draw from their experience with other projects.
  • Lack of models – They looked for case studies of best practices, or companies facing similar challenges.
  • Volatile prices – FNA needed to estimate pricing volatility related to energy prices, goods and services. Rail line closures led to inflated prices for products and services locally. These forecasts and considerations needed to be analyzed, their impacts identified and decisions made on how to remain profitable. The role of accountants in the adaptation planning was also an important outcome. FNA’s finance team had a significant role in adaptation. Accounting skills were used in both aspects of the strategy: quantifying the current operational requirements and investment decisions and evaluating alternative product offerings and future opportunities. By involving the finance team, FNA was better able to understand the financial impact of operational decisions and to ensure that they were optimizing opportunities for success.

Next Steps

A list of competencies was provided that companies such as FNA could benefit from in the future, including:

  • Interpreting scientific reports: Frontiers North Adventures worked closely with researchers, scientists and non-profit organizations looking at climate change. However, they could use more input from their internal teams. Accountants could receive more training in how to digest scientific information and identify report elements applicable to a specific business.
  • Using a climate change assessment framework: Accountants could use a framework for assessing risks and opportunities of climate change. However, no standardized template exists for such a framework. There is value in reading case studies that show how other organizations and accounting teams address specific problems related to climate change.

Resources

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Additional Resources:


Reprinted with permission from Frontiers North Adventures, ©2015, by Chartered Professional Accountants of Canada. All rights reserved by copyright owner.

Additional Climate Information: 

Using climate change projections enables better adaptation decisions. To learn how to choose, access, and understand climate data, visit ClimateData.ca’s Learning Zone.

Visit ClimateData.ca and click “Explore by Variable” for future climate projections related to temperature and precipitation, which can be used to inform adaptation planning.