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Climate Change and Businesses

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Climate Change and Businesses

1.0 Introduction

In recent months, the issue of climate change has turned into one of the front-page stories that are sparking a political denable in the history of Australia. Additionally, the issue of Climate change has reached a point where the Australian business needs to respond. In this case, climate change is acknowledged to represent an enormous risk that in most cases is under-appreciated to the Australian business community (Morrison & Pickering, 2013). In fact, the principal risk driver as far as this issue is concerned is the national and global desire to respond to this issue. Moreover, risks that businesses encounter include regulation, competition, physical impacts, investment risks, changing markets, energy infrastructure, shareholder activism, litigation, and the effects on the price of energy. In this case, it is accepted that all sectors will be affected because of the changing climate but those that are believed to be impacted heavily include finance, agriculture, insurance, property and energy users (Pellegrino & Lodhia, 2012). Therefore, in order to comprehend the impact of climate change on business, it is important to examine some of the risks associated with climate change.

2.0 Climate Change and Australian Businesses

Future climate policy in Australia will inevitably affect an extensive number of business activities including increased prices, technology transformations, and energy standards to reduce emissions. Additionally, the lack of well and established framework in Australia to respond to changes in climatic conditions is driving a number of government levels to pursue different and changing regulatory policies that in the end result in rising level of compliance costs (Pellegrino & Lodhia, 2012). Additionally, as the issue of climate change becomes a dominant subject among many communities, political and media circles, the government is moving to establish a greater variety of responses, initiatives, programs, inquiries, funding and R&D schemes. In so doing, these strategies only serve to increase the complexity of the regulatory framework and costs to business (Morrison & Pickering, 2013).

As a dry and hot country, with environmental extremes, it is universally acknowledged that Australia is one of the most vulnerable countries as compared to other developed nations to the physical implications of changes in climate that in the end, affect all business investors ranging from personal to institutional. A sector that is more vulnerable In Australia is the agriculture sector especially with the most recent drought epidemic that has affected some parts of Australia (Pellegrino & Lodhia, 2012). Moreover, the agriculture sector in Australia has witnessed flow-through implications to the supply chain that resulted from the crop damage caused by the Larry tropical cyclone. In fact, every major mainland city found in Australia is already experiencing water shortages and this will be made worse by the climate change. Furthermore, this is likely to make cities and people to compete for a resource that is already scarce hence forcing the government to establish significant restrictions on the usage of water. Apparently, the tourism sector is more likely to be impacted heavily by the change in climate since it damages the prime tourists’ destinations like the Great Barrier Reef, Highland regions of the Southeastern Australia and the Kakadu (Morrison & Pickering, 2013).

Since climate change has become a business risks, the move to a carbon-constrained international economy is slowly ushering in business opportunities .In fact, few companies in Australia appear well positioned strategically to manage and capitalize on the adverse implications and opportunities that the change in climate will present. Apparently, business dialogue with the Australian government over the formation of the climate change policy and implementation has been restricted largely to a small group of large-scale companies coupled with their industry associations (Morrison & Pickering, 2013). Furthermore, given the broad number of implications that will affect business, it is acknowledged that there is an acute demand for all corporation industries and Australian sectors to participate actively in the debate. Increasingly, the business community of Australia is acknowledging the fact that it can no longer take a back-seat passenger position in what has been accepted as the greatest business challenge. As a result, a proactive stance is now important in making an operational and strategic decision as well as for the Australian community as a whole.

3.0 Business Risks Caused by Climate Change in Australia

3.1 Regulatory Risks

Policy instability encourages one of the most dominant risks in Australia with greater regards being directed to the future regulation and climate policy as compared to other developed countries. Additionally, as the concept of regulatory policy gathers pace, it is accepted that the policy environment on the other hand becomes uncertain hence making greater regulation by the government inevitable. Government commitments under the Kyoto program to help curb the implications of the greenhouse gases are the only program that is being operated by the Government (Morrison & Pickering, 2013). In simple terms, the business community that existed before then had an uncertain future regarding the government regulation policy. However, it is inevitable that because of the ever-changing climate, there will be uniform and increasing regulatory action that will be formulated to reduce the green house effects in the near future (Amelung & Nicholls, 2014). Besides, future change in climate policy will affect a number of business activities including tradable emission permits, increased electricity prices, technology transformations, mandatory emissions and energy standards, carbon taxes and in the process, there will also be targets to reduce emissions.

