SLCC_18: Climate Change: Businesses and climate change

Introduction

Small and medium enterprises use around 50% of total UK business energy and are responsible for half of all business carbon emissions. Although SMEs tend to think that climate change does not affect them, the small changes they make to their way of working could have a positive, cumulative effect.

There is a great deal of information out there about the risk of climate change to businesses, government climate change policies and corporate responsibility. There are also numerous resources available to businesses that are unsure about how to assess their risk of exposure, how to manage that risk, and how to begin the process of adaptation.

This unit aims to bring together this information by addressing the key concepts of risk, corporate social responsibility and engaging employees, and to allow businesses to make informed decisions about this issue.

Learning outcomes

By the end of this unit you should be able to:

• Understanding of how climate change affects businesses;

• Understanding of how business, climate change and sustainability are related.

• Awareness of management approaches including planning, engaging employees and engagement with stakeholders;

• Introduction to key concepts which will enable businesses to identify areas to explore further.

1 Climate change: risks and opportunities

1.1 What are the risks of climate change to businesses

Businesses can be affected both directly from climate change and indirectly through government policies. Risks can occur from the impacts of predicted climate change effects such as increased temperature, extreme weather events, disrupted ecosystems and flooding of land.

Specific types of affects to business could include:

• Increased electricity demand in summer due to air conditioning requirements and less in winter due to milder temperatures;
• Damage to facilities from increased number of extreme weather events;
• Water shortages;
• Flooding events and other natural disasters;
• Interruptions to supply of fresh produce and transport of livestock;
• Animal born infections e.g. swine flu;
• Changes in working conditions and working hours;
• Design standards;
• Insurance limited e.g. flooding and high volume of claims;
• Disaster recovery plans expensive;
• Commercial competition for resources;
• New ecosystems may require new skills.

These in turn may produce adverse business outcomes, from interruptions, costs and skill shortages depending upon the importance of each impact to the business.

The equation for defining risk is:

This equation will give an indication of the vulnerability of the business to the risk. This vulnerability can then be managed to a less vulnerable state.

This website includes a presentation on risks to business of climate change.

1.2. Advice for businesses in managing climate change risks can be found on these websites:

• The Pew Centre on Global Climate Change;
• Business Green;
• The Climate Group International;
• Sox First;
• Climate Action;
• World Resources Institute;
• Investor Network on Climate Risk;
• Business Link;
• Climate News for Business;

1.3. What opportunities will climate change bring?

The flip side of risk is opportunity. Climate change is not all bad news and there are opportunities for businesses and nations, as well as people. Business strategies can be aligned to enhance and develop new product lines for emerging markets created from the effects of climate change.

• Yale University Sabin Price Lecture on Entrepreneurship in climate change: Brighter Planet

Here are some case studies of how companies have turned around the climate change risk to their advantage:

• Whirlpool;
• DuPont.

Here are some other resources that look at business opportunities in climate change:

• Strategies that address global climate change, from Michigan University;
• Camco;
• Green Investing on climate change.

These web-based resources consider opportunities for businesses in other countries:

• Northern Europe — Climate change: adapting to the impacts;
• Australia - ‘A climate of opportunity’;
• Overseas Development Institute – ‘Challenging development: Will climate change hold back poverty reduction?’
• The International Fund for Agricultural Development: ‘Challenges and opportunities for smallholder farmers in the context of climate change and new demands on agriculture’

1.4. How will responses vary depending on the size of business?

The starting place for any business in managing climate impacts is awareness. Once the business understands the role that it plays in the larger community, and how it affects the environment, any business can develop a climate-management plan tailored to its own needs and situation, gaining business value at the same time. The business may be part of a larger supply chain, where greenhouse emissions have to be calculated and accounted for.

Small and medium enterprises (SMEs) are a vital part of UK economy providing local employment, innovation and inclusion. They provide local employment, goods, services and help cement communities together). The number of SMEs is growing, mostly in the industries of construction, leisure, internet retail, delivery services and real estate.

Many SMEs see climate change as a global problem, not as threat to themselves. For example many do not hold insurance, but they can take up to two years to recover from flood, and some do not survive. Only a quarter of SMEs in UK think climate change is a problem for them.

