Impact of climate change on business

Climate change is increasingly becoming a pressing issue. Therefore, the impact of climate change on business cannot be overlooked. The recession has started, as flagged by Michael Burry.

It’s going to be survival of the fittest! If you think your business is safe, think twice. No business is insulated!

The effects of climate change, such as extreme weather events, rising sea levels, and natural disasters, can significantly affect your business’s operations, and top, and bottom lines.

In this article, we will examine the impact, opportunities, examples, and future trends.

Hope, this will help you to “brace for impact.”

There are 3 main challenges posed by Climate Change on your business. Most of the time, they are interlinked, so don’t be surprised if you see some repetition.

Increased Cost

Supply Chain Disruption

Increased Risk

Let’s review them one by one

1. Increased Costs: Impact of Climate Change on Business

The effects of climate change can increase operating costs for your business. Sometimes steeply.

For example, you may need to invest in new infrastructure or equipment to adapt to changing weather patterns or mitigate climate-related risks.

In addition, new regulations and policies aimed at reducing carbon emissions may increase the compliance costs of doing business in otherwise normal circumstances.

There are nine such heads you need to be aware of.

a. Higher energy costs:

The Effects of Climate change can be extreme weather events such as heat waves or cold snaps. These can lead to increased demand for heating or cooling for your establishment. Needless to say, driving up energy costs for your business.

For example, unseasonably hot summers can increase the need for air conditioning, which leads to higher electricity bills.

b. Infrastructure damage:

Sometimes, extreme weather events such as floods, hurricanes, or wildfires can cause damage to roads, bridges, buildings, and other infrastructures. This can become a costly affair for repairs or replacements.

For example, Hurricane Harvey caused an estimated $125 billion in economic damages.

c. Supply chain disruption:

The Effects of Climate change can disrupt supply chains by causing delays or interruptions in the production or delivery of goods and services.

For example, severe weather events such as floods or droughts can damage crops, leading to food shortages and higher prices.

d. Increased insurance costs:

As extreme weather events become more frequent, insurance companies are raising their premiums, making it more expensive for businesses to protect themselves from climate-related risks. See below report

Courtesy : CBS News Miami

e. Business interruptions:

The Effects of climate change can cause power outages, transportation disruptions, and other interruptions that can impact business operations and revenue.

For example, the 2021 Texas winter storm caused widespread power outages, which disrupted many businesses in the state.

d. Increased water costs:

The Effects of climate change can cause water scarcity, which can drive up the cost of water for businesses. For example, in California, businesses are paying higher rates for water due to drought conditions. See the situation in UK.

Courtesy : Wion

e. Loss of productivity:

Extreme weather events can lead to employee absenteeism, which can impact productivity and revenue. For example, if an office is closed due to a storm, employees may not be able to work, leading to lost income.

f. Increased waste management costs:

The Effects of Climate change can cause more frequent and severe weather events, leading to an increase in waste generation. This can drive up waste management costs for businesses. For example, after Hurricane Katrina, businesses in New Orleans faced higher waste disposal fees due to the increased volume of debris.

g. Higher transportation costs:

The Effects of Climate change can lead to more severe weather events, which can impact transportation systems, leading to higher costs for businesses that rely on transportation. For example, snowstorms can cause flight cancellations and delays, leading to higher costs for businesses that rely on air travel.

2. Supply Chain Disruptions: Impact Of Climate Change On Business

Climate change is causing disruptions in global supply chains, affecting businesses across industries.

Here are eight examples of increased supply chain disruptions due to the impact of climate change on business that you often see.

1 Shipping Delays

Climate-related events can cause delays in shipping and logistics, leading to lost sales and reduced productivity.

Port closures (airports or Sea Port) are due to extreme weather events like hurricanes, floods, and wildfires.
Increased transportation costs due to damaged infrastructure. Highways, rail lines, and other transportation systems are increasingly threatened by sea-level rise and another impact of climate change on business. This can also lead to jacked-up transportation costs.

2 Agricultural Supply Disruptions

If you are a farmer, you can understand this pain when, at the lastminute,e your crop vanishes or gets destroyed in front of you due to extreme weather events. Eventually resulting in shortages of key commodities for the common man.

3 Manufacturing Breakdown

The classic point in the case is in 2021, a factory in Oregon that produces 20% of the world’s microchips was forced to shut down for two weeks due to wildfires. There are numerous other examples. Eventually, a country faces losses in its GDP output.

4 Power Disruption

Disruptions in energy supply chains are due to extreme weather events like hurricanes and winter storms. In 2021, a winter storm in Texas caused widespread power outages and disrupted natural gas supplies, leading to price spikes and shortages.