In capital-intensive industries where replacing equipment turnover can run over a decade and in is expensive in terms of cost, this issue of long-term uncertainty of regulatory frameworks raises concerns of sovereign risk to stranded assets and investments. As a result, this uncertainty will increase in the future as the ongoing discussion on how to deal with the problem of uncertain regulatory policies intensifies (Morrison & Pickering, 2013).

In Australia, this issue of regulatory risks is particularly acute in the electricity sector since the uncertainty regarding the future direction of the change in climate policy and future-pricing mechanisms of carbon impedes and ends up delaying optimal decision making regarding then new infrastructure that is required to deal with the increasing demand for electricity. In fact, a delay in electricity infrastructure causes severe economic implications (Amelung & Nicholls, 2014). Moreover, the lack of a consistent regulatory framework that is able to deal with the climate change is making various government levels to pursue different policies. As the issue of climate change become an issue of concern among media circles, political, and community circles, the Australian government is trying as much as possible to introduce ability of inquiries, responses, initiatives, programs and Research and Development schemes. It is accepted that this patchwork move only increases the complexity and increasing costs to business (Morrison & Pickering, 2013). For instance, the various Australian expenditure programs at Federal and State level accumulated into billions of dollars. In essence, regulatory policy can paradoxically be said to be becoming more uncertain as the number of issues gathers.

It is known that the Federal government together with the local government is trying to establish a multitude of policies regarding the climate change with the sole intention of allowing business to operate under a multitude of different regulatory policies. However, in response to what most Australian states perceive to be leadership deprivation, they have proposed a state- based carbon emission program markets and in the process, NSW and Victoria have introduced a legislation to increase renewable energy market share (Morrison & Pickering, 2013).

3.2 Competitive Risk and Opportunities

For the business sector, the change in climate has stopped being a neutral issue and in the process, it has established a market where there are groups of winners and losers. In this case, those companies that fall of short of adapting to the implications of climate change may find themselves being disadvantaged competitively. For instance, the Price Waterhouse Coopers are raising questions about the economic impacts of climate change since it assert that organizations should take into consideration the issue of investment and its assessment of the investment of carbon risk and the increasing shareholder reluctance to tolerate the case of non-performance on greenhouse matter (Lawrence Richards & Lyons, 2013). Australia’s pace as far as economic restructuring is concerned lags behind that of almost every European developed country that in the process, places Australia’s business community at an otherwise competitive disadvantage when it comes to new investment markets. For instance, the International Energy Agency on Australian energy policy acknowledged that as much as the Australian energy policy possess some benefits, it will reach appoint in the near future nowhere it has to compete with other countries that have already established and developed significant expertise in this area.

Next to government regulations that curb the emission of greenhouse gases, it is accepted that placing a price on carbon will be the principal macro-economic driver of marketing opportunities. In fact, it is forecasted that carbon will be one of the sought after commodity in the market in the near future. For instance, the UNFCCC Head stated recently that the CDM mechanism embedded in the Kyoto protocol of Australia could generate a yearly turnover of approximately AU$133 billion in green house emission investment flow to emerging countries (Hambly et al, 2013). However, In Australia, there is no national carbon market. Apparently, the global carbon market is believed to have accelerated in recent times mainly because of the Kyoto protocol coupled with the introduction of the European Union Emissions Trading Scheme. Besides, a substation company body has increased in the carbon industry too offer services in broking, consulting, risk management, verification, monitoring, information technology validation, project development, and software development. In simple terms, these aspects portray not just the opportunities for investment emissions reductions but investors potential competitive risks. In Australia, the agriculture industry is the sector that will benefit more from this initiative (Lawrence Richards & Lyons, 2013). For instance, analysis by the Allen’s Consulting and Climate Institute indicate that farmers could get a yearly income of $ 2.5 billion dollars upon the signing of the Kyoto protocol and domestic emissions trading scheme was set up.

3.3 Corporate Responsibility Risk

It is accepted that a refusal by companies to deal with the increasing evidence of the changing climate may deter institutional investors because of the breach of fiduciary duty. Additionally, shareholders are trying as much as possible to show clearly their contribution to lowering of greenhouse gases and their contribution to climate change (Hambly et al, 2013).

