How Companies Can Adapt to Climate Change by Evaluating Risks
The climate and weather have affected business dealings since time immemorial, from forcing fishermen to stay at the shores to reducing the customers a store sees in a day. Today, however, the climate’s impact is far more intense than a day or two of bad sales — it affects policies, revenues, brand positioning, and success.
When facing climate change as an organization, a common mistake is approaching it from the same perspective. As a result, there’s been a deluge of cookie-cutter tips and tricks to climate action that have little to zero impact in the grander scheme of things. Organization’s energies are usually put into ticking the boxes against these tips and tricks. Naturally, this might not always lead to success and leaves companies feeling like everything they did so far was a waste of time and resources.
It’s about time that we take individual industries and individual impact into consideration when looking at climate action at an organizational level. We’ve moved beyond an “if the shoe fits” scenario, and so each organization needs to identify where their risks lie, how they’re being affected by climate change, and how they can help.
Types of Risks that Climate Change Poses to Businesses
McKinsey identified six kinds of climate risks, which are further grouped into value-chain risks and external-stakeholder risks.
Value-chain risks have adverse impacts on the physical aspects, prices, and products of an organization. Here’s what these mean:
- Physical risks
These are the risks that the effects of climate change—think extreme weather conditions, floods —pose to infrastructure, factories, supply chains, transport, and other physical aspects of an organization. Suppose a truck carrying supplies from factories to retailers takes a tumble during an unprecedented snowy night, causing millions of dollars of losses. In that case, that’s a physical risk that the organization will have to contend with.
- Price risks
Droughts are increasing the price of water, bad harvests ramping up the costs of raw materials — these are some everyday examples of the price risks that the effects of climate change can pose. The trend of rising prices over the past few years is alarming. An unstable climate could well increase the pressure on organizations that depend on raw materials and other commodities.
- Product risks
Could you imagine entire products becoming unpopular, even unsellable, because of climate change? It’s a reality for many organizations, and this list is only increasing in length. For example, ski resorts that don’t see enough snowfall might draw their shutters; freezing cold temperatures may make residents avoid ice lollies entirely. However, here is where the opportunity lies — to tackle the displacement of older products with newer ones that are sustainable both environment-wise and sales-wise.
No organization works in a silo, and external stakeholders always have a push-and-pull effect on mom-and-pop stores and massive conglomerates alike. Here, we’re exploring the risks that climate change can either pose to external stakeholders or spark action from.
- Ratings risk
McKinsey defines rating risk as the “possibility of higher costs of capital because of climate-related exposure.” In simple terms, this means that the ratings for organizations can tank due to climate change effects or responsive actions — carbon pricing and supply-chain disruption included.
- Regulation risk
Governments all over the world are constantly creating and tweaking policies to combat climate change, and the risks that arise from such changes are called regulation risks. Ethiopia, for example, has set sail towards low-emissions growth through a Climate-Resilient Green Economy strategy. In the US, many states are introducing new renewable portfolio standards, potentially impacting an organization’s very functioning.
- Reputation risk
Reputation tends to be either direct—from a company-specific policy—or indirect, thanks to the company’s overall perception. Given that consumers are becoming more conscious of their impact and holding big and small organizations accountable for their climate policies, reputation risks cannot be ignored. That said, many brands and businesses have woken up to this realization and embraced it as part of their ethos. For example, clothing brand Patagonia is as well known for its outdoor clothing and gear as for its outspoken ambassadorship of all things pro-climate and pro-society. Consumers are reacting positively to the stance, even if they aren’t loyal customers, which impacts the presence and absence of reputation risks.
So why does all this matter?
The world has peddled a one-size-fits-all narrative for far too long, and many organizations are suffering from that perspective or barking up the wrong tree sustainability-wise. Therefore, it makes sense for every company to both introspect and look at the bigger picture to understand how climate change affects them and what they can do.
Are there merits to this approach of identifying risks first before taking action? At EcoMatcher, we do believe so. By following this approach, businesses can:
- Clear the path towards well-rounded and positively impactful decisions
- Put their efforts and money where they’re most likely to see returns, rather than blindly, based on half-baked knowledge
- Identify their strengths and weaknesses to play them well and position their brand positively
- Reap the benefits that positive climate action holds for everyone without being swayed by the cacophony of surface-level solutions
- Makeover their reputation if it’s average or sub-par currently
- Stand the test of time by swapping unstable processes for flexible ones
Of course, these are high-level benefits that come with time. But every organization, big or small, stands to gain much by adapting to climate change. Scoping out potential actions and avenues and evaluating their success rates to come to a decision might be a road less taken, but it’s the one that sets organizations and the planet up for the most success.
How can EcoMatcher help?
The process of adapting to climate change is overwhelming, to say the least. But as the saying goes, little drops make an ocean, and that’s where EcoMatcher comes in. Being in the business of planting trees, EcoMatcher offers both a stop-gap solution and the potential for a long-term, mutually beneficial partnership that greens the planet. It’s a great way to signal to your audience that you’ve begun making the shift and involves individual customers and stakeholders in the process of sustainable growth.
Adapting to climate change is both a physical and a mental exercise. So, while you’re making slow but revolutionary shifts within your organization, you can also get the ball rolling on climate-positive actions that set the right tone with EcoMatcher.