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THE IMPACT OF CLIMATE CHANGE AND ENVIRONMENTAL REGULATIONS ON
INTERNATIONAL BUSINESS
1. Climate Change Effects on Business
1.1 Economic Disruptions
Climatic-economic disruptions are quite complex and can affect the general international
business in many ways. Climate change also leads to more occasions of violent weather
conditions including storms, floods, or even droughts to structures or systems related to
manufacturing, supply chains, and processes which are entirely disruptive (Bosetti & Maffezzoli,
2019). Such occurrences cause significant losses as they compel companies to adopt the
expensive processes of repairing the affected property and its surrounding environment, bearing
the outrageous insurance costs, and losing market share due to service or product disruption
(Greenstone & Jack, 2015). Additionally, it is evident that climate change has this ability to
intervenes with the market by changing availability of resources. Changes in climate conditions
have direct impacts on agricultural yields through the effects of temperature and rainfall
variability; and fluctuations in prices and availability of food influence markets and trade
relationships (WTE Hertwich and Randall, 2018). These disruptions make it imperative for
companies to explore strategies that will enable them to cope with such risks and uncertainties
hence they engage in activities such as diversifying their sources of supply, designing more
robust structures, and implementing sustainable practices to avoid future relapses (Hoffmann &
Busch, 2020). Economic impacts entail disruptions on the labor market, whereby heat stress
disease frequencies and diseases transmitted by vectors due to climate change lead to decreased
worker output and escalated medical expenses (Dietz & Stern, 2015). The second way is that
higher climate risk affects the returns on financial instruments by elevating the sector’s
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fluctuation, which in turn necessitates improved evaluation and management of business risks
(Fowlie & Muller, 2018). Additionally, carbon pricing policies, emission standards and all
legislation addressing climate altercations also add new economical burdens on corporations that
require them to look for newer means to become sustainable and sustainable-oriented (Aldy &
Pizer, 2015). Therefore, the economic impacts of climate change entail striking risks and
adequate and appropriate strategic management planning to keep on competitive and
sustainabale organizations in the global economy (Hovi & Sprinz, 2016).
1.2 Supply Chain Challenges
Those problems of supply chain have become severe issues that can threaten the climate of
international businesses development caused by climate change. Peculiar extreme events and
increase in temperature as a result of climate change diminish the performance and flexibility of
global supply networks (Dasgupta & Tamini, 2017). Such occurrences result in delay in
transportation, damage to infrastructure and in turn interruption in production and these have
additional effects that include cost implications and loss of efficiency as noted by Harrison
(2019). For example, hurricanes and floods cause the damages to transportation systems and
stores humans Live in areas that are prone to Hurricanes and floods, while droughts can make
water which is used in production a scarce product thus slowing down production (Berman &
Bui, 2018). Climate change can also affect the locations of raw materials and farming products
by creating new locations and changing the locations of others so that companies must then
acquire new locations or reestablish their outlets in a more stable environment (Cheng & Long,
2017). This not only results in heightened expenses for operations but also makes it more
challenging to arrange the transportation of products (Peters & Hertwich, 2018). Second, as the
standards of climate change laws become more stringent, companies have come under pressure
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to decrease the amount of carbon emissions they produce for the firm and the entire value chain
(Colvin & Witt,2019). Adherence to these regulations requires firms to make significant
purchases relative to new technologies and working methods, which can exert considerable
pressure on firms especially the small and medium-sized enterprises [SMEs] (Stern and Valero,
2021). The call for more transparency and accountability in the supply chain management
practices is also indicative that organizations need to improve supply chain control systems or
monitoring and reporting processes, which create even more challenges in this sphere (Meckling
& Nahm, 2019). To these challenges, firms have made efforts including moving their supplies
from a single node, constructing supply chain network with high reliability and utilizing the
digital supply chain platform to enhance supply chain transparency and flexibility (Helm, 2020).
