With major regulators making increasingly direct and clear statements about directors’ liability relating to the management of climate change risks, the “unforeseen” excuse is no longer going to cut it. In recent months major Australian regulators the RBA, APRA and ASIC have made it clear that the implications of climate change must be effectively considered in corporate decision-making.
The risks range from the obvious, such as increased physical asset exposure to the effects of extreme weather and the impacts of rising sea levels, to the more subtle, such as increased supply chain costs should material greenhouse emissions pricing be imposed or declining demand for an organisation’s products if low-carbon substitutes become cost effective (such as is starting to occur with renewable energy generation and electric vehicles).
For food producers, potentially declining agricultural yields in one location given changing temperature and precipitation patterns could potentially be offset by switching production to other geographies, though this approach carries other risks.
As evidence of the deleterious impacts impacts of climate change; its anthropogenic origins; and the liberal economic policies that have turbo charged it in recent decades permeates ever-more into the mainstream consciousness, another business risk is that left-leaning groups will gain more political control and may institute significant regulation to arrest further environmental degradation. This could adversely impact a wide range of businesses whose externalities are not priced into their products.
Even if this doesn’t occur at a political level, there are signs that communities have had enough, with dozens of grass roots campaigns to lobby change from organisations associated with various forms of pollution. Plastic waste is perhaps the most visible currently, with communities achieving single use bag bans in many jurisdictions and some announcing the phasing out of straws and single use containers. In terms of greenhouse emissions there are multiple community protest actions against specific coal, oil and gas projects, alongside a growing call for governments to ban new coal investment while accelerating moves to curb and reduce emissions.
And even if your business appears to have nothing to do with energy, transportation or agriculture it may not be immune from climate change. Coastal tourism, alpine sports and banks with exposed loan portfolios are three such examples, not to mention infrastructure managed by local and state governments. A few years ago there was even a backlash involving a million signature petition against beloved toy maker Lego for its co-branding deal with Shell, at a time when the oil major was planning to drill in newly accessible Arctic areas.
On the other hand, for some companies and industries, climate change also presents an opportunity. Adaptation to the many effects of a changing climate and rising sea levels; the decarbonisation of energy, transportation and industry; and measures to clean up the environment are likely to create value for many innovative organisations, particularly those who can demonstrate an authentic brand story.
Talk to Adaptive Capability today to understand the risks and opportunities of climate change to your business.
