How business can adapt to climate change
Boards of corporations are supposed to comprise of sage individuals of a higher order than homo sapiens. In the popular imagination, they sit in wood-panelled rooms pondering weighty matters that determine the future of thousands of the lesser species, even as they make money for their shareholders. Therefore, it would be fair for the said popular imaginations to be imagining that climate change would be top-of-the-agenda in the rarefied atmosphere of that hallowed room. That boards would have invariably identified that risk as number one. That faced with the long-term threat of extinction of the existing natural world and to the survival of humans, they would have been wrestling with it, informed by expert studies and looking to the long-term impact of their current strategy and tactics.
Downplaying the impact
What have these worthies been doing about it? Simple, they have totally ignored it, arguing that:
- First, its impact at the micro level of each business’s operations is too uncertain to predict.
- Second, the impact will begin to manifest itself in its worst form well into the future, certainly long after the present lot of directors have departed for heavenly boardroom.
- Third, any responsible behaviour is going to be a constraint on making more money.
- Fourth, wait for the law to mandate action, then comply. Why allow competitors to steal a march in the money-making game.
- Lastly, in every risk there lies an opportunity. Find ways to make even more money from this looming disaster.
Have boards had serious discussions, finally reaching the above conclusions? They have not. The above is merely what you will hear should you broach the topic on the side-lines of a meeting.
Now-a-days being green and environment conscious is important for making more money and every business must posture to be that. A prominent private bank in Mumbai put out an announcement to the wide-eyed public that they would, henceforth, replace single-use disposable plastic bottled water (only in their head office, mind you) with, ironically, single-use disposable paper-cups. One would have expected them to announce that they would no longer lend to any borrower who had an environmentally negative footprint.
Only the last argument resonates with these wise men and women of the boardroom. Now-a-days being green and environment conscious is important for making more money and every business must posture to be that. Luxury lifestyle businesses are the biggest claimants to greenness. So, five-star hotels that exist solely because of the consumerist lifestyle of their patrons, claim to be green on the strength of not washing all the linen daily. A prominent private bank in Mumbai put out an announcement to the wide-eyed public that they would, henceforth, replace single-use disposable plastic bottled water (only in their head office, mind you) with, ironically, single-use disposable paper-cups. One would have expected them to announce that they would no longer lend to any borrower who had an environmentally negative footprint.
Approaching the issue
So, what should a company do about climate change? There are several facets:
- STRATEGIC – If the company is contemplating new products, new locations, new technologies, new supply-chains, indeed, anything new, it needs to think what the situation is likely to be about 25 years hence and how the new choice will stand-up in that situation. So, if a company is contemplating a people dependant business in Central India, it will have to consider if that location would remain habitable when the temperature is several degrees higher and the scarcity of water is far more acute. Or, if they are thinking of manufacturing a luxury product, will there remain a market for that product when society turns against consumerism (as happened in the case of fur coats or disposable single-use packaging). Or if they are thinking of using LNG as a fuel, would carbon taxes or other factors make that unviable. Similarly, an extended supply chain may currently be more economic than local sources but may no longer be so if the suppliers are in locations that would be submerged by rising sea levels or because the carbon cost of transport would become prohibitive.
- OPERATIONAL – This aspect is already in the spotlight and organisations such as Accenture have specialised in helping businesses reduce consumption by re-engineering their businesses and the processes they use. As it flows directly to the bottom line, all managements and boards are keen on such activities.
- RISK IDENTIFICATION – How will existing business locations, raw materials, customer groups, vendors and stakeholders be affected by climate change, both directly and indirectly? Will even the global trading system be able to cope with the changes? Will insurers survive massive claims? Will banks be able to operate if the monetary system is threatened? Will the business be affected by mass migrations? For example, two crores of Bangladeshis will have nowhere to escape rising seas other than into India. How would this affect directly and through its impact on stakeholders?
- RESPONSIBILITY – Humans are already past the tipping point at which major, irreversible climate change is inevitable. All that can now be done is to mitigate the impact in the long-term. The fundamental reason for this is unchecked population growth multiplied by consumerist lifestyles. The latter is solely the responsibility of business. Will your company only deal in goods or services that fulfil the basic needs of humans? Will you make products that last long and can be recycled? Will you use advertising to discourage use of products and services beyond the necessary? Will you have plans to ameliorate the worst impact of what is likely to happen to your stakeholders? Are you inculcating the mantra of Refuse, Reduce, Reuse & Recycle into all of them?
- MEASUREMENT – Have you discarded growth as the principal measure of success? Have you identified what measures you will use and are you communicating progress on each to your stakeholders?
Humans are already past the tipping point at which major, irreversible climate change is inevitable. All that can now be done is to mitigate the impact in the long-term. The fundamental reason for this is unchecked population growth multiplied by consumerist lifestyles. The latter is solely the responsibility of business. Are you inculcating the mantra of Refuse, Reduce, Reuse & Recycle into all of them?
Finally, how engaged with and committed to is your board on this new corporation? Do the directors walk the talk?
Unless the ostriches pull their heads from the sand, they will be solely responsible for the very serious consequences to all of humankind.
[The writer is noted for his work toward improving corporate governance and raising awareness on environmental issues. He serves on the governing council of TERI and as an independent director on the boards of Thermax and Exide Industries]