This paper identifies specific climate related supply chain challenges alongside with the
measures that by tackling them in advance businesses will be able to not only avoid risks but also
take advantage of the opportunities that would lead to better sustainability and resilience for
organizations in the global environment (Fankhauser & Stern, 2017).
1.3 Market Shifts
With climate change developing and posing different impacts and effects on environments,
consumers are shifting towards embracing green purchases (Smith & Leiserowitz, 2017). Self-
sufficiency in energy generation and localized consumption leads to a growth of more
sustainable markets in renewable energy, organic agriculture, and Environmentally Sustainable
Technology (EST) Development among others (Hanson & Palutikof, 2018). Furthermore, the
economic shifts due to climate regulation through legal frameworks such as carbon pricing,
emissions trading systems, and strict environmental requirements influence market operations as
they increase production costs for companies and offer possibilities to support environmentally
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friendly initiatives (Newell & Pizer, 2017). Apart from hub and spoke policy which serves as a
direct measure to influence businesses to minimize their emissions, these regulatory measures
also generate markets for carbon credits and green investment thereby promoting the
development and dissemination of cleaner alternatives (Dietz & Stern, 2015). In addition,
including physical changes in climate that continue to bring forth issues like global warming,
surging sea levels and intensity of climatic disasters which undermines existing markets and
chains of supply and forces companies to alter geographic location and spread out networks of
sourcing and manufacturing (Bosetti & Maffezzoli, 2019). Risk related to climate change
requires effective risk management approaches and the need to invest in precaution measures and
resilience (Colvin & Witt, 2019). Also, the increased focus of investors on long-term
sustainability, CSR and ESG factors play a role in dictate market evolutions since companies
with sustainable practices are more attractive to investors and operate with a better reputation
(Fowlie & Muller, 2018). Owing to these markets’ dynamics, sustainability has become a
common competitive factor where organizational leaders are embracing more sustainable
management practices, providing resources to support green initiatives, and forming partnerships
to improve environmental responsibility (Meckling & Nahm, 2019). Therefore, it becomes vital
for such businesses to try to grasp the reasons behind the change of markets due to climate
change in order to capitalize on the available opportunities and avoid any risks in the future thus
enhancing the business’s sustainability and competitiveness in the international market (Helm,
2020).
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2. Environmental Regulations Overview
2.1 Global Regulatory Frameworks
International business is affected by climate change regulating standards; regulatory
architectures pertaining to climate change influence business globally, exposing organisations to
continuously shifting environmental laws. The Paris Agreement, signed in 2015, is one of the
key components of climate diplomacy, as Parties are obliged to submit a set of national policies
aimed at lowering the emission of greenhouse gases and stimulating green growth (United
Nations, 2015). These commitments are converted into national policies that firms are required
to follow such as carbon pricing schemes, cap-and-trade structure and other more rigid
environmental policy frameworks (Newell & Pizer, 2017). For instance, the cap-and-trade
principle of the Emissions Trading System of the European Union (EU ETS) involves placing a
legal limit on emissions of significant industries and thereby causing changes in business
planning and monetary arrangements (Ellerman, Convery, & De Perthuis, 2016). The use of
carbon pricing policies like carbon taxes and cap and trade, has increased globally because they
provide a market incentive for organizations to embrace energy efficiency, emissions reduction
and investment in climate change mitigation technologies (Aldy & Stavins, 2012). Adherence to
these regulations requires significant funds to invest in technology and methods that are new for
the established business organizations especially SMEs (Stern & Valero, 2021). Additionally,
international standards touch on environmental and social governance (ESG) metrics to govern
company sustainability disclosures and performance lower than the reduction of emissions. This
rising focus on implementation of accountability does not only have implications in the
functioning of a business; it also impacts investor relations and market positioning as
stakeholders demand for enhanced corporate responsibility (Fowlie & Muller, 2018). It is also
important to point out that the issue of climate rules and regulation has also been integrated into
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international trade through agreements whereby access to markets is conditional on conformity
to environmental measures (Droege, van Asselt, Ad, & Brewer, 2016). Multinational firms face
such a convoluted trade regime landscape to overcome barriers to green trade while gaining
access to new market opportunities. The changing international legal requirements place pressure
on companies to implement sustainable development at the very heart of their strategic planning
as this contributes to sustainability, strengthens their organizational capabilities, and hence the
ability to compete effectively in the global context (Meckling & Nahm, 2019).
