Climate Change x Business

Climate Change x Business

The Intersection of Climate Change and Business

While the activities of businesses are among the top producers of GHG emissions, they can also make major contributions to the reduction of GHG emissions. Businesses are creating innovative solutions to prevent, adapt, and mitigate the effects of climate change. These solutions have the potential to benefit both people and our planet.

Risk

Companies recognize that climate change poses financial risk and opportunities to their business, primarily in the form of physical risk and transition risk.

Physical Risk

Physical risk refers to the economic costs and financial implications resulting from climate change, such as increasing extreme weather events, severe climate shifts, and other indirect effects of climate change.

There are two types of physical risk:

• Acute: Acute physical risks are those created by specific and singular events — such as the destruction of real estate, infrastructure, or land during a storm or flood.
• Chronic: Chronic physical risks are the ongoing risks created by long-term changes in the climate — such as sea level rise or increased average temperature.

Transitional Risk

Transitional risks are related to the process of transitioning away from reliance on fossil fuels toward a low-carbon economy, including shifts in climate policy, regulation of certain industries, and demands from consumers and investors.

There are four types of transitional risk:

• Policy and Legal: There are increasing mandates surrounding carbon emissions and a company's sustainable business practices. Companies may be at risk of litigation surrounding their business activities and environmental impact.
• Technology: This type of risk involves replacing current products or services with low-carbon alternatives. This may include investing in a new technology.
• Market: Consumer behavior change is driven by the desire for more environmentally friendly products and services. To meet this demand, companies may end up paying more for environmentally friendly alternatives or raw materials.
• Reputational: Industries that are notorious for producing excess amounts of greenhouse gas (for example, the oil and mining industries) may find themselves under attack and intense scrutiny due to the changing preferences of consumers, stakeholders, and employees.

Greenwashing

Not just businesses and governments play a role in making a difference, but individual action is crucial to change. The first thing any responsible consumer needs to be aware of is greenwashing.

What is greenwashing?

Greenwashing is a marketing tactic that businesses use to convey a false sense of how environmentally conscious a product may be. This can be done intentionally or on accident — some companies may be unknowingly greenwashing.

^{Kenton, Will. “What Is Greenwashing? How It Works, Examples, and Statistics.” Investopedia, Investopedia, 18 Oct. 2022.}

For Example

A shoe company may claim that there is “50% more recycled content” in their new shoes. But the manufacturer only increased the recycled contents by 2% to 3%. Though their claim may be true it conveys a false impression of significant amounts of recycled material added.

Another Example

A company may brand themselves as “eco-friendly” for using recyclable packaging, meanwhile increasing water waste during production.

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Final Thoughts

[W]arming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, and sea level has risen.

The Intergovernmental Panel on Climate Change (IPCC)

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What Can I Do?

Take action.
Given your current industry, what are some potential climate risks that could affect you and how might this affect your business?

Technology

Software platforms like Persefoni have been developed as cutting-edge tools to calculate GHG emissions. Companies' emissions can be easily benchmarked to enable comparability between other companies, geographies, and sectors.

Persefoni can also help organizations model reduction commitments in line with the goals of the Paris Agreement.

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Nice work!

You’ve completed the introductory module on climate change. For more information, check out our module on carbon accounting!