5 Transit Insurance shoots up

Increased insurance costs due to climate-related risks. Businesses that operate in areas at risk of climate-related events may face higher insurance premiums or difficulty obtaining coverage.

6 Disruptions in fisheries and aquaculture supply chains

This happens due to changes in ocean temperatures and acidity. The Effects of Climate change is affecting the distribution and abundance of fish stocks, leading to disruptions in the seafood supply chain.

7 Interruptions in mining and extraction supply chains

These events can damage infrastructure and equipment, leading to delays and disruptions in the supply chain.

8 Retain Supply chain disruption

Disruptions in retail supply chains are due to changes in consumer behavior. The Effects of Climate change can lead to changes in consumer preferences and buying habits, affecting demand and supply chain operations.

Overall, the impacts of climate change on supply chains are expected to increase in the coming years.

This poses significant challenges for your business. It, therefore, highlights the need for increased resilience and adaptation measures.

3. Increased Risk: impact of climate change on business

Climate change poses various risks to your business. Sometimes it will break your backbone.

This forces you to proactively work out a strong Risk-Mitigation and contingency plan. A business continuity plan looks at rapidly implantable PLAN A or PLAN B ready in case of crisis.

Let’s review five examples of such risks:

1 Extreme weather event:

The Effects of Climate change lead to more frequent and severe extreme weather events, such as floods, droughts, and hurricanes, which can damage business infrastructure, disrupt supply chains, and result in production losses.

2 Failure To Plan Mitigation:

Businesses that do not adapt to the changing climate risk being left behind, as they may not be able to compete with companies that are better equipped to handle the effects of climate change. Failure to adapt can also result in significant reputational damage and legal liability.

3 Economic losses:

The Effects of climate change can lead to significant economic losses for businesses, including increased insurance premiums, infrastructure damage, and supply chain disruptions.

A recent report by the CDP Global Supply Chain found that suppliers could experience up to $1.26 trillion in revenue losses over the next five years due to climate change.

4 Increased health risks:

The Effects of climate change can lead to increased health risks for employees, customers, and suppliers. For example, heat waves and air pollution can result in heat-related illnesses and respiratory diseases, leading to increased absenteeism and decreased productivity.

5 Reputational Damage:

Businesses that are seen as contributing to the impact of climate change or not doing enough to address it risk significant reputational damage, which can affect consumer trust and loyalty.

This damage can be difficult to repair, as consumers increasingly demand that companies take the impact of climate change seriously and demonstrate their commitment to sustainability.

Opportunities: Due To the impact of climate change on business

Many new businesses that did not exist before emerged from government regulations and risk mitigation.

Also for your existing business, if you comply with ESG norms, it will open doors to new customers.

Let’s see what are.

New Business Opportunities:

The Effects of Climate change are driving new business opportunities. Companies that offer renewable energy solutions, green technologies, and sustainable products and services are thriving.

For instance, companies like Schneider Electric, Tesla and First Solar have experienced tremendous growth due to their focus on renewable energy products.

Corporate Social Responsibility:

The Effects of climate change are increasingly becoming a matter of corporate social responsibility.

Companies that take steps to reduce their carbon footprint and promote sustainable business practices can attract more customers who are concerned about eco-friendliness.

Such initiatives can also enhance brand reputation, helping companies stand out in a crowded market.

Increased Efficiency:

Companies that adopt sustainable business practices can also benefit from increased efficiency.

For example, implementing energy-efficient technologies and processes can help reduce energy costs, leading to significant cost savings.

Build resilience to Reduce the impact of climate change on business

To build resilience to these impacts, businesses can take various measures, such as:

Conduct risk assessments to identify potential climate-related risks to their operations and supply chains.
Developing contingency plans and emergency response strategies to address and recover from climate-related disruptions.
Investing in renewable energy and energy efficiency to reduce greenhouse gas emissions and lower energy costs.
Adopting sustainable practices, such as reducing waste, conserving water, and using environmentally friendly materials, to mitigate climate impacts and improve their environmental performance.
Engaging with suppliers and partners to promote sustainable practices and ensure supply chain resilience.
Collaborating with stakeholders, such as governments, NGOs, and communities, to address climate-related challenges and promote sustainable development.

Let’s see some examples: impact of climate change on business

Coca-Cola: How they commit to reducing the impact of climate change on business

Coca-Cola, one of the world’s largest beverage companies, has been impacted by climate change.

Water scarcity is a significant risk to Coca-Cola’s operations, as water is a key ingredient in its products.

