As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
As our physical climate changes, so will consumer behaviours and government policies. For a business to survive – even thrive – in this shifting environment, it needs to develop a strong climate strategy.
When thinking about how to future-proof your business against climate change, there are two main risks to consider.
What are the risks?
The first is the physical risk. More frequent extreme weather events and rapid environmental changes can wreak havoc on supply chains, business sites and raw materials production. Once fertile lands could become barren, wiping out an entire region’s production capabilities, while severe storms and floods could destroy valuable infrastructure.
The second risk relates to the impacts of climate-change policy and public opinion. As governments continue to advance their net-zero ambitions, we’re likely to see tougher environmental regulations, heftier carbon taxes, and a shift to more sustainable business practices.
Meanwhile, eco-conscious consumers will vote with their wallets, investing in brands with good green credentials.
To future-proof your business you need to understand where you’re exposed to these risks and then navigate them effectively. That’s where having a climate strategy comes in.
How to develop a climate strategyWhen it comes to developing a solid climate strategy there are three main steps: identify the risks, understand them, and mitigate them.
IdentifyFirst of all, you need to audit your business to identify where you’re exposed to climate risks. Look at your physical premises, your overseas operations, your supply chains. Consider your carbon emissions and exposure to unfavourable policies. Where and how is your business exposed to those two risks: the physical impacts and the policy impacts?
UnderstandOnce you’ve identified the at-risk elements of your business model, investigate further. Learn more about the particular parts of your business that are vulnerable. Assess precisely what the risks are, then look at how likely they are to take place, when they could happen and what the costs could be.
As you learn more, you’ll get an idea of which risks need to be prioritised and how you can maximise the impact of your mitigation efforts. You’ll also naturally start to identify solutions to these potential problems.
MitigateOnce you know what risks you face, it’s time to work on future-proofing your business against climate change.
Perhaps your business is particularly carbon-intensive and you find that the best long-term decision is to accelerate your move to greener technologies. Maybe you have a lot of asset value locked into one high-risk area, or you need to diversify your supply chains.
Whatever your specific risks are, you now have the information you need to act in a way that’s purposeful and proportional. What do you need to fix now, what can you work on, and what are your plans for the future?
Of course, it’s good to keep this strategy under review. Set specific goals and monitor the progress, and re-evaluate your risks and strategy as the business environment evolves.
One element worth mentioning on its own is carbon pricing. Many countries and trading blocs, including China and the EU, have rolled out or plan to roll out carbon caps and emissions trading systems. In some instances, this will initially apply to energy-intensive industries, but the scope could broaden.
So, even if you’re not currently affected by this, it could be a wise move to adopt an internal carbon pricing scheme. This entails deciding on your own price per ton of carbon and then monitoring your emissions. Not only will this incentivise your business to be efficient but it could also make the inevitable energy transition far smoother.
Building resilienceWhile creating a climate strategy might feel like risk mitigation, it’s best to look at it as an opportunity. This is a good chance to develop overall resilience and find advantages in adversity. With an effective climate strategy, you can get ahead of the curve and position yourself for success in the future.
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