The global response to climate change is placing an unprecedented burden on business. As we shift to a low-carbon economy, the pace of change is increasing meaning business leaders need to go further to stay relevant in a world shaped by uncertainty.
Successful organisations that integrate an understanding of climate science, policy developments and business strategy to quantify the financial impact of climate change on their business and carve out a competitive way forward will be best positioned to balance growth and sustainability.
As executives from the world’s leading brands gather at Reuters Business USA to explore the challenges and opportunities of business transformation, discussion will be shaped by the event’s five key themes that underpin responsible business: strategy and impact; data, information and insight; sustainability, reporting and regulation; net zero and decarbonisation; and supply-chain transformation. As a climate-analytics organisation working with global brands to help them develop and understand the cost-benefit justifications for net-zero plans, Risilience and its partner, the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School, we bring proven insights on the business value of decarbonisation and opportunities available to organisations leading the charge:
Strategy and impact
Business leaders are increasingly alive to climate-related transition risks as, more and more, they make their presence felt. Changing how a business operates to better balance growth and sustainability is no easy task but failure to adapt an organisation could expose the company to a range of climate-related risks; both material physical risks resulting from climatic events, and transition risks emerging from the shift to a low-carbon economy. A purposeful strategy that moves the entire organisation to meet established targets requires a deep understanding of how the company operates and the risk to business from external variables that contribute to an uncertain, global business landscape.
While a business transition plan will require investment, companies without climate-smart strategies will see their market value eroded and find it increasingly more expensive to access capital if they fail to meet investor expectations. An effective net-zero transition strategy must understand the relationship between the quantification of risk, the potential financial loss that a company might suffer, and the amount spent on offsetting that loss and the associated mitigation.
Data, information and insight
Data is key to gaining actionable insights that enable strategic decision making. Using an organisation’s data to explore a range of ‘what if’ scenarios can offer business leaders a line of sight towards opportunities and actions – and the potential financial benefits. In some cases, making the transition to a green economy does require transformative company change but identifying exposure to climate risk can also prepare a business to take advantage of new opportunities emerging from the evolving business landscape.
The ability to access data for a range of purposes and turn that asset into information to enhance corporate strategy and demonstrate compliance can offer a competitive edge. The investment community is dialling up the pressure for businesses to report on plans and actions taken to mitigate climate risk. More than 50 major investors, including JPMorgan Asset Management and M&G, are demanding companies publish details of how they will cut emissions and give shareholders the chance to vote annually on the progress of their plans.
Sustainability, reporting and regulation
The private sector is increasingly expected to take responsibility for its contribution to climate change and also disclose how climate will impact a business. Demonstrating an authentic net-zero transition strategy is increasingly important to meet expectations from emerging regulation, investors and consumers. The Securities and Exchange Commission (SEC) climate disclosure rule is expected to be finalised this month (April 2023) and will bring in disclosure requirements on certain filers which are similar to the Task Force on Climate-related Financial Disclosures (TCFD) requirements. The forthcoming International Sustainability Standards Board (ISSB) framework from the International Financial Reporting Standards Foundation (IFRS) is widely expected to become the prominent standard for sustainability reporting across jurisdictions.
An increase in expectations from reporting and regulatory frameworks and investor scrutiny applies pressure to CFOs and sustainability leads for them to demonstrate awareness of and strategic plans to address both material physical and transition risks to their business. Taking an analytical, science-led and data-driven approach to reporting can open a gateway to developing a robust and authentic roadmap to sustainable growth.
Net zero and decarbonisation
Climate-change-related risks are already impacting profitability and this will intensify dramatically over the next decade for unprepared businesses. Revenues are being eroded by changes in demand as consumer preferences shift towards more sustainable products and weather patterns alter consumer behaviour.
Businesses that successfully embed these considerations into financial and strategic planning are aware that climate risk is a commercial priority as much as it is an environmental one, and that climate mitigation has both bottom-line costs and economic upsides.
Supply chain transformation
Many organisations are looking to restructure supply chains disrupted by geopolitical shocks and other constraints, including increasing regulation. We are seeing organisations restructuring in various ways to find efficiency gains. These include examining product portfolios to see how they play out in a number of new economic forecasts around a low-carbon future, which could bring a lot of potential benefits to businesses prepared to meet the moment. McKinsey estimates that markets for zero-emissions offerings could expand and create unprecedented opportunities: more than $12 trillion of annual sales across eleven value pools could be up for grabs by 2030.
Business leaders have a crucial role to play in driving sustainable change, reducing emissions and fostering positive environmental impact. In short, organisations that pivot their business models to benefit from the immense change that is well underway will future-proof their business models, capitalise on new consumer and technological opportunities, and align with investor demands. Ultimately, they will maintain relevance in a fast-changing environment.
- Risilience in partnership with the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School continues to research how businesses are evolving to balance growth and sustainability. We are currently conducting a survey to take the pulse of business executives planning for sustainable growth and invite you to contribute your perspective here.
- Risilience will be in attendance at Reuters Responsible Business USA.
- Learn more about Risilience at https://risilience.com/about
 Developing a Net Zero Business Strategy, Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School and Risilience, 2021
 https://www.mckinsey.com/capabilities/sustainability/our-insights/opportunities-for-uk-businesses-in-the-net-zero-transition#/ for UK businesses in the net-zero transition, McKinsey Sustainability, 2021