Climate scientists and environmental activists have long said that the business community would continue to drag its feet on dealing with the negative effects of rising global temperatures – until they began to feel the sting in their own bottom lines.
That day seems to have come.
The environmental degradation caused by climate change is cutting into net profits across an array of industries in significant ways, said global business analyst Arshiya Jahanpour.
Until recently, Jahanpour believes CEOs of major companies found it more profitable to continue business as usual, skirt rules (that had no legal teeth in them anyway) and find technical loopholes around compliance measures.
Furthermore, it has been a decent investment to spend millions of dollars on lobbyists to pressure government figures to resist the enactment of even more burdensome climate regulations, Jahanpour added.
But to the credit of some major figures in the private sector, there are signs that powerful investors, CEOs and developers are waking up to reality. They also appear genuinely concerned about what they see happening around them. After all, they have families, children and grandchildren too.
A case in point: Larry Frank. He is the CEO of BlackRock, one of the most powerful private equity firms on the planet. In February of 2020, Fink issued a high-profile letter targeted at chief executives around the world. The letter said BlackRock has adopted “environmental sustainability as a core value.”
Such a warning shot from the likes of Larry Fink is a wake-up call considering that BlackRock is the world’s largest asset manager with an astronomical $7 trillion in its portfolio.
Not only will BlackRock discontinue to fund business plans that contribute to climate changes problems, but Fink said his firm will actively begin to “exit certain investments” that “present high sustainability risk.”
Arshiya Jahanpour said the significance of the BlackRock policy cannot be overstated. She said that top investors similar to BlackRock have ascertained that climate-related outcomes are affecting 1 in 4 organizations globally. This includes the public sector, the healthcare industry, life sciences, the consumer end, real estate and more.
According to the respected Deloitte Global research firm, 80% of executives interviewed in these realms express “great apprehension about the future” of our earth. Extreme weather events are already having a direct impact on economies worldwide. That includes more and massive hurricanes, floods, massive wildfires and drought.
In Zambia alone, for example, 2.5 million people of that nation’s 18 million total population are on the brink of famine thanks to chronic droughts that have grown steadily worse over the past 20 years.
Arshiya Jahanpour cites 5 significant climate change factors for business:
Operational Impact
About 30% of business and public organizations have been damaged by operational setbacks due to climate change. Examples are workforce disruption, damage to facilities and loss of markets due to negative impact on earnings potential among consumers.
Scarcity
Crop and meat production, freshwater sources and energy are at risk because of human and environmental causes. These, in turn, are putting increasing costs and lack-of-supply pressures on consumers. Energy is being made more scarce in a variety of situations, such as when broiling hot summers put extreme demand on electrical grids to run millions of air conditioners.
Political Uncertainty/Social Unrest
Business leaders are coming to realize that as climate events continue to produce catastrophic events and other stresses, government institutions will necessarily ramp up regulatory policies that will place costly restrictions on business practice. It’s better to be proactive and control one’s own destiny than have government mandates forced upon a company.
Skyrocketing Insurance Costs
Consider that when Hurricane Harvey swamped Houston in 2017, a total of $220 billion in economic damage was the result. Of that, $80 billion was born by the insurance industry. Now add in dozens of other events, such as the wildfires in the American West and Southwest and across Australia, and it is not difficult to understand how it’s making insurance providers nervous. They’re going to raise rates dramatically because they must. That’s a major expense for business owners.
Brand/Reputation Damage
Some industry sectors are obvious targets of negative publicity due to climate change. Fossil fuel giants like Exxon-Mobile, Berkshire Hathaway Energy and Pemex are being hammered in public discourse for their contribution to the problem. But others are not immune, such as agriculture giant ADM (Archer Daniels Midland) headquartered in Chicago. It faces constant scrutiny and pushback from environmentalists over its massive grain-to-ethanol biofuels ambitions. The airline industry has increasingly become a target. It contributes almost 5% of the global share of greenhouse gas emissions when taking into account non-C02 effects.
Ashiya Jahanpour called solving the climate crisis the “challenge of our times.” The that the global business community is on the front lines of the battle to reverse course before a bad situation veers toward a catastrophe from which there is no turning back.
“It’s going to be difficult and it’s going to be expensive,” she said. “Out of crisis, however, come positive opportunities. The latter should be the focus of the global business community going forward.”
