Investors, business owners, and individuals alike are obligated to address significant sustainability risks as the effects of climate change become more readily apparent. Overall, the quest of reaching zero emissions at a time when the world is staring at the prospect of a climate calamity is significant.
Deciding to take serious measures to power a more viable system forward ought to be the imperative of businesses, for the future of our planet. Prior to establishing the steps of how to respond to the climate crisis, all businesses should cultivate awareness among employees and leaders in order for them to comprehend the multiple facets of climate change. Hence, accessing an online climate change course is an excellent choice when navigating potential business risks and opportunities that may emerge.
Uncovering Physical & Transition Risks
Global and local authorities are placing a greater emphasis on businesses’ need to better manage the financial risks posed by climate change and increase the number of disclosures they make addressing climate risk exposures. In this context, the owners of businesses all across the globe should consider the influence that climate change will have on their business models, risk management, and governance, and they should also develop new strategies and processes to cope with the danger posed by climate change.
There are three critical developments that could be helpful in this regard: a transition to an economy with reduced energy consumption per unit of GDP; a superior utilisation of energy via greater energy efficiency; and a greater use of energy sources with lower carbon emissions, such as gas, renewable energy, or nuclear power. The delicate balance will be determined by factors such as price, assurance of supply, and general approval, and it is quite clear that diverging points of view might exist on the optimal next step to take.
Upcoming physical risks entail that the value of financial assets may decrease, liabilities may grow, or new industry-wide hazards may emerge due to the increased severity and frequency of severe weather events attributed to climate change. For instance, a rise in the frequency of natural catastrophes, an increase in droughts and floods, as well as a lack of water or rising sea levels are each posing a danger to a number of industries.
Businesses unable to make necessary adjustments in a timely manner run the danger of encountering various challenges, including failures of their business models, higher capital expenses, reputational harm, and financial penalties. Furthermore, they may incur potential financial losses due to the transition to a low-carbon economy.
Deploying the Opportunities Brought by Climate Action
Climate change is often brought up in boardrooms as a significant threat; nevertheless, it also presents a significant opportunity for businesses. The shift to low-carbon presents potential for efficiency, innovation, and development that extend beyond high-carbon industries like energy and transport to other sectors. These opportunities may lead to increased profits, efficiencies, and innovations. When businesses work to cut their emissions as well as the emissions of their customers and suppliers, not only can they save money on the costs of energy and materials, but they can also better meet the needs of new customers, improve their reputations, and more effectively recruit and keep talented employees.
Some figures published by Arthur Little in 2021 indicate that by adapting to climate change, businesses might seize opportunities worth $26 trillion and generate 65 million more positions in employment by 2030. Regarding climate change, there is no one-size-fits-all strategy. Each company’s approach will be unique to its industry and should align with its overall strategy. In this pursuit, companies must analyse and limit their exposure to climate-related environmental and economic disruptions.
Recognizing climate-related risks before they materialise enables businesses to plan, finance, and implement risk management measures at reduced costs, higher reputation-related returns, and advantages in terms of long-term business resilience and profitability – in comparison to a wait-and-see strategy. This is because understanding the risks allows businesses to plan for and manage climate change before it actually happens. A flourishing green finance industry offers a wide variety of options for transition risk reduction, and improved models that may assist firms in managing physical hazards are becoming more accessible.
Bottom Line
Without a doubt, the global commercial environment is undergoing rapid transformation, with new threats and possibilities becoming intricately tied to the rising temperature of our world. There will be some who succeed and those who fail. Businesses that begin to incorporate climate risk assessment and management practices sooner rather than later have a better chance of thriving in the coming decades.
References
Arthur Little, Capturing Business Opportunities Arising from Climate Change https://www.adlittle.com/en/insights/viewpoints/capturing-business-opportunities-arising-climate-change