Pitney Bowes Bank

Managing and mitigating the major risks of climate change on your business

Almost all industries are threatened by the effects of climate change, either directly or indirectly and most countries are working towards net zero carbon emissions by 2050, but in the meantime, it will probably get worse before it gets better.

Understanding how climate change could affect your business and what changes you need to make to reduce the coming impact is important.

Physical risks
It's no surprise there are more extreme weather conditions (fires, floods) than ever before, damaging people, property and disrupting supply chains. The number of "once in a hundred-year" events seems to be almost every year.

The implications for businesses include:

  • The time and cost to put in place risk mitigation and disaster planning strategies, solving issues such as critical buildings or production areas being unavailable, staff can't get to work, or your operation going offline, and you can't sell to or service your customers for a period of time.
  • The flow-on effect when certain industries either fail or face major financial stress. The agricultural sector is exposed to flooding, drought, and other weather fluctuations. If farmers stop purchasing, it affects the wider ecosystem around them.
  • Tourism and the infrastructure that supports their operation (bed nights, hospitality) will all be hit hard if climate change eliminates industries such as skiing. Short-term, it's possible to alleviate climate conditions by creating artificial snow, but this drives up costs and is not sustainable.

Increase in costs

Governments are painfully aware of balancing budgets, climate, productivity, and full employment, often pulling from different directions. In addition, there will likely be increasing costs to businesses with the introduction of policies, laws, and other regulations to manage climate change.

Insurance costs will increase as insurers work to shift the burden of loss from the few affected to the many that could be. Even if you live in an extremely unlikely area to see a twister, your premiums have probably increased.

With the push for greener energy sources, cities, towns, and councils are also increasingly shifting to a reliance on renewable energy sources, demanding net-zero carbon emissions from the businesses in their community.

Reputational risk

As society changes its view on ethical business practices and sectors move away from activities contributing to climate change, businesses risk being left with stranded assets (land, property, or equipment) whose value has deteriorated. Customers may not want to see your fleet of trucks belching diesel fumes, and the resale or residual value will plummet.

Other reputational risks to your business include:

  • If you fail to mitigate, disclose, or comply with the changing legal and regulatory rules, you could face fines or, even worse, media coverage that highlights your failure to participate in avoiding climate change.
  • Losing customers as people switch suppliers to those embracing climate change and demonstrating their green credentials.
  • Struggling to find employees who want to work for you, or employees leave for a business that better fits their ideal business culture.

How to minimize the impact of climate change

It's hard to change everything at once, and possibly damaging to your business to upend your processes and supply chain overnight. First, identify the main risks your business faces with climate change, then work out how to reduce the impact on your business over time.

Identify:

  • The low-hanging fruit (low cost, fast to implement) and fix those things first.
  • How to plan a net zero emissions strategy over the next ten years.
  • Changing your business model if there is a serious threat to your operation. A good example is ski fields developing summer tourist attractions as the winter season shortens.
  • Who else you can work with? Other businesses (even competitors) will be in the same boat, so aim to work collectively to develop climate risk solutions leveraging the expertise of others. It is a good first step to connect with your industry association to see what support they can offer.
  • Measure your carbon footprint and then start to reduce it.
  • Keep up-to-date on what's happening with climate change in your industry and link to organizations driving change.
  • If you're unsure what to do, seek help from experts, and talk to other small business owners in a similar situation to discuss joint action.

Next steps

Your customers will vote with their wallets if you don't care about climate change. Taking action to reduce the impact on our climate is crucial, but it also makes good financial sense.

 

Pitney Bowes Bank understands the unique financial challenges of small- to mid-sized businesses. We provide real-world financial solutions that complement your existing bank relationships and are focused on your long-term objectives.

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