2.2 Regional Environmental Policies
Regional policies actively contribute to emerging environmental policies that create local
standards within the region that large multinational organizations have to address in order to
remain compliant and functional. For example in Europe the European Green Deal as a long-
term vision for a climate-neutral Europe by 2050 put stringent emissions reductions, energy
efficiency standards and circular economy measures on the EU (European Commission, 2019).
These regulations compel companies to fund sustainable technologies and procedures, which
usually cost a lot of money and involve the development of new innovative solutions in the
process (von der Leyen, 2019). In the same manner, in North America other policies like
advanced clean car regulations in California put a pressure on automakers to adopt electric and
hybrids through setting high emission standards (California Air Resources Board, 2018). This
regional policy does not only influence home grown manufacturing companies but also has
knock on effects on supply chain and market dynamics reflecting these standards globally as
companies scramble to meet the new changes. As in the rest of Asia’s emerging markets, China
has introduced strongly-worded environmental policies, contained within Five-Year Plans,
targeting the prevention of pollution and the growth of renewable power capacities as key areas
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for operational management of both first and second-tier domestic and international investing
firms (Lo, 2015). Such measures include encouraging investment in green technologies and the
transfer of green technologies, which in addition to penalty measures, make firms sensitive to
environmental issues (Kamara & Glasure, 2016). However, the increasing liberalisation of trade,
using regional trade agreements for instance the Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP), have incorporated environmental clauses that seek to
advance the principles of sustainable trade as well as environmental cooperation within member
states (Schott, 2017). Due to the diverse and dynamic systems of environmental regulation across
various regions of the globe, many firms and businesses need to be strategic – act responsibly in
terms of environmental impact while taking advantage of legal loopholes to reap benefits of
sustainable development (Zeng et al. , 2018). Practising anticipatory regulation means that
businesses can improve their environmental outcomes, while avoiding the pitfalls associated with
regulatory changes, besides gaining a competitive edge in a world that increasingly is becoming
attuned to sustainable development goals (Hoffmann & Busch, 2020).
2.3 Compliance and Enforcement
Legal compliance and enforcement of those legal requirements is part of the social factor that
largely determine IBOs. Such measures help enforce laws and regulations with respect to the
environment so that companies do not harm the environment in any way (Gunningham, 2017). It
is widely recognized that effective compliance mechanisms are supposed to be supported by
regulations and enforcement, time- or event-based inspections, and penalties for non-compliance,
which are the crucial elements that form a strong compliance environment for businesses to
operate in (Potoski & Prakash, 2013). For instance, the regulatory measures in the European
Union involve the use of independent authorities like the European Environment Agency that
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often engage firms in an intense monitoring and reporting processes that makes firms disclose
their activities on environmental hazards (EEA, 2016). In the United States, environmental laws
are enhanced by the EPA in enforcing regulations in conformances with the Clean Air Act and
Clean Water Act which set emissions standards and guidelines and require frequent emission
reporting (EPA, 2020). They help in maintaining that in relation to environment, companies do
not conform to existing set standards, but are constantly looking for ways on how to be better
and cause lesser harm to the environment (Hoffmann & Busch, 2020). The sanctions that non-
compliance attracts include fines, legal consequences and or the damaging of every
organization’s reputation and production is well known to discourage any regulatory
transgression (KPMG, 2018). This means that personal legal compliance programs need to be
not only international, but also flexible and accommodate local laws (Colvin & Witt, 2019). The
enforcement while monitoring the companies also help in providing directions and more
importantly assistance in usage of the best practices and sustainable technologies (Eccles et al. ,
2014). These agencies nested with stakeholders, work together in the formulation of sectorial
codes of practice and reward systems that promote early compliance and advancement solutions
for sound environmental stewardship (Meckling & Nahm, 2019). New technologies like
blockchain and IoT are being used to boost some of the enforcement measures of compliance as
well as their reporting systems making them more efficient and accurate (Purnhagen & Feindt,
2015). There are two main aspects that revolving around compliance management, which are
rigorous regulatory control and sound/robust compliance approaches since these two plays
significant parts towards encouraging businesses to post an environmental management and
intelligently become sustainable, and competitively viable over the long-run in global markets
(Gunningham 2017).
