How Businesses Can Lead the Charge Against Climate Change

There are two main challenges that environmental management and many businesses face when it comes to the climate change conundrum and its economic implications: the physical risks of climate change and the transitional risks associated with shifting to a low-carbon economy.

Physical risks are immediate and can be catastrophic. These include extreme weather events, such as hurricanes, floods, and wildfires, which can disrupt supply chains, damage infrastructure, and impact insurance costs. The transitional risks are related to the global shift towards more sustainable practices that reduce greenhouse gas emissions and create a low-carbon economy. For example, Professor Heal showcases in his research paper Economic Aspects of the Energy Transition, "In electricity generation, the transition from fossil fuels is clearly under way. In the U.S. the share of electric power generated by coal has fallen from over 50% to 21% in the last fifteen years, and in the U.K. there is a similar story, falling to 5% in 2018 from 30% in 2014." Transitions like this can render certain industries obsolete while also creating new ones, potentially leading to stranded assets and significant revaluation of companies.

As business leaders, it's crucial to understand the implications of these risks on your business and take proactive steps to mitigate them. While the climate crisis is about survival, it's also about seizing new opportunities that arise in a post-carbon world.

One key issue executives should be keeping on their radar is the direct impact of climate change on their business. If you're in the agricultural or food business, we know that climate change is causing droughts, floods, and heat waves. It's making agricultural output much less predictable than in the past. Any business dealing with the food sector needs to be well aware of some of the risks that are being posed by climate change. But not all impacts are that obvious. For example, productivity on a lot of coffee plantations is being negatively affected by climate change which is having a big impact on the coffee industry.

Sea levels are rising around the coasts. If you have coastal properties, you will need to be well aware of whether they're exposed to sea level rise and what this could do to those property values. In addition, coastal storms are getting more frequent and more intense. The potential for damage from coastal storms is increasing all the time. In general, climate related risks to real estate portfolios need to be monitored. It may be obvious that climate will affect real estate, but changing temperature patterns and changing precipitation patterns can mean that you need to reinvest in certain types of real estate and change the heating and cooling systems if they're to retain their value.

Then, of course, there's energy efficiency. As a result of climate change, we are moving away from fossil fuels towards renewable energy and that's driving a lot of changes in many associated industries, especially the utility industry that's concerned with building and managing the grid. Just about every business uses energy, so you'll want to be aware of what's happening with energy consumption. If there are big changes occurring in the energy industry, that could affect your business from the cost of energy to the availability of certain types of energy for your business.

Business leaders will need to carefully monitor all of the climate-related legislation that's going on around the world. Some of that legislation can provide interesting business opportunities. Professor Heal recommends monitoring federal, state, and municipal legislation very carefully.

For example, in the United States, the Inflation Reduction Act is really a climate policy act more than an Inflation Reduction Act. It provides a lot of incentives for companies and consumers to engage in climate-friendly activities. The same thing is happening in the European Union. There's probably more climate-related legislation at the state level in the United States than at the federal level. Lots of states are providing renewable energy subsidies to climate-friendly activities. There's even legislation happening at the municipal level. For example, New York City is providing some incentives for renewable energy use. Any business needs to be monitoring all of this legislation very carefully to make certain that it's not missing out on any opportunities.

In the last decade, the whole renewable energy industry has grown from scratch to become a large, important industry. We're seeing huge transformations. The energy storage industry, the one that makes batteries, is going to become very important. Forecasts are that we'll be spending trillions of dollars on energy storage over the next couple of decades. The automobile industry has moved away from gasoline-powered cars to electric vehicles.

And even more renewable energy strides are coming in the not-so-distant future. Professor Heal shared that he sees that oil will almost be completely replaced in ground transportation over the next few decades. While oil can be more easily replaced in ground transportation, air transportation will take longer. There is some research on battery-powered planes, but they are only expected to have a range of 400 or 500 miles. In the future, you might have battery-powered planes taking you from London to Paris or from New York to Washington but you won't be flying in a cross-Atlantic battery-operated plane anytime soon. In addition, he sees the hydrogen-renewable business maturing and growing in the next 10 to 15 years. Hydrogen has the potential to evolve the industry as an energy storage medium as solar and wind power are intermittent. We may be able to use hydrogen itself or convert it into ammonia which is much easier to store and transport.

These clean energy technologies, once considered expensive and unfeasible, have now reached a stage where they can compete with, and even outperform traditional energy sources. For business leaders, this rapid evolution provides opportunities for strategic investments and partnerships with sustainable suppliers that can future-proof your business. Professor Heal's advice to senior managers is, if all of these industries, which make up a large part of the US economy, are being transformed by climate change, then the chances are that you'll be transformed by climate change too. If you are dealing with these industries in some way or another, you're going to be affected by the transformation that's happening in capital markets. In addition, if you're selling to consumers and you're in the B2C sector, consumers are increasingly concerned about what businesses are doing about climate change. They want to feel that they're dealing with responsible companies. It's important for companies to have a strategy on climate change and, in particular, for consumer-facing companies to be able to articulate that strategy and use it as part of their PR.

In the age of conscious consumer and impact investing, transparency regarding our own emissions and climate change efforts is not just good practice; it’s a business imperative. When businesses disclose their climate risk exposure, including their carbon footprint, and the steps they're taking to mitigate these risks and reduce carbon emissions, this transparency is crucial to maintaining trust with consumers, investors, and the public at large. It also fosters a culture of accountability within the organization, driving progress toward sustainability goals.

The board of directors is crucial in setting the climate change agenda. According to Professor Heal, the board has the responsibility to set the tone for an organization's approach to climate change. It's not about getting hands-on and encouraging employees involved to fight climate change policy but ensuring that a senior executive with adequate resources is in charge of climate change issues.

To effect meaningful change, it's essential to have a high-ranking, well-resourced individual who can ensure climate considerations and sustainable business opportunities permeate all aspects of the business. This decision-making approach can not only mitigate climate change-related risks but also foster a culture of sustainability and resilience within the business administration and organization.

An often-overlooked aspect of climate change is its potential as a business opportunity. Transitioning to a low-carbon economy will necessitate a radical transformation in how we produce and consume energy, opening up vast new markets and opportunities for innovation. Entrepreneurs and existing companies that can leverage these changes will be the big winners in this new economy. Instead of being seen as a challenge, addressing climate change is seen as an opportunity for growth, innovation, and long-term sustainability.

As we grapple with the realities of climate change, the role of business has never been more crucial. Businesses need to not only adapt to climate change but to proactively drive the transition towards a sustainable, net-zero future. By understanding the risks, embracing the opportunities, and leading with transparency and accountability, businesses can be at the forefront of this global shift.

Climate change is not just an environmental issue but a business one and executives who fail to recognize this reality risk being left behind. Those who do embrace this challenge will find themselves at the helm of resilient, forward-thinking organizations ready to thrive in a new era.

As Professor Heal aptly states, "Climate change is not a problem for the future. It's a problem for now." The time for action is indeed now.

Professor Heal's upcoming program "Business and Climate: The Journey to Net Zero" is a golden opportunity for executives seeking to navigate the complexities of climate change and steer their businesses towards a sustainable, net-zero future.

The program is set to provide deep insights into the intersection of the business community and climate change, offering strategies for risk management, opportunity identification, and leadership in the age of climate change.

The future of business is green and the journey to net zero begins today.

The next Business and Climate: The Journey to Net Zero takes place in person at our new Manhattanville Campus.