Between climate change and chip shortages: The big worries of the economy – economy

The world of business is full of bad news, but in turn. There are companies that can barely produce anything because of a lack of semiconductors. They’re desperately looking for chips, aluminum, and plastic in the markets, and when they find something, it gets pretty expensive. Often so expensive that it throws smaller companies off track. The just-in-time principle, which was once elevated to a religion by Toyota and praised by chief logisticians, in which everything should be delivered to the production site shortly before the end, can now be forgotten. Anyone who finds a few containers with semiconductors and other specialties today will take them. And hoards. In addition to the major shortage, there is the energy transition. It is costing the economy billions to rebuild everything, and the pandemic is still depressing the mood.

Anyone who thinks that these are the really big problems should talk to Ernst Rauch. He’s got the hardest of them all on the table, and it’s not his job to sugar-coat things. “We will see very difficult events for which we as a society and as individuals are not prepared,” says the top climate expert at reinsurer Munich Re. “And we will experience even more painful things until we really do everything.”

Serious events, pain, disasters – when it comes to what is preoccupying the German economy these days, you can get to the all-or-nothing question pretty quickly, i.e. on the subject of climate change, and that’s pretty quick to Ernst Rauch. A friendly geophysicist who has been studying weather phenomena for decades and sees that things are just getting worse and worse. There may be a lot of worries in the economy, but compared to climate change?

However, in Rauch’s opinion, almost everything has already been said on the subject. The scientists have researched for years and provided their oppressive data, have watched over long periods of time how the weather extremes increased all over the world, the floods, droughts, the severe storms, from the hurricane Katrina in August 2005 in New Orleans until the floods in the Ahr Valley in July 2021. And Rauch’s employer has been working on the topic for decades, for many years as a “lonely caller in the desert”, as Rauch says. Nevertheless, of all people, this early warning and professional weather analyst says a very remarkable sentence: “More reminders and further studies will not get us any further now.”

A sunny afternoon at the end of October, the automatic sun blind in the small conference room at the Englischer Garten in Munich hums and purrs, makes clack, clack, goes up, down, up again. Climate change outside, air conditioning inside. On the table is a thermos of coffee, small packets of milk and sugar, next to it are a few packaged snacks. Corona compliant, says Rauch, and sits down at the conference table. He came to a conclusion after so many years, and it works like this: The best and most dramatic predictions are useless if people don’t take them seriously and say that the weather has always been crazy. Or they don’t want to pay the price for it and prefer to continue as before. And that is why, after the natural scientists, it is now the turn of the social scientists, the “people who understand society”, who can “introduce the topic into society and solicit support for the solutions”.

No longer a problem of knowledge, but above all a question of implementation. Of course, that doesn’t mean that someone like the geophysicist Rauch should just stop working. Hey sociologist, please take over climate change and the future of the earth now, I’ll be gone! It’s not that easy, there is too much at stake here.

The higher the risk, the higher the price: that’s how it works with insurance

When it comes to the climate, for a reinsurer it is also about billions of euros and dollars and the question of how anything can be planned in the economy when forest fires, storms and floods increase from year to year. Millions of investments in new locations? Rauch’s team evaluates risks and their probabilities. Weather extremes will continue to increase in the next few years, he says, and that is why the business of covering natural risks is a “growing field”. The only question is whether everyone can pay for it in the end. Because that’s how it works with insurance: the higher the risk, the higher the price.

Especially since, as I said, climate change is perhaps the biggest of all the problems. But not the only one.

Stockdorf, half an hour south of Munich. The headquarters of the automotive supplier Webasto is located here, where the big city is gradually fraying into the village. The company builds car roofs, among other things, and like so many other suppliers, Webasto is currently facing a problem: the international supply chains are no longer working properly, which is why important materials have become scarce. “Even before Covid, the supply chains were very sensitive and sewn to the edge, “says Webasto boss Holger Engelmann.” Now this global supply chain has gotten a huge blow that is now meandering through the world. Small regional failures can be felt all over the world. “When the once so carefully orchestrated globalization gets out of step, the shock waves land in Stockdorf.