To mitigate this risk, Coca-Cola has invested in water efficiency programs and has set a goal to replenish all the water it uses by 2030

Starbucks: plans to mitigate the impact of climate change on business

Starbucks, the world’s largest coffee chain, has also been impacted by climate change.

Coffee crops are sensitive to changes in temperature and rainfall, and climate change has led to a decline in coffee yields in some regions.

To address this issue, Starbucks has invested in sustainable coffee farming practices and has set a goal to make its stores more eco-friendly

Unilever: aggressive pledge to fight the impact of climate change on business

Unilever, a multinational consumer goods company, has committed to reducing its carbon footprint by 50% by 2030.

The company has invested in renewable energy and has implemented sustainable packaging solutions. These initiatives have helped Unilever enhance its reputation as a sustainable and responsible business.

Future Trends: the impact of climate change on Business

Increased Focus on ESG:

Environmental, social, and governance (ESG) considerations are becoming increasingly important for businesses.

Have you heard of ESG Mutual Funds? They handpick and invest only in ESG companies.

As per one study, those companies implementing ESG practices in their organization fare well and give at least 10% more returns as compared to their non-ESG counterparts. Isn’t it amazing.?

Today ESG Mutual funds have grown to approximately 30 Trillion USD. The prediction for 2025 is it will become 53 trillion USD!

It’s clear from above that investors are placing more emphasis on companies’ ESG performance when making investment decisions. And businesses that fail to prioritize ESG may struggle to attract investment.

Regulation and Policy Changes:

Governments are implementing new regulations and policies aimed at reducing carbon emissions and promoting sustainability.

Businesses that fail to comply with these regulations may face fines or reputational damage.

Companies that take proactive steps to reduce their carbon footprint and promote sustainability may be better positioned to navigate future regulatory changes.

Increased Adoption of Sustainable Technologies:

The increased adoption of sustainable technologies is a critical future trend in reducing the impact of climate change on businesses.

According to the World Economic Forum, technological solutions, particularly AIoT, or eco-friendly web hosting (eg GreenGeeks) are one way to fight climate change.

However, the adoption of sustainable technologies must be more widespread.

Only 7 out of 45 energy technologies and sectors are currently on target to meet commitments enshrined in the 2015 Paris climate agreement.

Therefore, the adoption of more sustainable technologies is essential to achieve the necessary reductions in carbon emissions.

Sustainable technologies can include a wide range of solutions, such as renewable energy, green transportation, and energy-efficient buildings. These technologies can help businesses reduce their carbon footprint and create a more sustainable future.

Technological advances have contributed to reducing the impact of climate change on business, but they have also allowed humanity to become aware of our impact on the planet and provide solutions to reduce it.

Therefore, the adoption of sustainable technologies is crucial for businesses to reduce their environmental impact and ensure a more sustainable future.

Overall, it is clear that the impact of climate change on business will continue to be a major concern for companies in the future, and proactive measures will be needed to mitigate these risks.

FAQs on the Impact of Climate Change On Business

What is the impact of climate change on businesses?

Climate change has the potential to affect businesses in a variety of ways, including increased operational costs, supply chain disruptions, regulatory changes, reputational damage, and an increased risk of physical damage to facilities and infrastructure.

What are the operational costs associated with climate change?

The costs associated with climate change can include increased energy costs, rising insurance premiums, and expenses related to adaptation measures such as building sea walls or moving operations to less vulnerable areas.

How can supply chains be impacted by climate change?

Extreme weather events, such as hurricanes or droughts, can disrupt supply chains by damaging infrastructure, delaying deliveries, and reducing crop yields. This can result in increased costs and lost revenue for businesses.

Are there regulatory risks associated with the effects of climate change?

Yes, as governments take action to reduce carbon emissions and address climate change, businesses may face new regulations or taxes that impact their operations and profitability.

Can climate change impact a company’s reputation?

Yes, companies that are seen as contributing to climate change or not doing enough to address it may face reputational damage, which can lead to decreased customer loyalty, reduced sales, and difficulty attracting new investors.

How can businesses mitigate the impact of climate change?

Businesses can take a variety of actions to reduce their impact on the environment and mitigate the effects of climate change. These can include reducing carbon emissions, using renewable energy sources, implementing energy-efficient practices, and investing in climate-resilient infrastructure.

Is there a financial incentive for businesses to address climate change?

Yes, there are a variety of financial incentives for businesses to address climate change, including lower operating costs, increased efficiency, improved risk management, and access to new markets and customers. In addition, investors are increasingly focused on environmental, social, and governance (ESG) issues, and companies that demonstrate a commitment to sustainability may be more attractive to investors.

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