Thanks for following along with this series of posts. It's been a pleasure to write them and judging from the comment thread on LinkedIn (where these have been cross-posted) you've gotten a lot out of them also. If this is your first time reading Climate|Money|Policy you may want to back up to the original two parts to this series they're available here: Part-1 Part-2. Let's quickly recap:
In Part-1 of this series we unpacked the concept that climate change can and should be looked at, by business, as a risk management issue. We laid out a few principals for proper risk management and concluded that a sensible assessment of the situation forces any reasonable business to view global warming as a threat to the marketplace itself not just that company's operations.
In Part-2 we compared the effectiveness of governments, individuals and the business community in taking on the topic and we did so with a sober assessment of not just what can be done but what is likely to be done.
Now in Part-3 we talk about reversing course and why businesses will help turn around the current situation more quickly than you'd expect.
Part 3: Changing Course
There's a general misconception that the business community hasn't accepted the facts surrounding climate change. That's not actually the case. In fact most of the business community hasn't weighed in at all. As industry makes itself more conscious of a warming planet, you're seeing more attention paid to these four areas in particular. These are the activities sensible mangers will impose on the marketplace.
Extending Efficiency Up and Down
World-spanning supply chains are particularly vulnerable to climate related shocks. For this reason businesses care more than ever about HOW goods and services are produced. Production in a carbon-limited way is quickly becoming a required quality in the finished product. The main drivers of behavior like this are large retailers who have realized that although cost of labor may be localized and a good reason to outsource, the embodied carbon of a product is a vulnerability that can drive up prices at the shelves regardless of how cheap production costs are.
EXPECT TO SEE: more companies taking their queue from Walmart and pushing suppliers to adopt low-emission practices. You'll be surprised to see how quickly this catches on. Twenty years ago business started the same process of independent inspection around labor conditions despite having far less skin in the game.
Business Groups Force Government's Hand
It's no longer the case that policy suggestions are being made by those in opposition to the facts. Trade groups are quickly learning that their members are in the line of fire for climate impacts and the only way to serve their members is to get involved in a meaningful way.
EXPECT TO SEE: changes in the membership of groups like ALEC and changes in attitude for groups like the Chamber of Commerce. In the past these two have shown vehement opposition to sensible climate policies. As a result key members like Microsoft are leaving ALEC and the Chamber's membership is pressing for an altered course of action. You'll also see more from groups like BiCEP which is helmed by the likes of Mars, Nike and EBAY with the express purpose of imposing fair carbon legislation.
Investors Demanding Change
There's a monstrous liability in the market right now and everyone know it. Investors are rightly worried that a price on carbon will create a sudden jolt in the value of their holdings and no one know for certain how big that jolt will be. If a price is placed on carbon there will be a devaluation of the stock price for major carbon-energy companies. This is because the majority of their valuation is tied to the reserves they have acquired but not yet exploited.
EXPECT TO SEE: Currently almost 40% of shareholder ballot questions relate to the social and environmental impacts and operation of a company. This number will continue to rise as stockholders increasingly worry over the vulnerability of a given enterprise. The only thing that can forestall those concerns is an integration of carbon and sustainability reporting into the annual business reporting. Accounting standards and practices will begin to integrate meaningful metrics that can reflect the impact of an enterprise on the marketplace itself.
Business Using Climate as a Strategic Weapon
If you're better at what you do that the next guy you're going to let people know. As businesses deleverage and insulate themselves from the climate, their efforts will be rewarded in the form of additional talking points that can be used against their competitors.
EXPECT TO SEE: businesses talking about climate liability and what the norms are for their industry. Businesses will start talking about the security of their supply chain, the confidence of their investors and the risks that they've deleveraged and hedged against. If you go back a hundred years before the FDIC was around to insure banks, you'll find that banks competed with one another by publishing the ratio of how leveraged they were. Savings decision were made in large part on the basis on how liquid a bank was in the event of a run. Something like that is happening again and data centers supply their own power through renewables and storage capacity. Expect to see more of that in surprising places.
The end & the beginning.
Thank you for reading these posts. I hope they've been useful to you. My purpose in writing them was to lay out just how connected and integral the business community is to solving the climate crisis. In my consultancy the biggest hurdle is simply getting some executives to understand how the broader marketplace demands their attention on this issue and how giving that attention means staying not just ahead of climate change... but ahead of the competition. Please contact me with any questions and please leave a comment.
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