Climate change impacts are becoming more visible, and through comprehensive business sustainability training, leaders, investors, and philanthropists can better understand and address the associated risks. Climate change brings about physical and transitional risks that will impact investors. Risk management is important, but it is also vital for businesses to assess the potential opportunities for taking climate action.
These opportunities span cost management, new revenue opportunities, and capitalising on behaviour changes. Businesses that wish to thrive in the future green world will have to navigate challenges but also embrace the opportunities. Keep reading to learn about the challenges of global environmental change for businesses and the various climate opportunities.
Challenges of climate change
Climate change presents an array of risks for businesses. Companies considering the ways the environmental emergency may affect their business should consider the risks that fall under three primary categories: transitional, liability, and physical.
The transitional risks for businesses derive from the potentially higher business costs. These costs will rise due to new laws, policies, and other various regulations that have been created and implemented to address the warming climate. These risks can also arise from changes in consumer trends and technologies. As society changes its view on ethical business practices, these risks can also lead to reputational risk.
Additionally, as industries move away from activities that drive climate catastrophe, they risk being left with stranded assets. In other words, assets whose value has deteriorated, like property, equipment, or a portion of land. A good example of one industry that is open to transitional risk is the energy sector.
The push towards an energy transition, aiming for sustainable energy sources and heightened energy security, is prompting governments to shift to renewable energy and compelling energy producers to strive for net-zero carbon emissions. This transformative movement also places the mining sector under the spotlight, as it is significantly exposed to the implications of this global shift.
Policies that introduce carbon pricing could put precious metal mining at a financial risk. The adverse impacts of mining on the environment are also becoming a reputational problem for companies operating within this sector. Investors are becoming increasingly conscious and apprehensive of backing these businesses due to the chance of reputational harm by association.
Liability risks come about due to a failure to adapt to, disclose, comply with, or mitigate, with changing regulatory and legal expectations. Advances in attribution science, changing public sentiment, and evolving legal disputes have resulted in climate litigation increasing across the globe.
This is also being pushed due to a greater focus from investors and regulators requesting to make sure businesses comply with an ever-changing regulatory landscape and provide necessary disclosures. Businesses that pollute are those that are most likely to experience potential litigation.
They are the obvious ones, however, businesses that fail to think about future climate change when creating their services and products are also exposed to potential litigation. For example, property developers or structural engineers who do not think about the increased intensity of rainfall in the creation of draining technologies and systems.
Arguably, the most obvious risks associated with the environmental crisis are those physical risks. In other words, immediate threats that derive from the physical environment. For example, hurricanes, wildfires, flooding, drought, and other various natural hazards that are being driven by the changing climate.
These natural hazards can cause physical damage to property, critical infrastructure, and of course, people. According to the World Bank, there are roughly 1.8 billion people (23 percent) of the global population who are directly exposed to flood depths over 0.15 metres in a 1-in-100-year flood event.
Simultaneously, WHO reports that 700 million people are at risk of being displaced by severe weather events by 2030. These events are already impacting businesses across the globe. In 2022, major weather events cost the worldwide economy $313 billion. Just $132 of these losses were covered by insurance.
One example of a sector that is particularly exposed to physical risks associated with climate change is the agricultural industry. Weather events like drought and flooding can present a risk to both livestock and crops. Extreme heat or extreme cold can also have adverse effects on crops and livestock.
The leisure industry is another example but one that is less obvious. Ski resorts, for instance, are witnessing shorter seasons as temperatures rise. The rising temperatures are reducing snowfall. Australia, Turkey, and the U.S., for example, are losing tourism income due to wildfires. These wildfires are making popular hiking areas unsafe for tourists to visit. Research has estimated nearly all U.S. ski resorts could see a 50 percent shorter season by 2050 and up to 80 by 2090.
Opportunities for businesses that act on climate change
Climate change is traditionally discussed solely as a significant risk, however, it is also a business opportunity. The low-carbon transition creates opportunities for growth, innovation, and efficiency, three important elements for any thriving business.
Businesses can save material and energy costs, enhance their brand image and reputations, meet customer needs and demands, and better attract and retain talent. Beyond this, they can work on reducing their ecological footprint to protect and save the planet. Below are some of the opportunities for businesses that act on climate change explained in more detail.
Behaviour changes mean increased efficiency
The first major opportunity for businesses that prioritise and take climate action relates to behaviour changes. COVID-19 imposed many changes in lifestyles and working arrangements. These changes created opportunities to boost green efficiency savings. For instance, shifting to remote or hybrid working reduced office use and energy costs, and travel. In saying that, more fundamental changes in attitudes are occurring.
More people are deeming climate change a serious problem and are making changes in their lifestyles. Businesses that choose to capitalise on these behaviour changes and attitudes could improve brand loyalty and increase market share amongst eco-conscious customers. During the pandemic, there was more focus on supporting local and sustainable brands. In addition, strong corporate environmental performance has also been linked with attractiveness to talent and increased staff satisfaction.
The low-carbon transition will also create revenue opportunities because it is creating demand for new environmentally friendly services and goods worth trillions of dollars across all industries. For instance, the transportation industry has seen major growth in zero-emission vehicles. Bloomberg estimates electric vehicles will account for 28 percent of worldwide passenger vehicle sales by 2030.
What’s more, this year, Tesla became the most valuable car marker across the globe. The green economy is already worth $1.3 trillion in the US and is growing at more than 20 percent annually. With all of this in mind and the increased uptake of sustainable products and services, it’s clear the green economy represents significant revenue opportunities for forward-thinking, eco-conscious businesses.
Better manage costs
Building a greener business also presents an opportunity to better manage costs and resources. Businesses with sufficient capital expenditure flexibility to make sustainable investments can lower their costs, even at a time when every cent counts. In other words, green operations are lean, more efficient operations. Research has reported that European corporations are recognising major operating cost savings from comparably modest spending on emissions reductions. Additionally, more sustainable operations can decrease capital costs.
This is due to rapid growth in green lending and sustainability-linked lending. Green lending refers to proceeds being tied to certain low-carbon projects, and sustainability-linked lending is where borrowing costs are connected to sustainability performance but with flexibility as to how the proceeds are utilised. Both offer new opportunities to access cheaper finance. CMS Energy, Avangrif, Xylem, and Prologis have all agreed to new credit arrangements with interest rates connected to sustainability performance.
Summary – how can businesses respond to climate change?
Responding to climate change is vital for the protection of our planet and livelihoods. In addition, acting on climate also presents many opportunities for businesses. There are many ways businesses can respond to and address the climate crisis. Firstly, they can raise awareness of the environmental issues we are currently facing to educate their audiences and drive them to act. In this, they can also share what they are doing to tackle these individual problems.
Businesses can also minimise business travel and unnecessary trips. For instance, implementing a hybrid workplace and limiting trips abroad to only when needed. Another way businesses can act sustainably is by engaging like-minded, eco-conscious suppliers. Businesses can contribute to environmental protection by partnering with forward-thinking suppliers. Cutting energy consumption is an additional way businesses can have a positive impact on the planet.
Connecting a sustainable supply chain with decreasing dependence on natural resources, efficient production, and investing in recycled materials can make a real difference. These are just some of the ways businesses can address the climate crisis and embrace the associated opportunities. Find out more about how to build a sustainable and ethical organisation by enrolling in one of business sustainability courses today. Our courses are practical and accessible and help businesses, big and small, to make sustainability part of their DNA.