It's hard to measure climate impact on a small scale and so SMEs often do not identify their role. But even small contributions can accumulate. SMEs use around 50% of total UK business energy and are responsible for half of all business carbon emissions. While the business may only produce few direct greenhouse gas emissions, it has an indirect impact on climate — energy use, transportation, and other everyday activities. ‘Electricity, heating, cooling, machinery, office equipment, chemicals, wastes of all kinds, and transportation all translate into energy use that contributes to climate change, and business opportunities’. There are more than 50 'clean energy' companies quoted on the London stock market.

Typical reactions of small businesses to flood disaster for example include:

• Home working or flexible working;
• Review of commercial insurance;
• Review of ‘weather proofing’ and weather risks to premises;
• Obtaining advice from government and external bodies;
• Relocation.

Taking proactive steps to reduce energy consumption and emissions can be expensive up front. There may not be the time to wait for the return on the investment. But even small ‘free’ steps help e.g. turning off lights or computers when not in use.

The Climate Change Levy (a tax on companies who use fossil fuels and is aimed a reducing pollution) has a larger effect on small companies. The relative cost of switching to cleaner fuels is high for SMEs, who cannot afford to change or alter equipment, thus forcing them to reduce the amount of energy they use which may risk harming the business.

For larger businesses the cost is proportionately lower, and in many cases, these companies have managed to negotiate huge reductions to the levy by promising to change production methods. Here climate change also sits low on the agenda.

The FTSE 500, taken as a whole account for nearly 15% of all global emissions by humans, but only 10% prioritise global warming. Money dictates the higher priorities of cost reduction, emerging markets and new products. It is however the large businesses who are in a better position to lobby the UK government.

The UK Corporate Leaders Group on Climate Change (UKCLG), consists of the leaders of eighteen major UK companies (including B&Q, BAA, Centrica, E.ON, LloydsTSB, Shell, Tesco and Vodafone) and supports the Climate Change Bill which calls for a ‘comprehensive package of policy measures to change every major sector of the economy’ to achieve ‘year on year reductions in emissions’. The group argues that ‘if the UK is to be a global leader in green business then government and business must work together to achieve real change by delivering new projects and business best practice in order to create a low-carbon economy’.

Taking a global perspective the picture looks a little better. More than 250 of the world’s largest companies are actively operating greenhouse emission reduction schemes.

Additional information can be found on these websites:

• ‘Small business must “wake up to climate change”’;
• Small Business Journey;
• ‘The climate change threat to your business’;
• ‘Big business bosses on climate change action’.

2 Climate change and sustainability

2.1 Environmental impacts of climate change

Climate change is connected to a number of sustainability issues to do with changing ecosystems and resource depletion.

Here are some of the environmental impacts:

• Atmospheric pollution;
• Energy conservation;
• Depletion of resources – oil, gas, uranium, aquifers, food, fish;
• Identification and growth of renewable energy sources/technologies;
• Submersion of land masses;
• Water shortages;
• Population growth;
• Spread of disease;
• Disruptions of ecosystems.

Assuming therefore that population and level of affluence will on the whole increase globally then in order to just maintain the same level of impact we must be more efficient in our use of resources. Of course these factors are interrelated, but in simplistic terms the relationship holds.

More information is available on these websites:

• The IPAT equation on the Encyclopaedia of Earth website;
• ‘Mapping the contours of climate change’" -Independent newspaper;
• Population and Sustainability Network;
• Patrick Dixon talks about ‘sustainability, climate change and crazy biofuels policy’.

2.2 What‘s the role of corporate social responsibility (CSR)?

CSR is the way that businesses manage the economic, social and environmental impacts of their operations into their values, culture, strategy and operations to maximise the benefits and minimise the downsides. It is driven by both Government looking for businesses to make positive contributions and the costs and benefits of the business and may involve new approaches in their activities of:

• governance;
• ethics;
• health and safety;
• environment;
• human rights, labour, culture, minorities;
• sustainability;
• accountability;
• customer satisfaction.

An effective approach to CSR can enhance brand and company reputation by improving efficiency, reducing the risk of business disruptions, and open up new opportunities driving innovation.

The ‘triple bottom line’ more commonly known as ‘people, plant, profit’ is also known as the three pillars of sustainability as put forward by Philips in 2005.

More information is available on these websites:

• Corporate social responsibility and sustainable development;
• ‘Corporate social responsibility: An implementation guide for business’;
• Corporate Responsibility Group;
• European business network for CSR;
• Mallen Baker is a writer, speaker and strategic advisor on corporate social responsibility.

