Risks are a necessity of business as they provide the rewards, and managing those risks is a major part of any company.
Big corporates will have all risks to their business mapped out in a risk register, while SMEs may rely on their savvy management team or leader to stay ahead of the curve. Regardless, all businesses must completely understand the risks facing them.
So, when thinking about risk in your business, have you considered climate change and the shifting markets? Many big corporates recognised this a couple of years ago, and there is a reason sustainability is front and centre in their television marketing and operations.
Climate change has been described as “the greatest economic transformation in our lifetime because it impacts on every single industry sector. Nobody’s immune”.
The risk climate change can pose to business can be physical, financial, existential, translational, regulatory, and reputational. Businesses that do not adapt will be at risk, while those that embrace change will see greater opportunities.
Physical Risk
The physical risk posed by climate change is for those assets that lie in areas that it will directly affect through, for example, sea-level rises and more frequent storms, droughts, and wildfires.
Insurance, of course, mitigates this risk. However, for new projects this must be assessed at the conception stage.
A small sea level rise due to climate change would, for example, put the Open Championship golfing venue in St Andrews under water. For all the business planning in the world, it is one risk they cannot ignore.
Existential Risk
Existential risk highlights those assets that will no longer be viable going forward.
Fossil fuel energy extractors, providers, and heavy consumers such as automotive and aviation will all have to move away entirely from fossil fuels in the future.
Financial investment is reflecting this as in July 2020, the U.K.’s largest pension fund NEST announced it would divest from fossil fuel exposure.
Technical innovation is the big hope for these industries, however, what is certain is that things will change.
Transitional Risk
Transitional risk is always a factor as business models change and it can be difficult to decide whether to go in early or wait until it is legislation. After all, the effect of transition will be felt from company to consumer.
An example of this is that transport will shift to zero-emissions vehicles, so British Gas went early and in June 2020 made the largest U.K. order to date of electric vehicles.
Another is that mandatory carbon footprint reporting is currently only required for very large businesses due to current thresholds, but soon this will change.
Huawei, the Chinese technology group, says its approach is twofold: moving to renewable energy at all its premises and working to improve energy efficiency and the recycling rates of its products.
Companies that avoid setting a target will instead be affected by decisions taken elsewhere. Tesco, for example, among others, has made commitments to reduce emissions in their supply chain. This then forces their suppliers to take action.
Many businesses are instead taking the option of becoming carbon neutral immediately by offsetting their carbon footprint, while at the same time taking practical steps on the road to net zero.
Regulatory Risk
The regulatory risk could be costly for those late to make the change.
The UN-backed Principles for Responsible Investment forecast that “abrupt, forceful, and disorderly” policy change will come by 2025 and could wipe up to $2.3 trillion in value from the world’s largest companies.
Much of that will be the result of carbon pricing, a system which would penalise any company that has failed to reduce emissions to national limits.
Especially for those locked into a carbon-intensive supply chain, this will ultimately lead to higher prices, lower demand, and finally reducing profits.
Reputational Risk
Reputational risk is very much a present-day problem even though legislation and transitional risks may seem to be a long way off.
If customers do not appear to care, acting on emissions can look like an unnecessary expense. This is dangerous as research shows they do, and this market is only growing.
Research by Forbes, among many others, shows that Millennials and Gen Z’s (under forties) all care deeply about this issue and it is a big factor in the way they consume.
A Nielsen report found that 73% of the Millennial generation was willing to pay more for sustainable goods and that 87% of them would be more loyal to a company that helps them contribute to social and environmental issues.
Therefore, businesses that advertise their green credentials are lowering their risk and protecting their profits margins for the foreseeable future.
As an award-winning sustainability business, Play it Green make peoples and businesses greener in a simple, affordable, and beneficial way.
We can help companies to grow while also shrinking their carbon footprint.
This tip is just one of many that will be coming your way, each fitting into our Net Zero Framework that every Play it Green member has full access to.
The Framework allows the business to review, plan and set actions in 9 key programme areas that will ultimately take them to net zero.
The 9 areas are Governance, Energy & Emissions, Food, Procurement, Transportation, Venue, Resource Use & Waste, Water and Projects & Workforce.
So, in recognising these risks, the question is not can you afford to join Play It Green, it is can you afford not to?
