- October 10, 2022
- By Joshua Reid
- Advice , Politics
- adapt , awareness , climate , climate change , environmentalism
How Does Climate Change Affect a Business?
Climate change has been a constant topic of discussion on the public and international level. Whether it’s how countries could ensure the crisis doesn’t grow, or whether countries should switch to a renewable energy source. Climate change has been a contentious political issue. Despite the politics surrounding climate change, CEOs, managers, and supervisors could also worry about how climate change is affecting their business.
How does climate change affect a business’ ability to interact with employees and their clients?
Business leadership may wonder what measures they should take to help rectify climate change. According to a 2019 article by Deloitte Insights titled “Feeling the heat?: Companies are under pressure on climate change and need to do more,” authors Michaela Coppola and Thomas Krick conducted a survey of 1200 CFOs (Chief Financial Officers) on what their companies are doing about climate change. Many of the proposed measures companies took resulted in short-term cost savings, but the CFO’s responses also reveal:
- Increased pressure [on businesses] to act from a broad range of stakeholders.
- A company’s climate responses focusing primarily on measures that have a short-term cost-saving effect.
- A thorough understanding of the climate risks is rare.
- Few companies have the governance and steering mechanism in place to develop and implement comprehensive climate strategies.
- Targets for carbon emissions reductions are usually not aligned with the Paris Agreement.
As shown in the responses above, even though businesses might focus on a different aspect of climate change, particularly around short-term cost savings, climate change still affects businesses. By placing pressure on businesses to act, climate change could affect how businesses meet the needs of their clients. It can also generate methods that aren’t short-term, but long-lasting. According to the Deloitte article, there are “multiple impacts of climate change on companies.” (Coppola and Krick) Some of the impacts climate change has had on businesses include:
- Companies are exposed to fast-rate transitions due to the societal response of climate change. (This could take the form of changes in technology or undermine the viability (success) of existing products and services.)
- Potential liability for emitting greenhouse gases.
However, climate change doesn’t just affect a business in a negative sense. In the article, Coppola and Krick note that climate change offers businesses opportunities including: Companies aiming to improve their resource productivity (i.e. increasing energy efficiency) thereby reducing costs, spurring innovation and the creation of new products and services which enable carbon reduction, and enhancing the resilience of their supply chains (i.e. reducing reliance on profit-volatile fossil fuels and switching towards renewable energy.) For Coppola and Krick, together, these three business opportunities could foster competitiveness and unlock new market opportunities.
In an article by McKinsey & Company titled “Confronting Climate Risk” the McKinsey Team argue that the only way stakeholders “can address the risk posed by climate change” is “if they understand it clearly and see the nuances that make it so complicated to confront.” For example, the meat, food, energy, and car industries could address risks posed by climate change because their industries are either affected by climate change.
For the McKinsey Team, the physical climate risks (like droughts and wildfires) have seven factors that could show how climate change affects businesses like nonstationary. According to the article, “nonstationary” refers to replacing a stable environment with one in constant change. The article notes how financial markets, companies, governments, and individuals have made decisions within a stable climate.
“Replacing a stable environment with one of constant change means that decision making based on experience may prove unreliable.”
“Confronting Climate Risk”
Companies and communities are already adapting to the changing climate. However, the pace and scale in which that adaptation occurs have to accelerate. Climate change’s effects on the economy also affect businesses; for example, the insurance and housing companies. But, as the article notes, financial and economic-based companies do well in a stable climate, but how will these businesses adapt to the shifting climate?
“Climate hazards can undermine livability and workability, food systems, physical assets, infrastructure services, and natural capital. Some events strike at multiple systems at once.”
“Confronting Climate Risk”
Sources
“Confronting Climate Risk.” McKinsey & Company. 28 Jun 2021.
Coppola, Michaela and Thomas Krick. “Feeling the heat?: Companies are under pressure on climate change and need to do more.” Deloitte Insights. Accessed 28 June 2021.
Photo by Matt Palmer on Unsplash
