This year has been another wild one on the weather front. From wildfires in Greece and Hawaii to the tropical storm that dumped a record amount of rainfall on Los Angeles, extreme climate-related events have filled the headlines. Nevertheless, when candidates participating in the first Republican presidential debate were asked whether humans had contributed to climate change, journalist Neil Vigdor reports that the debate “quickly descended into personal attacks and obfuscation.”[1] He explains, “There is no scientific dispute that the answer is yes, but hardly any of the Republican candidates gave a straight answer.” To be fair, the candidates’ answers spanned the spectrum of belief about climate change. The extreme right-wing candidate, Vivek Ramaswamy, declared, “I’m the only person on the stage who isn’t bought and paid for, so I can say this — the climate change agenda is a hoax.” A more moderate candidate, former South Carolina Governor Nikki Haley, stated, “Is climate change real? Yes, it is. But if you want to go and really change the environment, then we need to start telling China and India that they have to lower their emissions.” Unlike politicians, corporations don’t have the luxury of ignoring climate change — governments seldom go out of business because of poor policy decisions but corporations do.
What does stepping-up to climate change mean?
There are three areas on which corporations must focus: 1) External supply-side factors (i.e., how does climate change affect supply-side activities?); 2) Internal factors (i.e., what can the enterprise do to mitigate the effects of climate change?); and 3), Profitability and customer-facing factors (i.e., how do corporate policies and actions affect the bottom-line and the overall customer base?).
External Supply-side Factors
Science writer Seth Borenstein reports, “There’s a two-out-of-three chance that the world will temporarily hit a key warming limit within the next five years.”[2] That limit is an average global temperature rise of 1.5 degrees Celsius (2.7 degrees Fahrenheit). Borenstein notes, “Scientists in a special 2018 United Nations report said going past that point would be drastically and dangerously different with more death, destruction and damage to global ecosystems. … The world has been inching closer to the 1.5-degree threshold due to human-caused climate change for years.” Each year it becomes clearer that the warming limit is going to be breached as governments fail to act. That means that corporations have no choice but to examine seriously the consequences of climatic changes and what those consequences mean for their operations.
High on that list of consequences is climate-related disruptions to suppliers and supply chains. U.N. secretary-general António Guterres insists the impacts of climate change are “heading into uncharted territories of destruction.”[3] Clearly, factories operating in areas that could be submerged by rising sea levels or in areas prone to wildfires would have to find somewhere else to operate should the worst occur. Changing climate patterns could also make other places on Earth uninhabitable. Corporations need to understand climate conditions in locations where their raw resources are sourced. Science journalist Dave Levitan predicts, “Over the next 30 years, climate change is likely to uproot hundreds of millions of people around the world from their homes.”[4] If you think the world currently has an immigration problem, stand by. Levitan adds, “This will pose enormous challenges for urban areas across the world. Beyond the political and economic challenges of absorbing waves of refugees, cities are themselves likely to be dealing with climate impacts like heat waves, droughts or stronger storms.” The availability of water will also become an issue as weather patterns shift and glaciers melt. Colin Strong, formerly of the World Resources Institute (WRI), insists, “If climate change is the shark, water is its teeth. Heat and drought are leaving teeth marks everywhere.”[5]
One of the best ways to confront these potential threats is to undertake some serious “what if” thinking. Advanced models, like the Enterra Global Insights and Decision Superiority System™ (EGIDS™), can run myriad simulations at computer speed to help executives decide how to best proceed as the world changes.
Internal Factors
A company whose operations are not sustainable will go out of business. Although that may be a bit of circular logic, sustainability is a big issue for a number of reasons. Risk managers have known for years that climate change and other sustainability issues are cause for great concern. The staff at SupplyChainBrain notes, “A [2022] report from DispatchTrack, a specialist in last-mile delivery software, reveals that the majority of supply chain organizations surveyed in October and November — 77% — claim to be prioritizing sustainability or to have plans to prioritize it in the coming year.”[6] One reason sustainability is a rising priority is because governments are making it so. Stephan Liozu, founder of Value Innoruption Advisors, insists, “Companies have no choice. They have to comply, and they have to respond to consumer needs. … We are finally getting there. Sustainability is going mainstream.”[7] When Liozu asserts that companies have no choice, one reason is that many countries are going to dictate what companies must do. He writes, “Regulation is becoming a reality in some parts of the world. That is the top-down pressure coming from governments, regulators, and other global institutions. Regulations can impact every aspect of a company’s business model.” Although regulation is an external factor, how an enterprise complies is an internal factor.
