Lack of climate action a threat to businesses the world over

The top three risks by severity and for the next 10 years, according to the World Economic Forum’s Global Risks Report 2022, are Climate action failure, extreme weather and biodiversity loss. Therefore, business managers and leaders must prioritise climate action in their operations.

Over 1,000 experts and leaders in business, government and civil society have reached a consensus. Climate action failure is the most critical threat to the world in both the medium term – up to five years – and over the decade, with the highest potential to severely damage societies, economies and the planet.

This is in the background of COP26 which concluded that nationally determined contributions (NDCs) fall short of the Paris goal of 1.5°C of warming. The current trajectory we are looking at is that of a world heading towards a 2.4°C warming, with the most optimistic of scenarios holding it to 1.8°C.

While some firms are getting it right, seeking advice on what they should be doing, it’s unfortunate that some have no idea what needs to be done. The winners and losers in business are going to be defined based on how they took action to address climate change.

Taking climate action is not about feeling or looking good for the companies. It is good business so companies need to embrace it. It comes with several benefits such as increased revenues, cost reductions, risk management and reputation building.

In a recent study, the European Investment Bank (EIB) has clearly shown that reducing carbon emissions is key for tackling climate change and good for business.

Climate change is a global problem, and capital allocation will play a critical role as more capital will be allocated to climate-sensitive operations. This will form an incentive if not a force to push companies to improve their sustainability and climate change efforts to create long-term value.

The more investors and companies make this shift, the more impact we will see regarding climate action and eventual coping and managing of the emerging risk.

There are still gaps in the African continent’s technologies, infrastructure data availability and its exposure in management of climate risks. Yet, all these three play a crucial role in providing solutions, surfacing insights mapping risks and opportunities that are available to corporates and capital markets.

Addressing climate change requires a whole menu of measures from companies. The initiatives should take advantage of the emerging opportunity when it comes to climate change.

For instance, carbon-pricing policies combined with incentives for nature-based and carbon-offsetting solutions are becoming more popular and companies need to assess how they can plug in this dispensation.

To make climate change fight a business opportunity, there is need for all companies to carry out a swot analysis coupled with a gap analysis and its implementation plan.

There is also the need to define clearly what climate action a business will undertake. The company’s efforts should aim to have the international convergence on taxonomy for green and sustainable investments as much as possible.

Disclosure of climate action plans will become another key area in which companies must invest. The minimum standard will ensure they regularly disclose how they plan to achieve the Paris Agreement and net-zero emission targets within their operations.

As additional points, companies may also consider ways to help households, other firms and societies mitigate and adapt to climate change.

This has an overall effect on the reduction of risks facing businesses as result of climate change. One tool that can be used to achieve this is reporting on climate-related financial disclosures.

Some of the consideration that companies can consider as they get to limit the risk emanating from climate change will include; localising supply chains and securing raw material.

In the short run, this may mean more expensive raw materials hence higher production cost but in the long run, would lead to lower costs and an opportunity to create new investment and growth.

Businesses should work closely with the government to create an enabling environment of transitioning to better ways of managing climate change.

Globally, there is uncertainty regarding regulations linked to environmental issues, which forms a major obstacle for companies to reduce emissions and introduce green practices.

Embedding climate change and social issues into everyday operations should be a top priority for any company. But unfortunately, many still believe sustainability is for the old, cash-rich and profitable businesses, so no action is being taken.