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3. Corporate Sustainability Strategies
3.1 Green Technologies Adoption
Observance of and adherence to environmental standards is one aspect which has a profound
impact on the international business and another that affects the international business directly is
the enforcement of the rules formulated in this respect. It makes sure that these requirements
must be followed by the firms, thereby avoiding any harm to the environment within the
stipulated limit or standard (Gunningham, 2017). They include adopting regulatory requirements,
having a system of random checks and fines leading to penalties for noncompliance, which
altogether form a strong system of compliance that businesses have to make their way through
(Potoski & Prakash, 2013). For example, the European Union’s administration and control
authorities include the European Environment Agency, the european Chemical’s Agency, and
the european Union Noise Eco-Audit and Management Awards enforce compliance through
monitoring and reporting as more companies must report their overall performance to these
administrations (EEA, 2016). In the United States, the Environmental Protection Agency (EPA)
ensures that the stakeholders abide by the provisions of such laws governing pollutants through
administrative measures such as reporting on emissions under the clean air act and clean water
act among others (EPA, 2020). Such regulations aim at making certain that corporate
organizations do not only abide by the current environmental legal requirements but also make
further improvements in their operations in a bid to minimize their impacts on the environment
(Hoffmann & Busch, 2020). Fines can range from hundreds of thousands of dollars to business
disruption fines, litigation costs, or fines, or possible fines to senior management and directors,
which are strong motivating factors not to breach regulatory measures (KPMG, 2018). In the
case of multinational corporations, one has the extra challenge of having to navigate and meet all
the career-related regulatory standards in various jurisdictions. This makes it imperative for
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organisations to define and incorporate compliance programs that incorporate international
standards while taking into consideration the national requirements (Colvin & Witt,
2019). These agencies may work with other stakeholders within the industry to review shared
industry standards and provide structures as well as incentives for compliance and creativity
especially in addressing global environmental issues (Meckling & Nahm, 2019).
3.2 Sustainable Supply Chains
Supply chain sustainability is the effective management of supply chain activities that enable
environmentally sensitive, socially responsible and economically viable sourcing, production,
transportation, and delivery of products (Sarkis, 2012). For instance, sourcing practices are
experiencing a growing cooperation between buyers and sellers to adopt and implement ethical
supply chain practices such as being environmentally friendly through the reduction of carbon
emissions and Effective Ocean Stewardship through the reduction of waste (Carter & Rogers,
2008). This involves the assessment of the life cycle so that possible environmental impacts that
are most significant can be determined, and bringing in measures that would enable efficiency in
the use of resources and reduction of the impact on the environment (González-Torre & Adenso-
Díaz, 2015). Furthermore, circular economy key cornerstones like reuse, remanufacturing, and
recycling, provide businesses with an opportunity to use minimal materials, employ resource
efficiency, and recycle most of the waste produced, reducing disposal to landfill (Genovese et al.
