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How Climate Change Impacts International Business

Climate change directly affects ecosystems, society, business operations and daily life. Governments around the world are already implementing changes with new regulations. France, New Zealand, Denmark and the United Kingdom have already passed laws that bind them to attain net-zero emissions by 2050, and Sweden is planning completion of that goal by 2045.

According to the Energy and Climate Intelligence Unit, the countries that account for half of the global gross domestic product have passed laws, proposed legislation or made a commitment to reducing emissions. But countries are not just leading the way — entire states, cities and organizations are following suit and making changes. International businesses are considering climate-related risks as a part of their business strategy since companies must adjust to environmental and regulatory standards, not to mention public demand.

Why Is it Important to Consider Climate-Related Risks?

The international nonprofit organization CDP and its Global Climate Change Analysis for 2018 reported "a positive correlation between board-level oversight and management responsibility for addressing climate risks and opportunities, and a company's commitment to action."

In December 2020, the U.S. Securities and Exchange Commission (SEC) included a keynote address to regulators regarding climate change risk and financial regulation. Climate change poses several significant risk factors for businesses. Professionals in leadership positions must recognize those risks and change business operations to manage them. The effect of climate change on a company's bottom line is an important consideration for business strategists to address.

With an increase in inclement weather, severe storms and dangerous natural disasters, small and large businesses alike are feeling the global, negative impacts. International shipping could take more time and involve increased safety hazards that will affect the physical risks businesses face. Areas that have been agricultural strongholds could become inhospitable to sustained growth, while flooding and erosion could impact coastal areas. These issues can impact an organization's price risks by driving up the costs of products, energy and raw materials. The demand for goods and services can also change due to changes in weather patterns.

Companies' manufactured, eco-friendly goods may see an uptick in sales due to environmentally conscious consumers choosing where they buy products — however, consumers should be wary of greenwashing, and companies must work to avoid making sustainable changes as simply a marketing ploy. Because public perception and business reputation is crucial to consumers, businesses that ethically enact key environmental changes can maintain a reputation for being environmentally responsible and maintain financial success. 

How Business Can Become More Sustainable

After recognizing the potential impact of climate-related risks on the bottom line, what can businesses do to mitigate those risks? Some large companies are investing in renewable energy projects to power their on-site manufacturing. Going off the grid will benefit businesses both strategically and financially. Some businesses are switching to alternative cooling technology instead of relying on traditional air conditioning. Others are making an effort to incorporate repurposed and recycled materials into their products.

Companies can also adapt by designing products that minimize waste. In doing so, they can align business operations and strategy with climate change mitigation, as well as commit to developing goods and services that promote cleaner cities. Additional business practices can include enacting sustainability programs, engaging the workforce in green efforts and measuring the company's sustainability performance to examine the impact of such initiatives on the bottom line.

Learn more about TAMIU's MBA in International Business online program.


Sources:

Energy & Climate Intelligence Unit: Net Zero: The Scorecard

CDP: Global Climate Change Analysis 2018

Grow Ensemble: The 10 Most Environmentally Friendly & Sustainable Companies (2021)

Business News Daily: What Is Greenwashing?

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