In this case, non-performing corporations may suffer damage to their brand name or their reputation. In simple terms, company officers and directors possess a duty of care to train and inform themselves of the consequential losses brought forward by the climate change and the material risks involved in climate change and in the process, to factor these issues in their day today company decision-making process.

There is also a growing awareness in Australia about the litigation threat based on a nation’s corporation record on climate change. For instance, the Climate Action Network Australia in the year 2003 served a notice requiring over 130 directors to be aware of the risks caused by the climate change coupled with their legal responsibility in dealing with the risks involved (Lawrence Richards & Lyons, 2013). As a result, the shareholders of major companies in Australia are increasingly intolerant of those managers who do not take the issue of greenhouse gas emission seriously. Apparently, those companies that actively try to stand against the measure to reduce the issue of gas emissions face even higher risks of attracting NGO’s and potential litigants. Conversely, a competitive advantage is earned by a company is it takes the litigation measures seriously and in a more responsible manner. In essence, failure to implement strategies that curb climate change can affect the company reputation negatively (Hambly et al, 2013).

3.4 Social Risk

Organizations are believed to be susceptible to changes in the public opinion and changes in media coverage both of which plays a very crucial role in political and policy agendas. Additionally, in recent months, it can be argued both these issues have changed remarkably in recent months. In this case, there coverage of climate change by the media in Australia can be said tie be relatively high (Lawrence Richards & Lyons, 2013). In other words, an international spike in the quantity and quality of coverage on the issue of climate change has helped to bring the issues of climate change closer to the Australian public. Apparently, the international social trend of climate change gathered pace at the initiation of the Montreal Kyoto meeting in North America. Furthermore, not only did this coverage of climate change by the media exceed past coverage but it is also acknowledged that it encompassed explanatory, far more in-depth and comprehensive articles that have been postulated about the climate change issue (Hambly et al, 2013).

3.5 Physical Risk

In Australia as far as the climatic change and business are concerned, the most vulnerable physical locations are the Great Barrier Reef, The South-Western Australia reefs, Cairns, the Murray Darling basin that can be identified and prioritized for planning. Other notable communities that can be said to be vulnerable are the Tropical and Sub-tropical population centers, Low-Lying coastal areas centers with a high dependence and some areas found in southwestern areas that consistently face acute shortage of water (Amelung & Nicholls, 2014). For instance, in Australia, its tourism industry depends highly on its climate conditions; hence, an increase in temperature could result in global warming that can cause bleaching of coral reefs in approximately 97% of the Australian Great Barrier Reef hence in the process, threatening the tourist destination that is worth around 1.5 billion dollars (Lawrence Richards & Lyons, 2013).

4.0 Conclusion

Apparently, the adversaries because of the changing climate are believed to occur from the physical impacts of climate change itself coupled with the responses of the host country’s government, competitors, shareholders, consumers, customers, the public, and the media personalities. One of the greatest risks associated with climate change is regulatory risk since most Australian business faces greater uncertainty as far as their future operations are concerned in terms of climate policy and regulation. For instance, in Australia, the government commitments that were stipulated and embedded in Kyoto to reduce the implications of greenhouse gases were believed to only extend up to the year 2012 hence raising the uncertainties of the business that were operating back then since beyond 2012, the situation was unclear to them. However, because of the adversaries of climate change, the regulatory policies can be said to be inevitable. Therefore, in order for businesses in Australia to survive, it is important for them to take the issue of climate change very seriously

References.

Amelung, B., & Nicholls, S. (2014). Implications of climate change for tourism in Australia. Tourism Management, 41, 228-244.

Hambly, D., Andrey, J., Mills, B., & Fletcher, C. (2013). Projected implications of climate change for road safety in Greater Vancouver, Canada. Climatic Change, 116(3-4), 613-629.

Lawrence, G., Richards, C., & Lyons, K. (2013). Food security in Australia in an era of neoliberalism, productivism, and climate change. Journal of Rural Studies, 29, 30-39.

Morrison, C., & Pickering, C. M. (2013). Perceptions of climate change impacts, adaptation, and limits to adaption in the Australian Alps: the ski-tourism industry and key stakeholders. Journal of Sustainable Tourism, 21(2), 173-191.

Pellegrino, C., & Lodhia, S. (2012). Climate change accounting and the Australian mining industry: exploring the links between corporate disclosure and the generation of legitimacy. Journal of Cleaner Production, 36, 68-82.