Risk is inherent in business. Economic recessions, for instance, can reduce consumer spending, while technological advancements can turn existing products obsolete.
Some of today’s most prominent risks are related to climate change.
“The climate is changing,” says Harvard Business School Professor Forest Reinhardt, who co-teaches the online course Business and Climate Change with HBS Professor Mike Toffel. “Societies around the world are experiencing the costly—and even devastating—effects of these changes. From more frequent wildfires and hurricanes to more intense heat waves and flooding to rising sea levels and changes in the ocean, these effects are projected to intensify and become more unpredictable in the decades ahead.”
As a business leader, understanding and preparing for climate risks is crucial to long-term success.
Related: Listen to Professor Reinhardt discuss climate change and the tragedy of the commons on The Parlor Room podcast or watch the episode on YouTube.
What Are Climate Risks?
Climate risks are climate change’s potential consequences, including:
- Physical risks caused by acute weather events like hurricanes and floods and chronic ones like rising sea levels and increased temperatures
- Transition risks when implementing sustainable business practices with new technologies or energy sources
- Liability risks related to environmental impacts, such as affected communities’ lawsuits and investors’ demands for better disclosure
You can find your company’s climate risks using a data-driven approach.
For example, Pacific Gas and Electric Company (PG&E) determines its climate risks and infrastructure vulnerabilities by analyzing historical temperature fluctuations, wind patterns, and wildfire occurrences. It also projects future scenarios and assesses the likelihood of severe weather to implement emergency response and mitigation plans.
Identifying climate risks is just the first step toward future-proofing your business. Next, you must address those risks. Here’s how.
5 Ways to Address Climate Risks in Business
1. Create Mitigation Strategies
A comprehensive climate mitigation strategy is essential to reducing carbon emissions and being more resilient against climate risks.
According to the Center for Climate and Energy Solutions, nearly 30 percent of U.S. greenhouse gas emissions come from business operations such as:
- Burning fossil fuels to generate electricity
- Expanding landfills
- Transporting people and goods via cars, trucks, planes, trains, and ships
- Clearing land for agriculture
Climate change mitigation involves adopting alternatives to those damaging practices and prepares you for financially risky regulatory changes.
For example, renewable energy mandates could pose financial burdens on businesses in the automotive industry, which face pressure to meet clean energy legislation in 24 states.
As a result, automotive companies have invested in renewable energy projects, the most notable being Volkswagen, which became the first car maker to support the expansion of wind farms and solar plants.
2. Develop Adaptation Plans
Mitigation strategies don’t prepare you for all climate-related events. Developing climate change adaptation plans in addition to them can help you respond to, prepare for, and build resilience against climate change.
In Business and Climate Change, former U.S. Environmental Protection Agency Administrator Carol Browner shares why businesses can’t ignore climate change adaptation.
“Scientists are telling us we’ve gotten to a point where storms are getting worse, that the weather patterns are going to change, agricultural patterns are going to change, and the fires are going to be more intense,” Browner says. “So we have to start to think about how we adapt to this.”
For example, your company can invest in flood barriers and drainage systems to protect against storms and upgrade its heating and cooling to handle extreme temperatures. Such measures can help safeguard its infrastructure and operational stability from climate-related disruptions.
One real-world example of a company that’s adapted to climate risks is coffee producer Starbucks, which invests in climate-resilient coffee plants and farmer training programs centered on sustainable agricultural practices.
By following that lead and implementing adaptation strategies, you can position your business to navigate climate change’s challenges.
Related: Climate Change Adaptation vs. Mitigation: What’s the Difference?
3. Enhance Supply Chain Resilience
Supply chain resilience is critical to your business strategy. According to a World Economic Forum report, companies with socially responsible supply chains can increase revenue by up to 20 percent while reducing costs by up to 16 percent.
One strategy to help mitigate climate disruptions is diversifying suppliers to avoid climate-related production delays or quality problems. A diverse supplier base can also improve competitive pricing, innovation, and flexibility, enabling your business to adapt more effectively to changing market conditions and environmental challenges.
To diversify your supply chain, you can collaborate with providers to:
- Join efforts to reduce carbon emissions
- Support sustainability initiatives
- Develop contingency plans for climate-related disruptions
For instance, retailer Walmart works closely with suppliers through its Project Gigaton initiative, which aims to reduce supply chain greenhouse gas emissions by one billion metric tons by 2030. The program encourages suppliers to adopt sustainable practices and provides the resources and support to implement changes.
With a more resilient supply chain, you can be better equipped to handle climate change’s uncertainties and maintain a competitive edge in the market.
4. Invest in Sustainable Technologies and Practices
Investing in sustainable technologies and practices is an effective way to address climate risks.
One approach is improving business operations’ energy efficiency, which, according to an International Energy Agency report, can contribute to more than 40 percent of the greenhouse gas emissions reductions needed to meet global climate goals by 2040.
Energy-efficient technologies to consider investing in include:
- Light-emitting diode (LED) lighting
- High-efficiency heating, ventilation, and air conditioning (HVAC) systems
- Energy management software
You can also transition to renewable energy sources such as solar, wind, or biogas to lower your business’s reliance on fossil fuels.
In Business and Climate Change, New Belgium Brewing’s Chief Environmental, Social, and Governance Officer Katie Wallace highlights how the craft beer maker uses solar and biogas from water treatment plants to mitigate climate risks within the Colorado grid.
“When we installed our solar panels on the Colorado packaging hall, it was the largest privately owned solar array at that time in Colorado,” Wallace says. “And today, we have many other sources of renewable electricity and have invested quite a bit in efficiencies.”
Because of such efforts, New Belgium Brewing has helped prevent over 530 tons of carbon emissions—the equivalent of planting nearly 12,500 trees.
5. Engage in Policy Advocacy
Policy advocacy plays a significant role in proactively addressing the long-term climate risks that can affect your business.
For example, outdoor apparel company Patagonia supports environmental activists working to safeguard natural resources and promote sustainability. It also lobbies for public lands and waters protection to slow climate-related overdevelopment.
If you want to make change outside of government regulatory bodies, consider collaborating with local communities and industry groups to build a support network, drive collective action, and improve your brand’s reputation.
How to Make an Impact on Climate Change in Business
While climate change is a monumental global challenge, business can be a driving force for addressing it.
“Throughout modern history, business firms have been amazing engines for societal change,” Toffel says in Business and Climate Change. “They regularly develop technological innovations to produce goods and services that make people’s lives better. And now, climate change is one of the world’s biggest societal challenges.”
If you’re ready to tackle climate change and help future-proof your organization, consider enrolling in Business and Climate Change to gain insights and tools from industry leaders who’ve grappled with it firsthand.
Do you want to learn more about adapting to and mitigating climate change? Explore Business and Climate Change—one of our online business in society courses—and download our free e-book on becoming a purpose-driven, global business professional.