, 2017). Furthermore, optimizing transport-route, modal switching toward greener modes of
transport, and green fuel also play a part in minimizing the carbon footprint as well as making
numerous improvements in terms of the supply chain (Leung et al. , 2012). Through integration,
companies are able to minimize or eliminate supply chain vulnerability and develop value driven
strategies for supply chain integration that embrace strategic change towards the ability to
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support and satisfy new customers, adapt to new industry changes and align with new regulations
as deemed necessary (Mehra & Inman, 2014). Sustainable supply chains practices are
determined by the pressures from the stakeholders, customers and business sustainability
strategies (Walker et al. , 2008). Global governments are intervening in supply chain
management to enforce sustainability regulation to ensure corporations embraced sustainability
policies or face sanctionation (Jabbour et al. , 2013). Sustainability has become important as
consumers want honest and actionable information relating to the entire supply chain, the
company Sustainable supply chains bring cost savings, risk reductions, better brand image, or
what Pagell and Wu have referred to as the sustainability window (Pagell & Wu, 2009) must
include sustainability in its procurement framework (Arena et al. , 2017). Corporate governance
of sustainability policies, supply chain management systems, and certifications, including the
Responsible Business Alliance (RBA) and Forest Stewardship Council (FSC), encourage firms
to promote sustainability throughout their supply chains by following acknowledged socially and
environmentally responsible guidelines (Lee & Klassen, 2008).
3.3 Corporate Social Responsibility
CSR as a concept is now an integral part of business organization’s strategic management
worldwide, defined as those activities that are undertaken by companies on their own and which
control or prevent social and environmental problems and enable the achievement of sustainable
development (Carroll, 1999). CSR activities extend beyond mere compliance with the law, thus,
incorporating values of ethical professionalism, stakeholders and societal welfare, or building of
value for individuals within the society and the firm (Porter & Kramer, 2011). For example,
firms use corporate philanthropy about community welfare, social issues, and needs as a way of
contributing to social issues thereby enhancing social responsibility (Matten & Moon, 2008).
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Further, CSR incorporates environmental management activities such as control of carbon
emissions, resource utilization and conservation of species as part of the company’s goal of
reducing the impacts on the environment and taking a sustainable approach (Dowell et al. ,
2000). However, CSR entails promoting business values that call for correct employee
remuneration, human rights upheld, and the extent of the companies ‘suppliers’ (Blowfield &
Murray, 2008). Thus, starting with the concepts of CSR and internationalization, it is possible to
state that by adopting CSR policies as a part of their management strategies, international
businesses contribute to the improvement of organizational image, the building of stakeholders’
confidence, and the minimization of potential risks connected to environmental and social
challenges (McWilliams & Siegel, 2001). Some of the reasons for the implementation of CSR
include stakeholder demands, legal consequences, as well as moral impulses (Aguinis and
Glavas 2012). The customers, investors, employees, communities and the society at large have
begun to call for ethical and socially responsible organizational behavior ( Brammer &
Millington, 2005). Legal and extra legal factors also have a large influence in determining CSR
implication since it makes organizations to meet legal Ultimatums and conform to the set
acceptable business standards. It is indisputable that the recognition of ethical implications and
values within the management lead organizations to adopt the CSR as an indispensable element
of organizational culture and business values also. In addition, the rationale for CSR from a
business perspective is backed with considerable substance since other corporations have hence
recognized massive advantages like better brand image, happier employees, and loyal consumers
(Porter & Kramer, 2006). Applying the CSR, the international businesses not only adhere to their
legal responsibilities but, moreover, work for the benefit of society, for sustainable development,
and for the creation of value for all the stakeholders (Carroll and Shabana, 2010)
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4. Risk Management and Adaptation
4.1 Climate Risk Assessment
Climate risk evaluation is commonly defined as the important step in the international
organizations and businesses with the purpose to quantify and manage the risks that climate
change may have on their operations, supply chains and their financial performance (IPCC,
2014). This assessment includes physical climate change risks encompassing transitional and
liability risks, including the physical impacts of climate change, intense weather conditions,
delayed regulatory authorization, and brand deterioration (TCFD, 2017). For example, business
organisations evaluate the susceptibility of their stocks and facilities to disasters occasioned by
climate factors such as flooding, storms, and dry spells to predict eventual downtime or losses
(Hallegatte et al. , 2016). Also, the social aspect involves observing how various businesses are
prepared for the low-carbon economy by observing some aspects like carbon costs, price, and
investment in renewable energy sources and risks that may be faced by various companies
through factors like stranded assets (Murray & King, 2012). Furthermore, climate risk
assessment involves assessment of legal risks that stem from legal actions regarding climate
change issues for instance litigation linked to greenhouse gas emissions, enviro-budget pollution
and legal duties to disclose climate risks to investors (Bodansky, 2016). It therefore is
recommended that international organisations and firms especially undertake standard and
extensive climate risk assessment in order to systematically pinpoint risk, plan sound risk
management strategies and improve adaptability to the vagaries of climate change (Huggel et al.
