Climate change has introduced another significant variable in an already complex global business environment. In a global economy where the effects of climate change are increasingly being felt, organizations have to be prepared with their own strategy to factor in and use climate change as a tool for competitive advantage in the future. This paper while examining the implications of climate change for businesses in the future, suggests a broad strategy that organizations may use for their future sustenance and growth.| |
Harshavardhan, Bed Prakash Das , IIM Calcutta|
The last two years have been a highly turbulent period for businesses worldwide, with the collapse of the financial markets in the US and a prolonged recession. The churn caused by the financial crisis has led to increased regulations, greater public scrutiny of businesses and a worldwide demand for supporting businesses that have a human face. In this context, climate change has become an important variable which shapes the way businesses run, with the potential of turning into the most significant factor which will influence the way businesses run. The climate change debate is no longer about its existence; it has evolved to a priority level where key stakeholders are deciding on how to react to the dynamic challenges that climate change poses. As an organization which is growing at the rate we are and with the nature of energy intensive businesses we are in to, evolving a long term position on climate change assumes strategic importance for us. WHY CLIMATE CHANGE WILL DRIVE BUSINESS DECISIONS OF THE FUTURE There are some key factors which we believe will lead to climate change becoming a key driver of business decisions of the future IMPACT OF BUSINESS ON ENVIRONMENT
Energy Information Administration (EIA) estimates show that nearly one third of the CO2 emissions worldwide will come from industrial activities and that the CO2 levels in the atmosphere will have to be brought down to 450 ppm by 2030 to contain the global rise in temperatures to 2˚c.Any further rise in temperature levels could have catastrophic effects for human populations globally. It is estimated that the cost of extreme weather events will increase from the current levels of US$ 200 billion to US$ 2160 billion by 2050. It is also estimated that the contribution of Asian countries to the global emissions will rise from 14% in 1990 to an estimated 35% in 2030 as the energy hungry economies of China and India expand rapidly. Recent statements by Western leaders such as Mr. Barack Obama have shown a increasing tendency to put additional pressure on these two economies to show greater initiative in their efforts to mitigate climate change. It is a common perception that industry is a major contributor to environmental damage and therefore it is expected that there will be additional pressure on businesses to be proactive in their climate change strategy. CONSUMER PREFERENCES
Consumer preferences are opting for a ‘green’ product over other options available. The McKinsey survey (2007) of consumers in eight (Brazil, China, India, Germany, France, UK, Canada and US) countries (Exhibit XX) shows increased consumer awareness about the green aspects of a product while making their purchasing decision. This may have increase as heightened media coverage of climate change promotes awareness of sustainability initiatives in business.
Private Equity investors and venture capitalists have also shown an inclination towards funding ‘green companies’. Indices such as the Dow Jones Sustainability index provide investors with a measure of the greenness of companies, which they perceive as a key indicator of the state of operations of a manufacturer. In the fifth annual (2010) National Venture Capital...