Business is operating in a climate-constrained world, marked by water issues, biodiversity loss and socioeconomic inequality. These issues are all key to the business context, and therefore, are inextricably linked to success or failure.
Climate change poses direct risks to businesses and investors due to shifts in weather patterns, precipitation and resource availability, extreme weather events, rising sea levels and variations in disease patterns and ecosystems and large scale involuntary migration.
In Thailand, the 2011 floods severely disrupted the microprocessor market, leading to a hike in the cost of IT hardware globally. During the 2014 UK floods small businesses sustained losses of £830 million.
But these risks do not exist in isolation. Risks also derive indirectly from laws, rules and agreements; compliance with disclosure obligations; and, potential legal and reputational sanctions stemming directly or indirectly from company activities.
Moreover, risks are interconnected – and can in many instances conflate. Forecasts put global water requirements at 40% ahead of sustainable water supplies by 2030. Our analysis for the WWF shows that China, India, Bangladesh and Pakistan, which account for almost 60% of the UK’s clothing imports, have areas exposed to high water risk.
To survive your business will need to evolve to understand and effectively manage such challenges through adapting to our increasingly dynamic and rapidly changing world. All of which also present real opportunities; this new paradigm offers phenomenal prospects through developing new business models, offering the market new products and creating more resource efficient methods of operation.. Three quarters of companies in the Carbon Disclosure Programme’s Global Water Report 2014 state that good water management offers ‘operational, strategic or market opportunities’, such as cost savings or increased revenues.
How can companies integrate sustainability into their culture to achieve long-term benefits?
We don’t need to accept any “trade-off between economy and environment — both are doable if you innovate and set the bar high enough.” Apple’s Tim Cook, UN climate summit, September 2014, New York.
The CDP S&P 500 Climate Change Report includes ratings and scores for participating companies along with financial analysis of climate action from S&P 500 leaders. The analysis indicates that those leaders (who make the CDLI & CPLI indices) who report on climate change also show higher financial performance. Further, these climate leaders also ensure better stability, with 50% lower volatility of earnings over the past decade than their peers, and show dividends to shareholders 21% stronger than those of lower-ranked corporations.
Research from Harvard and London Business School’s found that these organisations are characterised by a governance structure that explicitly and directly takes into account the environmental and social performance of the company, in addition to financial performance. Secondly, the companies paid specific attention to their stakeholder relations – with employees, customers and NGOs representing civil society – through continuous engagement. Finally, these entities tend to measure and report on environmental and social metrics in addition to their financial results and orientate themselves to longer-term objectives.
On the back of this Anthesis is pleased to announce an exciting new support tool: RiskHorizon™. Not only are we able to support clients to identify and prioritize the most material risk to their product or organisation, but we are also able to draw upon our experience of assessing the value at risk drawing on the highest quality evidence base.
Benefits of our approach include:
• Innovating problems ‘out’ of the system.
• Determining where and when to invest in R&D.
• Identification of current and future risks.
• Collaboration with a wide network to solicit creative solutions and strengthen resilience.
• Exploit the full range of corporate guidance on risk and opportunity assessment, and decision aids.
If you’d like to learn more please watch our video or contact Fiona Place.