Image by Markus Spiske
The threat that climate inaction poses cannot be overstated. Not all businesses consider environmental commitments a priority, but this is a mistake, since climate change will eventually effect every aspect of our lives – including businesses, from supply chains to economic insecurity.
However, the shift towards a decarbonized future is in progress. As large businesses take part in corporate environment responsibility (CER), other businesses must be prepared to make the shift as well, or risk falling behind.
Today, we’ll cover what to include in a climate transition plan, as well as some challenges you may come across while enacting it.
Table of Contents
What is a Climate Transition Plan?
Businesses have always had to learn how to deal with the weather.
However, today, companies need to adapt to growing environmental, consumer and regulatory pressures. And yet, according to the 2021 S&P Global Corporate Sustainability Assessment (CSA), most companies have not even set emission reduction targets, let alone net zero ones.
However, delay will only cause further problems down the line. By initiating and following through with corporate environment responsibility, organizations can both reduce the pressure they put on the environment and become more aware of changing policies and price volatility.
A climate transition plan will help your company move towards an economy that does not decimate the earth’s resources. It should contain the following:
Clear commitments, including a net zero commitment/GHG reduction targets
Actionable steps to meet the above commitments
Clear measure of performance, as well as monitoring and disclosing
Effects of climate transition on business model and company strategy
Transition mechanisms, such as connections between remuneration and progress
Types of Risks Climate Change Poses to Businesses
There are various types of risks posed to businesses by climate change. The most prominent ones are:
Physical: Damage inflicted on assets and infrastructure, such as supply chain and factories, due to increased intensity and/or frequency of extreme weather events, such as hurricanes and wildfires.
Reputation: Can be direct or indirect. Direct would stem from company-specific policy or action, while indirect would stem from public perception of your industry. Either can lead to profitability loss and make your company less attractive to future or current employees and investors.
Product: Core products or services becoming less popular. Can include a partial or total loss of market share. Examples include ski resorts closing down due to lack of snow, or coal prices rising with ripple effects for mining equipment.
Prices: Increased price volatility of commodities and raw materials. These can include (but are not limited to) the price of water and energy.
Regulation: Government action, including subsidies that support competitors, rules that increase costs, withdrawal of subsidies, and so on
What Does a Good Climate Transition Plan Include?
For effective corporate environment responsibility, a climate transition plan should be marked by the following.
Strategy: Climate transition should be part of wider company policy. Strategies should focus in particular on decarbonization activities, engagement with stakeholders, and detailed action plans.
Effective governance: Corporate social responsibility and environmental management should include transparency in responsibilities of the board and senior management. Management remuneration should be connected to the delivery.
Quantification: Set both long-term and interim targets. Progress should be tracked with relevant metrics.
Challenges in Corporate Environment Responsibility
Changing Policies
On both the national and international level, policies on climate change often shift, sometimes with each election result.
This makes it hard for organizations to make long-term operating and investment decisions. However, businesses can prepare for future regulations by undertaking the following steps:
Understanding policy options
Developing an internal climate change strategy so the company is in a position to effectively react to changes in regulations and policies
Working with external stakeholders, such as regulators, to obtain their perspectives
Lack of Technology
Appropriate and accessible technology is crucial for organizations to prepare themselves for corporate environment responsibility.
Without it, companies remain unconfident in meeting their net zero targets. Furthermore, setting targets that rely on outdated or nascent technology can create the risk of targets not being met.
Carbon Considerations
Companies may find it hard to implement a climate transition plan if carbon considerations are not included in decision making.
This can be helped by using an internal carbon price (ICP) and linking it to individual or departmental KPIs. This will ensure that business decisions factor in the impact of carbon.
Conclusion
A lot of the focus on corporate environment responsibility has been on mitigation, especially decarbonization. However, increasingly, adaptation is becoming just as important.
Even if the world meets its climate targets, the damage has already been done, and we will feel its effects for many years to come.
Across all industries, one thing is evident: organizations that ignore corporate social responsibility and environmental management are likely to feel the consequences. Companies that identify relevant risks and establish appropriate action plans can start to manage the challenges looming in the future.
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