, 2015). Climate risk assessment is precipitated by two factors; legal and voluntary reporting and
more to the disclose demands from investors and markets. For instance, various regulatory
standards like the Task Force on Climate-related Financial Disclosures (TCFD) 2017
recommend that firms should report climate change risks and opportunities in their reporting
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system and financial statements to improve on transparency and enable investor and stakeholder
decision-making (Zhang et al. , 2018). Furthermore, climate risk considerations have emerged as
one of the most significant factors considered by investors, where people try to examine how
climate risks can affect the future profitability of the business (Bauer et al. , 2017). Moreover, the
demand for learning climate hazards is also powered by market forces and reputational
considerations, which force companies to incorporate climate impacts into their risk management
strategies to retain investor confidence, secure financing, and advert negative perceptions of their
brand (Lo & Frynas, 2015).
4.2 Resilience Planning
Contingency planning is therefore crucial for intl business entities in order to develop and
implement strategies to manage climate-related risks that will affect operations, supply-chain,
and other relevant stakeholders (IPCC, 2014). The nature of this planning process entails the
assessment of risks/ hazard, formulation of strategic goal, and development of interventions that
can)improve community/ society’s ability to adapt to uncertainties arising from climate change
(Birkmann et al. , 2014). For example, profits calculate their risks and susceptibility to
environmental nativities and risks within a particular region based on structures and people
(Cutter et al. , 2008). Furthermore, it entails the formulation of backup measures as well as
courses of action in case of a disruption in crucial operations including disasters, adverse
weather, interruptions in the chain of supply and or changes in legislation (McCarthy et al. ,
2001). Furthermore, top management embraces climate resilience analysis when developing
business continuity solutions that can allow vital businesses to operate normally and bounce back
in the event of climate-related disruptions or impacts (Crichton & Haynes, 2011). The second
one is that through the improvement of resilience planning of international businesses, one will
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be able to avoid dislocation of business operations, protection of the assets from further exposure
and ensure that the business will stay on course amidst the effects of climate change (IPCC,
2012). The following can be taken as motives for resilience planning; Firstly, it is compelled by
policy and regulation, secondly, by stakeholder demands and thirdly, by organizational or
business needs (Pelling & Wisner, 2009). Climate change adaptation regulation and disclosure
measures cajole firms into recognising climate as a threat that needs to be managed as well as
governed in organizations (Adger et al. , 2011). Furthermore, this research acknowledges that
customers or other businesses, investors, communities, among others, expect organisations to
show ability to resist climate change shocks, as part of their social responsibility and
sustainability apropos (Pelling et al. , 2015). Moreover, the corporations understand that
resilience planning is academically sound and practically necessary to secure organizational
assets and capability against climate-related threats and disruptions. In addition, extending
climate resilience across the strategic management and implementation also implies an evolution
toward more sustainable and adaptive management that considers climate risks and adaptation as
a core business concern (Adger et al. , 2013). As stated in this paper, by engaging in climatic
resilience planning for their global operations, international businesses can build up the ability as
well as the capability of managing the impacts of climate change, mitigating climate risk, and
exploiting opportunities for productivity and profitability (IPCC, 2018).
