How business can adapt to climate change

The boards of corporations are supposed to comprise of sage individuals of a higher order than homo sapiens. In the popular imagination, they sit in wood-panelled rooms pondering weighty matters that determine the future of thousands of the lesser species, even as they make money for their shareholders. Therefore, it would be fair for the said popular imaginations to assume that climate change would be top-of-the-agenda in the rarefied atmosphere of that hallowed room, as boards would have invariably identified that risk as number one.

One would also imagine that faced with the long-term threat of extinction of the existing natural world and to the survival of humans, companies’ boards would have been wrestling with the problem, informed by expert studies and looking to the long-term impact of their current strategy and tactics.

Downplaying the impact

So, in the real world, what have these worthies been doing about climate change? Simply put, they have totally ignored the issue, with a list of reasons to justify why:

First, the impact of climate change at the micro level on each business’s operations is too uncertain to predict.

Second, the said impact will begin to manifest itself in its worst form well into the future, certainly long after the present lot of directors have departed for the heavenly boardroom.

Third, any responsible behaviour is going to be a constraint on making more money.

Fourth, they prefer to wait for the law to mandate action, and then comply. Why allow competitors to steal a march in the money-making game?

Lastly, in every risk there lies an opportunity. There must be ways to make even more money from this looming disaster.

The next question is, have boards had serious discussions on climate change, finally reaching the above conclusions? Again, the answer is that they have not. The above is merely what you will hear should you broach the topic on the sidelines of a meeting.

Only the last argument resonates with these wise men and women of the boardroom. Nowadays, being green and environmentally conscious is important for making more money, and every business must posture to that. Luxury lifestyle businesses are the biggest claimants to greenness. So five-star hotels, that exist solely because of the consumerist lifestyle of their patrons, claim to be green on the strength of not washing all the linen daily.

Likewise, a prominent private bank in Mumbai put out an announcement to the wide-eyed public that they would, henceforth, replace single-use disposable plastic bottled water (only in their head office, mind you) with, ironically, single-use disposable paper-cups. One would have imagined them to announce that they would no longer lend to any borrower who had an environmentally negative footprint.

Approaching the issue

So, what can and should a company do about climate change? There are several facets:

Strategy: If the company is contemplating new products, locations, technologies, supply chains — or indeed, anything new — it needs to think what the situation is likely to be about 25 years hence, and how the new choice will stand up in that situation. So, if a company is contemplating a people-dependant business in central India, it will have to consider if that location would remain habitable when the temperature is several degrees higher and the scarcity of water is far more acute. Or, if it is thinking of manufacturing a luxury product, it will have to think whether there will be a market for that product when society turns against consumerism (as had happened in the case of fur coats or disposable single-use packaging).

If a company thinking of using LNG as a fuel, carbon taxes or other factors may make that unviable. Similarly, an extended supply chain may currently be more economic than local sources, but may cease to be so if the suppliers are in locations that would be submerged by rising sea levels or if the carbon cost of transport becomes prohibitive.

Operations: This aspect is already in the spotlight, and organisations such as Accenture have specialised in helping businesses reduce consumption by re-engineering their businesses and the processes they use. As it flows directly to the bottomline, all managements and boards are keen on such activity.

Risk identification: How will existing business locations, raw materials, customer groups, vendors and stakeholders be affected by climate change — both directly and indirectly? Will the global trading system be able to cope with the changes? Will insurers survive massive claims? Will banks be able to operate if the monetary system is threatened? Will the business be affected by mass migrations? For example, two crore Bangladeshis will have nowhere to escape rising seas other than into India. How would this affect the country directly and through its impact on stakeholders? All these questions must be asked.

Responsible business: Humans are already past the tipping point at which major, irreversible climate change is inevitable. All that can now be done is mitigating of the impact in the long term. The fundamental reason for this is unchecked population growth multiplied by consumerist lifestyles. The latter is solely the responsibility of business. Will your company only deal in goods or services that fulfil the basic needs of humans? Will you make products that last long and can be recycled, and use advertising to discourage use of products and services beyond the necessary? Will you make plans to ameliorate the worst impact of what is likely to happen to your stakeholders? Are you inculcating the mantra of ‘refuse, reduce, reuse and recycle’ into all of them?

Measuring success: Have you discarded growth as the principal measure of success? Have you identified what measures you will use and are you communicating progress on each to your stakeholders?

Finally, how engaged with and committed to is your board on this new corporation? Do the directors walk the talk?

Unless the ostriches pull their heads from the sand, they will be solely responsible for the very serious consequences to all of humankind.

Through the Billion Press. The writer is on the governing council of TERI and an independent director on the boards of Thermax and Exide Industries