Fatihah Ramzi, DigitalCFO Asia | 4 October 2022
Businesses that want to combat climate change must be aggressive in their territory, at the national or regional level.
Climate change is now a reality and is becoming an increasingly important factor in corporate competition. Emissions of greenhouse gases will be more closely examined, restricted, and charged. Although different managers may have different opinions on how imminent and substantial the effects of climate change would be, businesses must respond right away.
The most serious consequences will befall businesses who continue to view climate change primarily as a CSR issue instead of a business concern. Of course, shareholder demands and social responsibility will have an impact on a business’ climate policies. However, because the consequences of climate change on business operations are now so obvious and definite, it is essential to handle the problem using the tools of the strategist rather than the philanthropist.
Incorporating Strategic Environmental Practices
Climate change cannot be addressed in a universally applicable manner. The strategy adopted by each organization will be based on its unique line of business and should complement its overarching plan. Every organization’s strategy must incorporate actions to reduce costs and risks associated with climate change throughout its value chain.
Business executives must begin viewing carbon emissions as expensive because they now are or soon will be, and organizations must evaluate and lessen their sensitivity to environmental and economic disruptions associated with climate change. For optimal operational efficiency, every company must master those fundamentals.
An organization that generates excessive emissions during its shipping operations is operationally inefficient since it wastes resources and incurs extra expenses that are only going to increase. The least need to maintain competitiveness is to establish best practices in controlling costs related to the environment.
Every company must assess its sensitivity to climate-related consequences, such as regional variations in the accessibility of energy and water, the dependability of infrastructures and supply chains, and the pervasiveness of infectious diseases, in addition to recognizing the costs associated with its emissions. The leaders of the company should methodically evaluate these risks before deciding which to handle, which to decrease by rethinking operations, and which to shift to others via insurance or hedging agreements.
Some businesses, but not all, may adopt a strategic approach to addressing climate change that goes beyond operational efficiency. In the methodology of confronting climate change, some businesses will discover prospects of strengthening or broadening their market position by developing goods that take advantage of demands which are induced by climate change. By reforming the industry to more efficaciously address climate concerns, or by driving innovation in areas that have been impacted by climate change, business will be able to accomplish a true competitive advantage.
Keeping A Close Eye On Emissions
Activities along the value chain may have a direct or indirect impact on emissions. Emissions may be produced directly by a business activity or indirectly by the business through its influence on suppliers, distributors, and customers. A corporation must be aware of both its own emissions and those that it contributes to the production of by its business partners. Both categories should be reduced in quantity.
These evolving effects could have dramatic effects. For instance, in a future with more expensive emissions, existing supply chains which are transportation-intensive may no longer benefit from just-in-time inventory management systems. The rise of small parcel delivery in e-commerce may also have significant restrictions. Additionally, in some circumstances, onshoring to close-by supplier groupings may take the place of offshore, which increases emissions by prolonging transportation distances.
High carbon footprint does not automatically imply that a corporation should be strategic about the climate. Managers can devise a strategy to solve these issues once they are aware of their company’s overall carbon footprint and the adverse climate implications of particular value chain processes. Operations with high emissions and little added value should be eliminated or outsourced to organizations with greater efficiency. Those that are significant to value may turn into strategic if a business may lessen its exposure in comparison to rivals by doing better.
Additionally, businesses play a political role. Businesses that want to combat climate change must be aggressive in their territory, at the national or regional level. They can have a significant impact by urging prominent figures like politicians to take action against global warming. If businesses take action, new environmental legislation may result, which may have a substantial influence on global warming.