A large, bright conference room, the view is into the green, and Webasto’s chief buyer Yanni von Roy-Jiang explains how she set up a working group in January that checked every day where materials were missing. “I’ve never seen anything like it, and certainly not that it lasts so long,” she says. Quite likely that your working group will have a lot to do next year as well. Which means something like: no end in sight.

Everyone has problems with the lack of chips. The washing machine manufacturers, the toy makers, and also the car manufacturers who have had to stop their production lines for months because nothing works. But they make ends meet because in the end it’s all a question of margin. The demand is there, delivery times are long, there are hardly any discounts, and those who have a few chips prefer to equip their more expensive limousines with them. Anything goes. With smaller suppliers at the end of the food chain, however, things are different: If there is a lack of semiconductors or industrial metals such as copper, zinc or aluminum, this can quickly become existential for the smallest in the industry. With a turnover of 3.3 billion euros and more than 14,000 employees, the family company Webasto is one of the bigger ones in the industry. In order to get through the crisis and somehow maintain production, von Roy-Jiang regularly sits with her people. “The topic of supply chains drives me every day,” she says. “Steel, aluminum, plastic – there is currently hardly anything available at a certain point in time and at earlier conditions.” Price increases of 55 percent for aluminum or 100 percent for steel? Quite normal during these weeks. If many initially thought that it would stop quickly, then they were definitely wrong.

“We are currently realizing how complex and fragile the old order has become, “says Christian Bruch. When the 51-year-old became head of the energy business Siemens Energy, which was spun off from the Siemens Group, in May 2020, everyone was in the home office. Perhaps it wasn’t the ideal time to be the boss of a company with around 90,000 people, and it wasn’t long before the manager realized: It’s not just the human contacts that are missing, sometimes there is also one missing for a project a few thousand tons of steel that doesn’t arrive on time. Bruch has plenty of other problems. He took over a division that accounted for 40 percent of Siemens’ total sales before it was spun off. Job cuts, but also wind turbines, electrolysers and hydrogen. At Siemens Energy, Bruch has to put down what is currently on the agenda: the coal phase-out, the dismantling of Tr eibhausgasen, the energy transition.

Sometimes the boss asks the employees whether they will still have a job at their location in five years’ time

Shortly before the World Climate Conference in Glasgow, Bruch is sitting in an office in Munich’s Neuperlach-Süd district and says that he is actually rather skeptical. Glasgow shows “that the interplay of states on complex issues no longer works smoothly”. It is now industry’s turn to accelerate change. “One should not underestimate that companies can do a lot and achieve something.” Drastically expand renewable energies, get the coal phasing out on time – the person who is calling for this is the head of an energy company that has its roots in the middle of the century before last. That is precisely what is remarkable. And of course all of this has its price. For Siemens Energy. And for society.

Sometimes employees ask him whether they’ll still have a job at their location in five years’ time. Strictly speaking, the boss can’t guarantee much. “We have asked a lot from our employees in the last 15 months,” says Bruch. “Lots of changes, no standstill – that is incredibly exhausting.” You now have to explain a lot to people, and you can become even better at explaining things.

But there is also the world outside, there are the uncomfortable sides of the major restructuring. Sustainability is not for free, and higher prices can quickly become a social explosive. “We have to discuss how we can organize this redistribution without leaving people behind,” said the manager. For someone like him who makes millions – no problem. “I have a good salary and can afford higher electricity costs. But that doesn’t apply to everyone.” In this respect, Bruch and Siemens Energy are something like the world on a small scale: Big discussions come to everyone.

Which brings you back to the beginning with Ernst Rauch, the scientist from Munich Re, who knows that you have to talk a lot now, with everyone. And he says something very special, at least for a Dax manager: “The young people from ‘Fridays for Future’ are simply more efficient and effective in their communication than people from science and business used to be. “He is not afraid of the future, it is not too late he has become in the past few years, then he thinks about it for a moment and says: “Riding more bicycles and less cars alone will not be enough.”