Climate change presents complex challenges for businesses, so how can sustainability teams move from surviving to thriving in the low-carbon economy?
At the end of July, the UK government’s net-zero strategy was found to be ‘unlawful’ in the High Court, marking the latest high-profile litigation case to find in favour of climate activists. This sort of action is neither new nor unique and the impact of cases like this reaches beyond constitutional reform and far into the business world.
The low-carbon economy is complicated. Litigation is just one test that can await businesses as they face down the very real and very current challenges presented by climate change. The risk of inaction can lead to customer attrition, supply-chain breakdown, reputational damage, direct legal action and, ultimately, serious financial impact. It has never been more important for companies to move the marker from merely surviving amidst these complex challenges to unearthing the opportunities and thriving as a business.
Taking in the view
Often overlooked, transition risks, business-related risks that follow social, economic and political trends related to a low-carbon and more climate-friendly future, are, by their very nature, more near term – presenting a significant challenge for businesses, now. We live in a fickle, fast-moving world. Consumer sentiment ebbs and flows on the rising tides of popular opinion; investors decide which companies dive, survive and thrive; and reputations can be wiped out with one extreme event. Often presented as a cost-prohibitive challenge, climate action actually gives companies an opportunity that business leaders can’t afford to miss.
Analyses carried out by Risilience found that the valuation of businesses failing to take climate action could be eroded by as much as 30% over the next five years, depending on company profile and how aggressively they tackle climate change. As climate-related legislation increasingly takes hold across the globe; from the proposed European Union’s Corporate Sustainability Reporting Directive (CSRD) to the UK’s International Sustainability Standards Board (ISSB), the temptation to view climate change as a problem for tomorrow’s enterprises has been eclipsed by the reality that it is a very real problem for businesses today.
A look ahead
Detailed analysis for where these pressures are likely to erode the value of the business shows where new opportunities can be found. The low-carbon economy is competitive and plays to the changeable nature of consumers, who can be highly discriminating and prone to switching brands according to how sustainable they believe the company to be –an opportunity for early movers to gain market share. We can take the lesson from the nineties when early changemakers saw the Internet economy coming.
Today we have the green economy, which is gaining momentum, so the choice is whether to grasp the opportunities that it creates or wait until it erodes your business model and, ultimately, the bottom line. Key actions involve upgrading manufacturing technology in processing plants to reduce emissions; substituting raw materials and suppliers for lower-emission alternatives; changing transportation and distribution fleets to electric vehicles and shortening the distribution footprint.
Finally, companies are finding that motivation and changing attitudes in their management and wider workforce are key to bringing about internal change from within an organisation. Internal incentivisation, shadowcarbon pricing and mandating changing practices, such as updating corporate travel policies, are all ways to instil a culture that seeks to prioritise climate action at both the strategic and operational levels of the business. To develop a comprehensive strategy, each of these initiatives needs to be evaluated for the volume of emissions that are saved relative to the costs and effort required, in terms of capital investment budget and operational change; and the resulting benefits and opportunities that the initiative provides for reducing risk.
A net-zero planning framework is essential and starts from a detailed understanding of the business and where its emissions come from, combined with detailed analyses of the costs and benefits each proposed initiative, respectively, requires and delivers, as part of an integrated strategy.
Data for a fresh perspective
A successful net-zero strategy is founded on three elements; climate-change science, business transformation and technology. When combined, and driven by data, all three provide sufficient visibility and operational efficiency such that the business can progress and thoroughly prepare for all risks that lie ahead. This same data will also be needed to seek and acquire buy-in from the top to ensure the value of acting, and fiscal damage for failing to, are highlighted to decisionmakers and budget holders in the business.
In addition, as we know, actionable insights are essential for driving momentum and evolving strategies. Organisations should seek risk analytics to shape their net-zero journey and truly understand the internal and external pressures that come from their customers, competitors, board and legislators –challenges that don’t lie in the future but sit very much in the here and now.
October 5, 2022