In 2017, scientists reported that global average temperatures had breached the 1°C warming mark beyond pre-industrial levels. Soon after this ominous landmark was passed, the Intergovernmental Panel on Climate Change (IPCC) published three special scientific reports focused on separate but deeply linked fronts of climate change, namely the realities of 1.5ºC warming, climate change on land, and the status of oceans and the cryosphere, each of which unveiled new and terrifying limits to which climate change is like to push the earth system and human existence. Earth’s rate of warming is expected churn on at about 0.2°C per decade if the business as usual scenario prevails.
Most projections of climate change impacts extend several decades into the future, and so regularly fail to capture public attention unless they lend themselves to some apocalyptic conclusions. But these miss out on the fact that the world is very much in the midst of climate change’s escalating realities. Some of the immediate impacts of a changing climate are in terms of more extreme weather such as droughts and floods, rising sea levels and diminishing Arctic sea ice, declining glaciers and increase in the frequency and severity of cyclones. Just in the last two weeks, India has seen two cyclones, one on each coast. Earlier Cyclone Amphan caused a great deal of destruction to life and property in Odisha, West Bengal, and neighbouring Bangladesh. Just a couple of days ago, Cyclone Nisarga barrelled into India’s west coast, missing financial capital Mumbai, which is already in the grips of the novel coronavirus pandemic, by a hair. Both cyclones have been highlighted for their unusual development, and slot right into scientific projections of an increase in cyclonic activity in the Indian peninsula as the ocean warms. These events will be more frequent and are called the “new normal”.
The big question is, if this is going to be the order of the day, how are businesses going to be impacted by it? Businesses are very susceptible and sensitive to any change in the external environment as they directly affect human and capital resources. Climate led extreme events slow the economy down, affecting businesses directly and indirectly. So, what can businesses do about it? While climate impacts are indeed real, the crucial aspect in how economy will cope seems to be the recognition of new avenues that open up as the world scrambles to cope with a warming world.
Here, I provide a brief guide with some essential steps for businesses to cope with the imminent monumental changes.
Step 1: Acknowledge that there is a problem
The first step is to acknowledge that climate change exists and understand how it impacts businesses. The risks involved could be direct or indirect. Climatic events may disrupt the value chain or demand network leading to loss of profit or damage infrastructure and markets. This challenge is aggravated by the varied and uncertain predictions of changes in temperature, precipitation patterns, extreme events etc. Therefore, a rapidly changing climate could bring in uncertainties which are not good for businesses. Acknowledging and mapping potential risks will be key to managing businesses of the future. Climate realities seem to have forced economy to take note, and the first steps in acknowledging associated risks seem to be underway as numerous asset management firms, sovereign funds and private investors have started pulling away from fossil fuels and carbon-heavy projects in recent years. As it happens, business-as-usual is not good for business in the times of climate change.
Step 2: Change the business strategy to adjust to the new normal
Businesses need to handle the triple bottom line – 3 Ps– the profit, the people, and the planet with equanimity. This could be done by developing a process through which they could manage their financial, social, and environmental risks, commitments, and prospects. Innovative business strategies are needed that concentrate on activities which meet the requirements of the company and its stakeholders in real-time. This needs to be coupled with investing in the protection, sustenance, and improvement of human and environmental resources. This process is essential in aligning business objectives and strategies with the demands of the future. This steps gains added importance in vulnerable sectors such as travel, transport, automotive and tourism, which are more susceptible to climate change impacts than others. An in-house strategic analysis is needed for each business to understand and manage its triple bottom line and act accordingly.
Step 3: Be part of the solution, not the problem
Climate change is bringing challenges, but it is also an opportunity for businesses to expand and diversify to newer areas which could prove profitable while also helping mitigate the impact of climate change. Some of the sectors where companies could invest are in renewable energy, agriculture, forest produce, sustainability-linked financing, climate services, insurance etc. The other areas could be related to creating climate risk-related products, services and innovation in supply chain management which will entice consumers and shareholders. Climate risks are also opening new avenues and emerging markets which any forward-looking company can cash-in on. Global climate negotiations are asking for a policy change that will lead to producing goods and services which are less harmful to the environment. In the future, governments will be forced to act and change their policies and regulatory mechanisms to bring stringent rules and regulations for the protection of the environment. Businesses will be challenged to produce goods and commodities which are environmentally benign. These could lead to newer opportunities for businesses while being part of the solution space rather than on the other side of the fence. While change and adaptation are inevitable parts of the survivability equation, there is little doubt that early starters would be the best place to tide over the innumerable uncertainties of a world that is rapidly, and certainly, warming.