Another reason sustainability is a growing internal factor is that waste increases costs and reduces profitability. The more sustainably a company can operate, and the more optimized its processes, the better its chances of long-term success.
Profitability and Customer-facing Factors
In a commentary article for The Brookings Institution, David G. Victor and Parker Bolstad write, “Gone is the idea that global treaties reached through consensus, such as the United Nations Framework Convention on Climate Change (UNFCCC), can, by themselves, force governments to take actions and marshal penalties on those that drag their feet.”[8] With few enforcement options, they ask what motivates leading firms and governments to act? Their take, “Nearly every answer turns, at least in part, to public opinion.” Their research leads them to believe that public opinion is swinging in favor of doing something about climate change.
For years, pollsters and researchers have found that younger people, like members of Generation Z, pay much closer attention to how enterprises behave than previous generations. McKinsey & Company analysts note, “As a generation committed to its values, Gen Z expects the same of its retailers — Gen Zers often choose brands that have a strong story or purpose, as well as those committed to green practices. In one McKinsey study, 73 percent of Gen Z reported trying to purchase from companies they consider ethical, and nine out of ten believe that companies have a responsibility to address environmental and social issues. However, they can tell when a brand is just paying lip service and isn’t backing up diversity or sustainability claims with real change.”[9]
Generation Z is an important consumer base that cannot be ignored. The McKinsey analysts report, “Globally, Gen Z is growing fast: Gen Zers will make up a quarter of the population of the Asia–Pacific region by 2025.” That is a consumer base too large to ignore. What that means is that enterprises should adopt sustainable practices in their own best interests.
Concluding Thoughts
Political responses to climate change, like those mentioned at the beginning of this article, can be disappointing. Polls have shown, however, that such rhetoric, aimed at a specific political base, does not reflect the concerns about climate change expressed by most people in the United States. Sandra Ericson, Executive Vice President and Partner at rbb Communications, reports that a 2021 survey conducted by researchers from Yale University found that less than 10% of Americans completely reject that global warming is happening. That means that 90% of Americans have at least some concerns. She writes, “We can’t solve for climate change if we aren’t discussing it for fear of someone’s response. It’s important to encourage the 90% of America [who have concerns about climate change]. Urge engagement with other members of the 90% and find common ground in their vision of the future. … By recognizing that no homogenous stakeholder groups exist and tailoring messages to address differences, communicators may play a powerful role in getting people on the same page when it comes to climate change.”[10] Enterprises should be proactive in their efforts to help the planet and help themselves. There simply is no other logical way forward.
Footnotes
[1] Neil Vigdor, “Chaos erupted when the candidates were asked if they believed in climate change.” The New York Times, 23 August 2023.
[2] Seth Borenstein, “The likelihood that Earth briefly hits key warming threshold grows bigger and closer, UN forecasts,” The Associated Press, 17 May 2023.
[3] Gloria Dickie, “Climate impacts heading to ‘uncharted territories of destruction,’ U.N. chief says,” Reuters, 13 September 2022.
[4] Dave Levitan, “Climate migration is about to explode. Cities will bear the brunt.” Grid, 28 November 2022.
[5] Schumpeter, “For business, water scarcity is where climate change hits home,” The Economist, 17 August 2022.
[6] Staff, “Majority of Supply Chain Organizations Prioritizing Sustainability,” SupplyChainBrain, 2 December 2022.
[7] Stephan Liozu, “The Sustainability Ship Has Sailed. Latecomers, Grab a Raft and Hope for the Best,” IndustryWeek, 16 March 2023.
[8] David G. Victor and Parker Bolstad, “Good news about global warming: The public’s paying attention,” The Brookings Institution, 10 February 2023.
[9] Staff, “What is Gen Z?” McKinsey & Company, 20 March 2023.
[10] Sandra Ericson, “Three Approaches for Engaging Global Warming’s ‘Six Americas’,” PR News, 7 September 2022.