3 How will climate change affect business location, real estate and infrastructure?

Many businesses are directly affected by weather e.g. agriculture, leisure and tourism and so will be affected by climate change. However, businesses that are dependent on long-term investment are likely to have larger impacts, because the consequences of climate change increase over time. So the industries of construction, real estate, transport and infrastructure are likely to be the most effected by climate change impacts.

Depending on the location and microclimate, buildings can be affected by flood, wildfires and landslides. Older buildings, especially near the coast and waterways are vulnerable to flooding and storms. This could affect the value of building and real estate and make it more difficult to obtain adequate insurance. In turn this could promote changes in government regulations and purchasing trends. It could also result in increased building costs, with new standards and preventative measures. As a result it is the newer houses which will be able to withstand a changing climate more easily.

With increasing requirements, building codes, tax and other incentives for energy-efficient buildings, there is a move toward more compact developments and an increase in the value and desirability of ‘green buildings’. These opportunities in energy efficiency and new construction technologies may also result in carbon reductions that could produce market-valued offsets for other business sectors.

Business location will also be affected by the real estate issues above. Climate change will affect almost all forms of infrastructure: electricity, gas, and water in the utilities as well as transport access and telecommunications. This in turn will affect people. Electricity could suffer from interruptions and blackout from extreme weather events. The lack of capacity may also be a factor due to increased demand under extremes of temperature. Drought could reduce water supplies and hydroelectric generation. Any low-lying buildings, airports, rail lines and roads, are vulnerable to floods and storms. Roads and rails will need to be resealed more often due to the heat.

More information is available on these websites:

• ‘Business strategy and climate change’;
• Met office: Climate change business case studies;
• ‘Is climate change a business continuity issue?’

4 How will climate change affect business travel?

Transport is an increasing source of greenhouse gas emissions, and thus a primary driver of climate change. Commuter and business travel accounts for 40% of car mileage in the UK. Reducing excessive vehicle use is a key step for any business wishing to achieve a smaller carbon footprint.

There are four aspects of business travel to consider:

• 1) Those whose main business is that of travel e.g. airlines and haulage companies. Legislation on emissions and shortages of fuel cause these businesses to increase prices as overheads rise. Users, dependent on these services look at less expensive and more sustainable opportunities for essential travel. With a reduction in users these business have to reduce their fleet size, use more eco-efficient vehicles and some companies will not survive.
• 2) Business to meetings and appointments offsite. Some companies run up large business travel bills. As the pressure to reduce their own carbon footprint increases businesses start to look for ways of reducing the number of off-site meetings. For those that are still essential ‘travel policies’ are introduced to use low carbon modes of transport. Typical business changes include:
• • Employees encouraged to use electronic communications and remote conferencing facilities;
• • Restricted travel in own car substituted by car pool systems and renting low emission vehicles;
• • Employees encouraged to attend advanced driver training to drive more efficiently;
• • Use of integrated online calendar to book several appointments on same day, car share and use of public transport;
• • Flying only if other methods are impossible and travel to and from airports by public transport.
• 3) Distribution to and from businesses:
• • Change in emphasis from customer driven to company driven delivery plans;
• • Reduction in frequency of deliveries;
• • Central warehousing to optimise loads per delivery;
• • Computer controlled warehousing for optimum delivery itineraries.
• 4)Travel to and from business:
• • There will be a move away from single occupancy car use to more eco-efficient modes of transport such as car-sharing schemes, use of public transport, walking and bicycles;
• • Working hours will become more flexible to accommodate these routes and on-site parking space will reduce. There will also be more freedom to work at home eliminating any travel to work for several days a week.

More information is available on these websites:

• The climate change charter for businesses;
• Business Link advice on cutting carbon emissions from business travel;
• Case study: Capita on reducing carbon footprint through travel measures;
• Climate Change Corp on business travel.

5 Is there a need to do supply chain analysis?

The short answer is yes.

All businesses do some form of supply chain analysis, whether it is the ‘make v buy’ decision, choice of supplier or forming a strategic alliance. This analysis may include some of the following considerations:

• Management and collaboration effort;
• Operational costs;
• Capacity to meet market demands;
• Location of facilities;
• Reputation;
• Standards.

