As the climate crisis exacerbates weather, businesses around the world are starting to feel the heat. Domestically, the financial impact of climate risks on Indian businesses is estimated at around 7,138 billion rupees, according to a 2020 report by the Carbon Disclosure Project (CDP).
The recently released Global Risks Report 2022 highlights the phenomenon. It says supply chain disruptions, inflation, debt, labor market gaps, protectionism and education disparities are dragging the global economy into choppy waters that countries that recovering quickly and slowly will have to navigate to restore social cohesion, boost employment and prosper.
In the report, respondents flagged failure of climate action as the top risk.
Businesses that depend on water face serious challenges. The 2030 Water Resources Group, an international organization, has stated that water demand in India will exceed its supply by 50% by 2030.
Deloitte in its Global 2021 Climate Check report revealed that climate-related events already affect more than one in four organizations globally. According to the report, climate change and extreme weather events such as hurricanes, floods and fires directly impact 70% of all economic sectors worldwide.
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The CDP (Carbon Disclosure Project) in its CA100+ company analysis report for CDP signatory investors had highlighted many important issues in this regard. He said as many as 118 of the 122 CA100+ companies report being exposed to substantial climate-related risks and opportunities. Ninety-three percent of companies identified climate-related risks, while 91% identified climate-related opportunities as potentially having a substantial financial or strategic impact on their business.
CA100+ is an investor-led initiative to ensure that the world’s largest greenhouse gas emitters take action against climate change.
These companies have identified climate-related risks throughout their value chain, with direct operations being the most severely impacted and most exposed to acute physical and transition risks.
Damandeep Singh, Associate Partner, ESG and CCaSS at EY India states, “Transition risks come from changes in policies that will affect the way companies do business. For example, stricter emission control and fuel efficiency standards and the shift from internal combustion engines to electric vehicles. We are now seeing a big race in the two-wheeler segment to bring the best EV to market. This will also start to happen in the four-wheeler segment.
Risks and Opportunities
Climate change has two key dimensions – adaptation and mitigation, and both affect businesses by either increasing risks or providing opportunities.
Shankar Venkateswaran, Director, CDP India, explains some of the risks businesses can face as a result of climate change. “Companies that have factories on the coast or in low lying areas may be affected by sea level rise and flooding and should take precautions such as erecting/raising seawalls to protect these assets. Businesses that need water for their processes may experience water availability issues during droughts, especially if they are located in water-stressed geographies. However, it also highlights the opportunities that climate change brings. “Climate change also provides business opportunities – water conservation and recycling technologies/services are examples.”
In 2016, Macy’s, a major retailer in the United States, decided to cut 2,000 jobs due to lost revenue. The fall season was particularly hot that year and discouraged customers from buying winter clothes. As a result, the company saw its sales plummet.
In the UK, two-thirds of small businesses were reportedly affected by bad weather between 2012 and 2015.
This incident revealed that climate change can also alter consumer buying behavior, which in turn can affect businesses, especially those in the B2C segment. The increased frequency of natural disasters, especially floods and droughts, will affect agricultural production. It will not fail to affect players operating in the food sector. Volatile climatic situations will affect agricultural production and thus affect food supply.
The Global Risks Report 2022 cites “involuntary migration” as one of the top long-term concerns cited by respondents. He says economic hardship, climate change, conflict and political instability are forcing millions of people from their homes.
The pandemic, future employment trends and heightened national interest positions of many countries have become an obstacle to cross-border migration, leading to labor shortages and much more. At the time of writing, the United States had 11 million job vacancies overall and the European Union had a deficit of 400,000 drivers in the trucking industry alone.
In the midst of all this, the only bright spot is that the situation forces companies to reduce greenhouse gas emissions. Venkateswaran points out: “Customers, including B2B customers, who commit to reducing their own GHG footprint also expect their supply chains to do so; again, many CDP reporters like Unilever and Microsoft also expect their suppliers to also report their emissions to CDP. A third driver is regulation, which is getting tougher as more countries commit to climate goals, including net-zero. Thus, tackling climate change and disclosing it publicly not only reduces risks for businesses, but also provides them with opportunities to access capital, acquire and retain customers, and be ahead of regulations. .
While there is still a long way to go to stem climate change, some have started to take the right path. Singh reveals, “It may come as a surprise to many, but a large portion of the major emitters in India are already on the path to a Net Zero (NZ) future. At last count, 64 companies are already on their way to achieving net zero GHG emissions. While all have committed to science-based targets (SBTs), 28 have had their Net Zero targets validated.