4.3 Insurance and Mitigation
Insurance is another way that businesses use to manage risks by buffering against losses that may
occur due to climate events, for example, property damage, business interruption or liability
(Kunrethur & Michel-Kerjan 2007). For example, property and casualty insurance polices where
various businesses can invest in to protect against loss in conditions like floods, hurricanes and
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wildfires so that in case the business gets affected by any of these disasters, they can easily seek
compensation (Michel-Kerjan & Kunreuther, 2011). Furthermore, customized insurance
solutions like parametric insurance, catastrophe bonds or other instruments called secondary
insurance, allow timely disbursement from predefined standard parameters in case of climatic
shocks, which helps businesses to access funds immediately (Mills et al. , 2011). Insurance is a
good way for businesses to cope with emerging climate risks accompanied by adequate
prevention and risk-reducing measures that, in turn, explain lower insurance costs (Skees et al. ,
2013). Some adaptation activities may include establishing standards of infrastructure reliability,
developing disaster preparedness and response frameworks and managing supply chain risks of
dependency (Botzen and van den Bergh, 2008). In particular insurance and non-insurance
innovative tools can increase the resilience of international business to climate change risk,
preserve assets and investment and guarantee sustainability and continuity in viewed climate
change impacts (Linnerooth-Bayer et al. , 2008). There are thus reasons, regulatory, perception
of risks and essentiality of business operation continuity that explain why insurance and risk
reduction measures are taken (Kunreuther et al. , 2013). There are factors known as legal
restraints that may bind a business entity to adopt certain mitigation measures in order to obtain
insurance and compliance with climate hazards as contained in building codes and zoning
regulations (Kousky, & Cooke, 2012). Higher levels of insurance risk management and climate
change awareness make business companies and investors seek preventive measures such as
insuring their businesses against climate risks and changing business practices to adapt to climate
change (Michel-Kerjan et al . , 2013). Businesses also ensure operation continuation and
shareholder wealth for which they invest in insurance and risk reduction along with other beings
in risk management mechanism (Czajkowski et al. , 2016).
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5. Financial Implications
5.1 Cost of Compliance
Impact of social responsibilities: The social responsibilities are a major concern affecting
international businesses since they pose a potential for high cost of compliance with the
environmental regulations mainly in terms of technology and infrastructure in compliance to the
set measures and standards (Bhaskar et al. , 2015). Compliance costs pertain to expenses
incurred in the process of procuring permits, putting into practice mechanisms that control
pollution, and in assessing performance with respect to environmental issues (Shadbegian et al. ,
2005). An industry might have to undertake capital improvements to control pollution in order to
meet requirements for effluent limits or ambient air quality (Harrington et al. , 2000). This
inevitably entails costs in terms of environmental impact assessments, environmental
management plans, and communicating the company’s environmental policies and the relevant
standard operating procedures to employees across the different organizational levels (Levinson,
2009). The regular non compliance costs may also include any legal penalties, fines and lawyer
fees that the business is required to pay, and these costs only serve to add to the overall costs of
compliance (Harrington et al. , 2001). The costs of compliance with environmental policies
depend on the severity of existing regulations, the company’s size and type of operations, and the
level of risk affecting the environment; manufacturing, energy, and mining industries are most
costly in their means of compliance due to their effects on the environment and their regulatory
bodies (Gibbons & Singell, 2007). Costs of compliance with the requirements vary depending
on the category of Australian regulation, ease of integrating technology into a company’s
production, and the competition within the industry (Boyd & McClelland, 1999). Emission limits
and pollution standards established by the environment impact strict the business needs to
acquire expensive technologies and improvements regarding pollution control proactivity, which
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increase costs. Budgets are also influenced by access, affordability, and applicability of pollution
control technologies because it is expensive for businesses that develop the new technologies or
installing addendum to old structures to meet compliance costs (Henderson, 2007). This may
result in market driven changes where businesses being aware of the increasing consumer
awareness on friendly environment products, may be compelled to incur the cost of improving
environmental performance out of fear of lack of consumer patronage in future hence impacting
the quantity and cost of compliance (Porter and van der Linde, 1995). Some of them include
subsidies which are provisions of funds by the government or offer tax holidays and credits and
the emissions trading schemes which may lower the likely expenses due to their implementation
by the government (Kerr et al. , 2007).
