Climate Change and its Impact on Businesses

Climate change has come to the forefront of global politics in recent years, with large scale protests led by international organisations such as Extinction Rebellion gaining considerable momentum. In particular, the protests at the end of September 2019 were the largest display of resistance against climate change in recent history, and were timed to coincide with the United Nations Climate Summit. This protest saw over 6 million people take to the streets in 180 countries to demand faster and stricter action on climate change. What made this movement unique was that it displayed not only the realities of climate change but it also demonstrated the widespread concern that consumers around the world feel for it. It is important to consider the impacts that this issue and the heightened awareness that surrounds it has on businesses around the world. 

Threats to businesses 

Climate change poses large and very real risks to businesses around the world. Changing weather conditions and extreme natural disasters such as droughts, floods, and hurricanes can strongly impact companies’ day-to-day operations and cause huge financial and physical damage. Such disruption was seen in 2016 when Toyota’s manufacturing factories were forced to shut down due to severe earthquakes in Japan. The change in the global climate will also trigger a shift in demand due to the drastic increase in temperatures. For example, many regions may stop requiring oil heaters and other winter supplies due to global warming. Additionally, changing weather conditions have a negative effect on the bottomline or ‘net income’. Alphabet, Google’s parent company, revealed that increasing temperatures could considerably drive up costs to cool down their data centres

Pressure from stakeholders 

Besides risks to their operations and business models, companies are also faced with considerable pressure from key stakeholders to form strategies that effectively counter climate change-related problems. A survey by Deloitte shows that most companies feel pressure to act on climate change from several stakeholders, most importantly clients, customers, and consumers. Recently consumers have been asserting their power, choosing companies that display good track records and demonstrate values that align with the consumer’s own. Thus, consumers increasingly expect companies to be socially aware and actively participate in key issues, including climate change. Consumer push is the reason that large companies like IKEA, Apple, and Nestlé have committed to fully switching to renewable energy. Besides customers, shareholders are becoming increasingly concerned with the environment-related initiatives of the companies they invest in. Hundreds of investors, representing more than $35 trillion in assets under management, have signed the Climate Action 100+ initiative, which essentially pressures the world’s largest corporations into taking tangible and stringent action to ‘curb emissions and strengthen climate-related financial disclosures.’

What can businesses do? 

With increased pressure to take action regarding climate change, what can businesses do? The first step for a business is to assess the impact and the damage that they cause to the environment. Next, companies can set targets to cut down carbon emissions in line with the targets set out in the 2015 Paris Agreement, which seeks to limit temperature increase and reduce the impacts of climate change. However, a report by Deloitte notes that most companies are not taking the already evident consequences of climate change into consideration while formulating policy, and are not taking any substantial action to counter the problem. Despite this, movements like the Extinction Rebellion, with their aim to hold businesses accountable, are a reason for optimism- businesses may finally begin to consider climate change while thinking about core strategy.

Jhanvi Ohri

Jhanvi Ohri is a BSc. Business Management graduate from King’s College London and current MSc. Marketing student at the London School of Economics and Political Science. 

The featured image (top) is by Markus Spiske on Unsplash.

Bibliography

2016. Unfccc.Int. https://unfccc.int/process/the-paris-agreement/status-of-ratification.

‘About Us’. 2020. Climate Action 100+. Accessed March 9. https://climateaction100.wordpress.com/%20about-us/.

Coppola, Michaela, Julain Blohmke, and Thomas Kirck. 2019. ‘Feeling The Heat?’. Deloitte Insights. https://www2.deloitte.com/us/en/insights/topics/strategy/impact-and-opportunities-of-climate-change-on-business.html.

Folk, Emily. 2018. ‘How Climate Change Will Affect Businesses’. Renewable Energy Magazine. https://www.renewableenergymagazine.com/emily-folk/how-climate-change-will-affect-businesses-20181109.

Plumer, Brad. 2019. ‘Companies See Climate Change Hitting Their Bottom Lines In The Next 5 Years’. Nytimes.Com. https://www.nytimes.com/2019/06/04/climate/companies-climate-change-financial-impact.html.

Ruggeri, Amanda. 2017. ‘How Climate Change Will Transform Business And The Workforce’. BBC. https://www.bbc.com/future/article/20170705-how-climate-change-Could-transform-the-work-force.

Schiano, Salvatore. 2018. ‘Climate Change Is Transforming Business’. Forbes. https://www.forbes.com/sites/forrester/2018/10/11/climate-change-is-transforming-business/#5ce2f73b2f47.

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