Since time immemorial, businesses have grappled with changing weather patterns but the vagaries of climate change have taken this challenge a notch higher, forcing companies to adapt to growing regulatory, environmental and consumer pressures. Floods, droughts, fires, and increasing heat are already disrupting economies and communities across the world. Forward-thinking companies are mapping the risks to their full value chains across different warming scenarios.
Climate change poses several risks to businesses including physical, ratings, prices, reputation, product and regulation. The physical risks are those related to damage inflicted on infrastructure and other assets, such as factories and supply-chain operations, by the increased frequency and intensity of extreme weather events, such as floods and drought. Price risks refer to the increased price volatility of raw materials and other commodities. Drought can raise the price of water; climate-related regulation can drive up the cost of energy.
Needless to say, an unstable climate could push the pressure further, forcing companies to cope with uncertainty around inputs to production, energy, transport, and insurance.
Product risks refer to core products becoming unpopular or even unsellable. Effects could range from losing a little market share to going under entirely. Regulation risk refers to government action prompted by climate change. This can take many forms, including rules that add costs or impede specific business activities, subsidies in support of a competitor, or withdrawal of subsidies.
Reputation risk can be either direct, stemming from a company-specific action or policy, or indirect, in the form of public perception of the overall industry. In the climate-change context, reputation risk can be understood as the probability of profitability loss following a business’s activities or positions that the public considers harmful.
A poor reputation on climate can hurt sales through consumer boycotts or local community protests. It could damage the regulatory environment and investor relationships. And it could make the company less attractive to current or future employees.
To mitigate the above risks, some companies have taken very public steps to adopt climate-change strategies. Epson, for instance, taking into cognizance results from its Climate Reality Barometer 2022 survey conducted ahead of COP27, believes climate change, if left unchecked, will continue to wreak havoc on businesses. Epson’s purpose is focused on improving lives and the planet, and we will devote significant resources to achieve this.
The company aims to place a real emphasis on decarbonization and resource recycling. We’re working to make sure that all Epson-owned sites use 100% renewable energy by 2023. By the end of 2025, our vision is to reduce our direct emissions by 19% and indirect emissions by 44%. Over the next ten years, Seiko Epson Corporation has set aside JP¥100 billion to make this a reality alongside the development of environmental technologies.
The 2022 Epson Climate Reality Barometer shows progress – but also that short-term economic demands are in danger of distracting the government, businesses and individuals from imperative environmental action. The government needs to keep its focus and ensure decisive, rapid and effective responses to the ongoing climate emergency. Epson believes building a better future calls for collaborative efforts in the form of public-private partnerships to fight climate change.
For companies, it is imperative to meet the product and service needs and expectations of customers who value environmentally friendly practices—they will feel positive after purchasing products from a business that is proving to do no harm or minimises harm to the environment. In addition, reducing pollution and waste helps you cut costs and improve your reputation, leading to significant increases in profitability. You must comply with your legal obligations to control pollution and waste, but you should do more – reducing them as much as you can.
According to a Mckinsey & Company Report, companies that ignore climate-related risks are likely to feel the consequences. Those that identify the most pertinent risks, think through how they relate to one another, and then put in place appropriate measures can begin to manage the challenges ahead. These companies will not only put themselves in position to ride out the storm; they could rise above it.