When we take climate change into account the supply and demand network can also change. These services and infrastructure also affect not only the supply of inputs and product deliveries, but also the ability of workers to reach the workplace, or customers to access the business. Thus it is now necessary to take other considerations into account. Here are three major considerations:

• Is there a disaster recovery plan which allows for business continuity?
• Do suppliers have sufficient adaptive capacity?
• Who are your backup suppliers?

More information is available on these websites:

• Case Study – Innocent on product carbon labelling. Their engagement throughout the supply chain led to carbon savings and lower costs;
• Advice from Business Link on How to make your supply chain greener;
• Logica on supply chain impact.

6 What are the best ways of engaging employees?

Engaging employees in climate change is just like any other management initiative. Key actions to engage employees in any initiative include:

• Full senior management commitment and leading by example;
• SMART objectives;
• Access to information and training if required;
• Employee support;
• Good communication throughout business, covering aims and objectives, status of plan, benchmarking with other businesses, reward;
• Encouragement to form individual action plans.

More information is available on these websites:

• Business Green advice on engaging employees in green initiative;
• CSR case study EDF energy;
• Energy Savings Trust - A personalised action plan to cut CO2 emissions;
• Do the Green thing Network

7. What kinds of leadership and collective intelligence are needed to respond to climate change?

Businesses that identify and respond to the climate change risks earlier than their competitors will be the ones to survive the rest. This requires strong forward looking leadership and ability to determine the risks and the necessary mitigations.

Success will require both a top down and bottom up approach within a best practice management framework. Now is not to the time to stint on training. Employees need to be encouraged to embrace change and become knowledgeable about the effects of climate change.

Investment in R&D will be necessary, as well as focusing on assets that are not vulnerable to the extreme weather events and other climate change impacts.

Ashridge College suggests that the following seven attributes are important for responsible leadership:

• Acting with integrity;
• Caring for people;
• Demonstrating ethical behaviour;
• Communicating with others;
• Taking a long-term perspective;
• Being open minded;
• Managing responsibly outside the organisation.

Collective intelligence is the synergetic accumulation of global knowledge and expertise. The possible benefits in climate change arena are:

• Global scale and expertise;
• Openness and sharing;
• Definition of issues, options and risks;
• Evaluation (tools, protocols and mechanism);
• Collective decision-making.

More information is available on these websites:

• Ashridge report: ‘Leadership qualities and management competencies for corporate responsibility’;
• ‘Collective Intelligence to Address Global Climate Change’ by Malone, T and Klein, M. published in Innovations Summer 2007, Vol. 2, No. 3;
• Article on Collective Intelligence;
• The future in our hands: Addressing the leadership challenge of climate change;
• The climate collaboratorium: Harnessing collective intelligence to address climate change issues.

8 How does climate change affect dialogue with stakeholders?

A stakeholder is defined as someone who is affected or influenced by the business. There is always a range of stakeholders from shareholders and investors to customers and all employees, suppliers and competitors, as well as business partners, government and communities.

Dialogue with key stakeholders is important to develop a sound minimal risk business strategy. It is not just an opportunity to inform stakeholders but also to check out perceptions and conflicts. Such a dialogue is continuous and allows measurement of stakeholder satisfaction. Multi-stakeholder dialogue is a mechanism for resolving environmental disputes.

When climate change is taken into account there is a broader range of stakeholders to consider (policy think tanks, non-governmental organisations, academia and the private sector) because other societal and environmental issues come into the consideration.

Ideally multinational businesses discuss issues involving global warming, resource exploration, globalisation, human rights, etc. This can cover a large number of stakeholders with differing agendas and may require mediation. The definition above however allows for any ‘stakeholder’ to involve themselves at the negotiating table; even those openly hostile to the values of a company’s primary stakeholders. For example, animal rights and other antagonist groups sometimes engage destructively in non-negotiable ultimatums at stakeholder meetings. This results in a more limited dialogue using information websites and public meetings which are designed to diffuse emotion rather than enlist participation.

More information is available on these websites:

• Pioneers of Change Dialogue Project;
• BNFL National Stakeholder Dialogue;
• BWEA Offshore Wind Consultation and Stakeholder Dialogue";
• Shell: Stakeholder dialogue can be dangerous to your health;
• ‘Toward a theory of stakeholder salience: defining the principle of who and what really counts’, Academy of Management Journal.

Acknowledgements

Acknowledgements

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Text

Dr. Barbara L Jones

Unit image

Getty photodisc

Links

All links accessed 30 November 2009.