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Climate Change: How Will Business Be Affected

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EU Blog » EU News » Climate Change: How Will Business Be Affected

The effects of climate change will eventually infiltrate every facet of our lives and societies, including that of the economy. In fact, we are already beginning to see the impact of global warming on the business landscape, and we are understanding better how unfettered capitalism’s impulse toward endless economic growth has contributed to and accelerated this environmental crisis.

We can see some attempts at controlling the damage through government regulation, although scientific opinion states that these efforts are too little too late. Increased awareness of climate change is beginning to make a difference to consumer behavior, too. Finally, as the crisis worsens and weather conditions noticeably and drastically alter, businesses will face significant threats to their ongoing survival.

Government Regulation

As the big players of the business world have largely failed to respond to climate change on a voluntary basis, governments around the world have been forced to intervene and impose regulations on polluting business activity. Corporations have been obliged to invest in expensive infrastructure to reduce their carbon footprint, and the cost of doing so is often passed on to customers through higher prices.

Countries that are considered to be developed are responsible for 79% of historical carbon emissions. This means that the measures taken by their governments with regards to climate change will play a huge part in determining exactly how this environmental crisis unfolds and on what timeline.

Monitoring and Environmental Pledges

In the United States, the relationship between environmental damage and corporate activity is monitored by the Environmental Protection Agency. Corporations that cause intentional damage or who exceed the accepted amount of emissions can face civil or criminal prosecution for their offenses. More often than not, this punishment is a monetary fine.

Across the ocean, countries of the EU have committed to reducing their greenhouse gas emissions by 55% before 2030, which will require governments to closely monitor business emissions and strictly enforce environmental legislation when violations occur.

Cap-and-Trade

One controversial approach that is supposed to limit corporate emissions is “Cap-and-Trade”, an emissions trading policy that has been implemented in countries such as Australia and South Korea. Although this policy uses a licensing system to restrict the amount of pollution that a business can legally emit, companies can purchase licenses from other businesses. Critics argue that this has enabled larger businesses with a budget for licenses to largely escape making adaptations to their processes.

The environmental impact of new business initiatives must be measured to ensure their legality. Government regulation can be particularly tricky to navigate for multinational businesses which are liable to face overlapping, competing and contradictory legislation across their different countries of operation.

Changing Customer Behavior

As awareness of climate change grows amongst the general public, interest in environmentally friendly consumption practices increases. For example, IBM has reported that almost 6 in 10 consumers are willing to change how they shop to reduce the negative impact on the environment. This is echoed by the fact that 8 in 10 say that sustainability is an important consideration for them.

Interestingly, those who ranked their interest in sustainability at the highest level reported that they would be willing to pay 35% more to brands that are environmentally responsible. This, most definitely, is an economic incentive for businesses to respond to the growing demand for eco-conscious products.

“Greenwashing” Scepticism

In a bid to appeal to this value-driven audience, many businesses have rebranded themselves as environmentally aware. This, in turn, has given rise to the greenwashing phenomenon: a wave of businesses appropriating the eco-friendly label without actually adopting environmentally friendly practices. Greenwashing is a marketing approach without any real environmental impact, and customers are wary of being misled.

After many greenwashing controversies including large companies such as BP, Tyson and Coca Cola, customers now have a more discerning approach towards advertisements that make environmental claims. This means that businesses must engage in backing up their advertisements with action or face being called out by an increasingly critical audience.

Change in Demand

According to Daniel Scott, the Canada research chair in global change and tourism at the University of Waterloo, two-thirds of European ski resorts may be forced to close before the year 2100. Changes to the climate will have a huge impact on cold weather tourism.

This extends to other products and services that are closely tied to weather conditions. Changes should be expected in relation to the demand for certain seasonal clothing as well as food and beverages that typically rise in popularity during cold months.

Effects of Weather

NASA and the UN have predicted significant disruption to weather patterns as a direct result of climate change. Storms are expected to become much more severe, which will cause damage to domestic and commercial properties alike.

The business world is preparing for this by focusing on building business resilience. The Center for Climate and Energy Solutions (C2ES) defines this process as assessing and managing the potential impact of weather events on a company’s facilities, operations, supply and distribution chains and costs.

The Insurance Industry

More destructive and severe natural disasters pose a real threat for insurance providers. The question is whether they are willing and able to take the financial risk. The sustainability of the insurance industry depends on this.

According to McKinsey, the majority of insurance industry executives believe that responding to climate risk is very important, or even, a top priority. It is likely that some of the larger insurers will even develop specific products to cover damage, injury and destruction as a result of natural disasters caused by global warming.

Agriculture and International Shipping

Agriculture is a contributor to climate change, and it will also be one of the sectors most negatively affected by its impact. Changing weather conditions are likely to result in droughts, storms, flooding and extreme humidity. Not only will this limit or alter the range of produce that can be grown, but it will also make for a difficult and dangerous environment for agricultural workers.

Similarly, the global shipping industry (which is expected to represent up to 10% of global greenhouse emissions by 2050) will face serious challenges as the climate crisis advances. Coastal communities face a serious flooding risk, and these floods could destroy ports and their shipping infrastructure.

To sum up, what is evident is that the business world will not be immune to the negative impacts of climate change. To ensure the survival of their respective industries, the large corporations responsible for substantial, damaging emissions must make a serious and urgent commitment to environmental responsibility. Greenwashed marketing strategies alone will not mitigate the impact of the climate crisis on the business world.

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