- Climate change threatens to transform the world as we know it and is shaking up the current economic landscape
- Regulators and governments around the world are being pushed to disclose their carbon emissions
- Adapting to climate-induced changes is essential for companies to survive
- A green revolution is underway, and climate-resilient organizations are already at the forefront of tomorrow’s green economy
Stark warnings about the impact of climate change are all around us. From extreme weather events to supply chain disruption and the displacement of people from their homes, there can be no mistaking the effects human activities have had on our planet.
Industrialization, globalism and business operations have played their part in bringing about the challenges the world is currently facing, but could they also be part of the solution? With investors, activists, and consumers more focused than ever on sustainable, greener alternatives to traditional operating models, could businesses hold the key to combatting climate change?
A new business paradigm shift
As the effects of climate change become more pronounced, major environmental, social and economic changes will follow, leading to a global community that will call for profound changes in business practices Companies around the world will need to respond to and adapt to the various challenges of climate change, such as public opinion, investor sentiment, competitor behavior and new regulations imposed by authorities.
For companies to achieve their transition goals, they will need innovative and disruptive solutions. In light of this new reality, they may consider transforming their business models, or be forced to do so.
What about the bottom line?
Natural disasters cost the world $343 billion in 2021 and will cost businesses up to $1.3 trillion by 2026. However, according to the Global Commission on Adaptation, investing $1.8 trillion globally in five areas could unlock $7.1 trillion in benefits by 2030.
If executed well, efforts to build business resilience can yield many benefits. But how can firms get started?
- Time’s up on climate disclosures
Leaders of the G7 countries committed at the June 2021 summit to achieving net zero emissions by 2050. This commitment included introducing mandatory reporting based on the Task Force on Climate-Related Financial Disclosures (TCFD) framework, whose main focus is to report on an organization’s impact on the global climate. What does this actually mean for businesses?
The TCFD recommends every organization effectively disclose their climate-related risks and opportunities. Such transparency allows for better decision-making, but also increased accountability. In this way, businesses can more easily identify problem areas and take steps to improve.
Governments and climate advocates are currently exploring ways to pressure private sector companies into reducing their emissions and accelerating their search for innovative alternatives to polluting energy sources. This may include implementing new policies and carbon taxes at levels high enough to browbeat organizations to change.
Yet, according to the CDP, nearly 17,000 organizations worth $21 trillion are still failing to disclose their environmental performance. While these companies have thus far been able to fall under the radar, they should be under no illusion: understating or hiding environmental impacts will have serious consequences. The 2017 ‘Dieselgate’ scandal was well-publicized and cost Volkswagen about $20 billion in civil settlements for fraud and concealing their carbon emissions.
In early 2020, California-based utility company PG&E filed a reorganization plan for the second time in 20 years. Pacific Gas and Electric’s (PG&E) was forced into bankruptcy when faced with more than $30 billion in legal claims against it for its alleged role in the deadly 2018 Camp Fire, which was triggered by faulty PG&E equipment. This is considered the largest climate-related corporate bankruptcy in history, but may not be the last.
- Adapt or die: climate impacts are inevitable
There is no doubt that we are currently only experiencing the tip of the climate change iceberg – studies have shown that the world will inevitably face far worse climate-related disasters in the near future. While initiatives to reduce greenhouse gas emissions are an immediate concern, they are also necessary as part of a longer-term strategy. Businesses are well advised to focus their efforts on facilitating climate change adaptation measures as soon as possible.
Leveraging business innovation, technology and reach will be critical to achieving the scale and pace needed to generate an impact. Companies are in dire need of building resilience, both for their own good and for the world at large. Indeed, the more they succeed in mitigating climate risks, the less vulnerable they will be to disruptions such as resource scarcity or adverse market developments.
Liberty Steel in the UK, for example, has developed its business model around recycling steel scraps for the local market and creating new steel, which had previously been imported. Easy access to materials through recycling not only reduces steel waste, but also allows Liberty Steel to nearshore its manufacturing operations, thereby reducing the CO2 emissions generated by inbound logistics.
The Danish energy company Orsted, formerly known as Danish Oil and Natural Gas (Dong), was once one of the most coal-intensive energy companies in Europe. In a decade, it has managed to transform itself into the world’s most sustainable energy company, and a global leader in the transition to green energy, shifting its business from reliance on fossil fuels to renewable energy. In 2022, the utility giant’s operating profit jumped 94% in the first three months.
Soda giant Coca Cola recently announced their partnership with the World Wildlife Fund to help protect the planet’s water resources and improve the company’s water management. This is yet another great example of a company’s efforts to address climate change both directly in its own operations and in the broader society it serves. These efforts have the potential to help both the business and local communities, while improving the company’s reputation.
- Embracing the green economy
The increasingly urgent need to transform business and build resilience is inspiring innovation in many areas: resilient water and sanitation systems, digital technologies for disaster risk reduction, drought-resistant crops, and new insurance systems are all innovative solutions that are beginning to emerge.
Green innovation opens up exciting and financially rewarding business opportunities for the future, with companies needing to find ways to replicate and scale up these innovations. The most forward-thinking companies are leading the way to a greener global economy and have turned the challenge of decarbonizing the economy into new avenues for growth.
Research shows that companies that have successfully developed effective green solutions have a much greater competitive advantage than those that have not, even though developing and converting to 100% green solutions can be expensive at first. Indeed, these companies are better able to create opportunities for themselves by creating products that capitalize on climate-induced demand, and by restructuring their operations to respond more effectively to climate issues. By 2040, at least two-thirds of global car sales will be electric, and Tesla has already begun to reap the rewards, having become the most valuable car maker in the world.
The transition to a low-carbon economy creates opportunities for efficiency, innovation, and growth that extend across all sectors. Companies can save energy and materials, meet new customer and investor needs, and improve their reputation, all by working to reduce their emissions and those of their customers and suppliers.
Climate-resilient companies have established strategies and investments to protect people, profits, assets, and supply chains, thus safeguarding their business activity in the long run. By taking action now, they can anticipate the ways in which climate change can directly affect their operations and take advantage of the new opportunities that a greener future offers.
At Mantu, we are committed to helping our clients achieve their sustainable development goals and safeguard their business activities amidst climate change. Find out more here.