The impact of climate change is one of the most critical concerns today. Some argue that the day of reckoning has already arrived — according to the United Nations, 90% of recorded major natural disasters from 1995 to 2015 have been linked to climate and weather. The economic costs have been huge. Take the 2015 Chennai floods; a study by Swiss Re suggests that the floods caused an economic loss of $2.2 billion (including insured losses of $755 million), making this the second costliest insurance event in India’s history.
Extreme climatic events are impacting businesses around the world by damaging infrastructure and disrupting supply chains. Ironically, this complex challenge gets incorrectly classified as a long-term threat and is often excluded from contemporary corporate decision-making.
This is problematic for corporates and the communities they serve. The Paris climate accord requires immediate action to reduce dependency on fossil fuel. By postponing action, corporates are exposing themselves to a variety of risks.
Corporate India, at a minimum, has to urgently familiarise itself with the significant amount of work that has been done by governments and the scientific community to understand and explain climate change impacts.
Corporates can supplement the available government research with specific studies commissioned by them to evaluate the impacts of climate change in the areas where they operate.
The growing risks of climate change make it incumbent upon corporates to enhance their strategic focus on the traditional three “R”s — Reduce, Reuse, and Recycle. This is integral to the increasingly popular concept of the circular economy, where resources are circulated within the system releasing minimal waste, and which emphasises sustainable supply chain management. As the pressure on natural resources grows, it is companies that learn to do better in a resource-constrained environment that succeed.
To help in the migration to more climate-friendly processes, corporates can consider adopting measurement frameworks and tools such as an internal carbon price for business planning. A shadow carbon price is useful in evaluating different scenarios while taking operational decisions, and highlights the regulatory and asset obsolescence risks of future investments.
Corporates must also embrace the business opportunities associated with the adoption of new climate friendly technologies. With sharp declines in cost, these present corporates an unprecedented opportunity to leapfrog to a more sustainable future; this is not dissimilar to the manner in which corporate India has embraced mobile communications technology.
In the proximate future, corporates will be obliged to disclose the risks they face from climate change impacts. Indeed, regulators around the world are already evaluating the extent to which corporates must accurately forecast and disclose to their investors and other stakeholders the vulnerability of their businesses to climate change.
It is because of these critical impacts on their strategies that many forward-looking corporates are now locating action on climate change within their strategy development departments. Indeed, the sustainability agenda is now becoming a part of mainstream corporate strategy development.
This year is likely to see Indian CEOs, particularly from companies that have an international footprint, tested for their ability to offer visionary leadership in responding to climate change.
Mukund Rajan chairs the Tata Global Sustainability Council and Abhishek Goyal is member, Tata Sustainability Group
The views expressed are personal