It is estimated that such events could wipe off up to 10% of global economic value by 2050, with a disproportionate impact across geographies
Yes! The earth’s climate is changing. With the rising temperature, the incidence of hazards such as heat waves and floods is increasing and droughts and rising sea levels are intensifying. Climate change-induced disasters have increased five times over the last half a century, resulting in an economic loss of $3.64 trillion.
This is not good news at all. The changing climate is poised to create a wide array of economic, business and social risks over the next three decades. It is estimated that such events could wipe off up to 10% of global economic value by 2050, with a disproportionate impact across geographies. The consequences will be inevitable, pervasive and overwhelming.
Climate change: Hazards intensifying for the global economy
Continuing on the current path will push the world beyond the 4°C global warming threshold triggering economic disruptions at an unforeseen scale. Climate change accelerates the degradation of natural capital and ecosystem services as it modifies important geophysical conditions. Let us look at an example of climate change's impact on supply chains. In Southeastern China, where heavy rare earth metals are mined, extreme rainfall can trigger mines and road closures. About 2.5% of mine and road closures are predicted to occur annually in 2030, increasing to 4% in 2050.
The climate crisis will gravitate countries towards rollback globalization. The only way to avoid global warming is to redesign businesses with a decarbonised future
Redesigning business operations with a decarbonised future
Decarbonization is, thus, a large and essential reaction to combating climate change. According to the Paris Agreement's emission targets, all parties must reduce their carbon footprints by more than 50% by 2030 and completely eliminate them by 2050.
The balancing act will call for more than offsetting carbon or the responsibilities of emitting. Concrete action, beyond moving to renewables, will be necessary to resolve root issues across the value chain.
Today’s generation, especially millennials and Gen-Zers expect greater climate accountability from their brands; new investors are increasingly factoring in climate posturing as a critical investment decision enabler.
It is actually economical to make wise investments in climate resilience and a future with lower carbon emissions. According to McKinsey's research, an average US utility firm could save up to $1 billion over the course of 20 years by investing in infrastructure improvements that increase resilience and adaptability, such as the usage of microgrids and battery storage.
However, doesn't a radical shift advocate reimagining overall sustainability across all sectors? Doesn’t it involve relooking at the entire value chain to promote circularity and improve efficiencies? Yes. And fortunately, more eco-friendly alternatives like hydrogen and mechanisms such as zero-waste to landfill, green product development and manufacturing can help corporates transition to circular and responsible operations.
Research into such alternative formulations as well as understanding products' eco-footprint and circularity capabilities through life-cycle assessments are increasingly gaining traction to address the climate change issue. Let us deep dive into some of them:
Moving to renewables: Reducing energy costs is one of the most obvious ways that renewable energy may help businesses save money. Businesses can use renewable energy sources such as solar panels, wind turbines and other sources to power their operations by installing them on their properties. By moving to renewables, businesses are assisting in the fight against climate change and averting problems of public health brought on by the use of fossil fuels. If renewable energy sources are widely used, this could aid in lowering future hazards.
Transitioning to sustainable sourcing
Businesses are devising sourcing policies that are not just green but also about responsible procurement. Some top companies are taking action to secure supplies of green resources. According to McKinsey, in 2030 demand for green steel in Europe could be double than the available supply. Businesses can immediately make changes to some items to incorporate low-emissions materials and components. For that, they might need a significant amount of lead time to redesign products and retool manufacturing techniques.
Developing a green product portfolio
Manufacturers must ensure that their products are high quality and guarantee environmental viability. They can conduct lifecycle evaluations for their product families to identify areas where energy optimisation or material substitution is required to decrease a product’s eco-footprint. Designing eco-friendly products that ensure consumers and end-users have access to green goods and services that contribute to a more connected and greener world is the need of the hour.
Creating a circular economy: Due to the volume of waste created, waste management is a global problem. Businesses can prioritize reusing waste over recycling and ensuring more circular use of byproducts generated during the manufacturing process. They can undertake measures like responsible waste management, reducing emissions from manufacturing, storage and transportation
Low carbon transition does not necessarily have to be financially retributive. For instance, promoting circularity through waste reduction or diversion efforts has helped corporates turn waste into revenue streams as well as enhance their manufacturing efficiencies significantly. Further, the World Resource Council has labeled low-carbon growth as a $26-trillion economic opportunity. However, besides corporates, unlocking it will call for conscious efforts by investors, consumers, policymakers and political actors alike at the local and international levels.
Truly, while the risks of climate change have been well-perceived for a long time, business as usual has been about striking a balance between the costs of action and inaction and maximizing financial dividends here and now. Climate debt is piling up, and if catastrophic challenges to the global economy are to be averted, it has to be paid right now.
(The author is Global ESG Head, STL)