5.2 Green Investments
Investments comprise of initiatives such as provision of sustainable sources of energy, enhancing
the efficiency of energy use, sustainable infrastructure and development and lastly sustaining the
physical product mostly through use of green products (Acemoglu et al. , 2012). For instance,
firms may decide to adopt renewable energy types like solar, wind, and water power forms in
order to decrease carbon emission intensity, decrease energy cost and improve energy
accessibility (Bhattacharyya, 2011). Efficiency measures like upgrading buildings, ‘smart’ grid
technologies, low carbon transportation, and e-mobility have the potential to generate tangible
cost prudent measures and bring down overall energy demands and carbon footprint (Zeng et al. ,
2019). Companies may invest in sustainable infrastructure solutions like green buildings and
structures, environmentally durable transport systems, and efficient waste and water
infrastructure, to reduce the impact of climate change, and foster sustainable and adaptable cities
(Lo et al. , 2017). The consideration on updates on eco friendly products and sustainable supply
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chain management help firms to supply customers with products that match their green demands
and differentiate themselves from other firms thus expanding on the green market opportunities
in the market (Schaltegger et al. , 2016). Green investments refer to financial engagements that
may help the global companies to attune their monetary profit with ecological goals and
objectives, strengthen their competitive advantage, and promote the shift towards a sustainable
future free of excessive emissions of greenhouse gases (Clark & Watson, 2019). The nature of
decision making on green investments is prompted by the regulatory requirements, marketing
prospects, and business pressures (Ambec & Lanoie, 2008). Subsidies, tax credit, and renewable
energy targets engender politico-economic green supports which at the same time lower financial
risks and promote markets for clean technologies and sustainable business practices (Seyf and
Seif 2011; Gallagher et al. , 2012). Also, related to the business opportunities, the market pulls
stem from consumers’ awareness, companies’ public declarations of sustainable strategies, and
investors’ pressure that triggers market opportunities arising from green investment to attain
competitive edge (Dangelico & Pujari, 2010).
5.3 Financial Risk Exposure
Financial risk exposure is a crucial aspect in resolving and managing climate change besides the
environmental necessities affecting the international operations and business ventures while
impacting the revenues, profitability, and shareholders’ value (Batten et al. , 2016). Such
exposure stems from physical risks such as climate change effects, transition risks, and legal
exposure risks due to climate change phenomena and compliance (Sussman & Freed, 2017). For
example, while operating their day to day activities business organizations are exposed to
physical business risks that include hazards such as floods, storms, and even fires, which are
destructive disasters that pose a threat to all forms of enterprises and organizations since they
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have a capability of destroying fixed business investments, causing operational interruptions and
financially debilitating the companies (Sullivan & Gouldson, 2013). Transition risks are due to
changes moving from a carbon-intensive economy model toward a low-carbon economy, which
may influence policy changes, technological frameworks, and actual market demands affecting
the decline of assets, reduction in the market of fossil fuels, and changes in the valuation of
industries more dependent on carbon emissions (Stern, 2007). Customers and shareholders have
legal actions against companies for environmental pollution, carbon emission, and the failure of
companies to disclose climate risks expose organizations to legal risks and can be penalized
through litigation costs and fines and reputation losses (Bodansky, 2010). In addition, threats that
relate to Financial risks include uncertainties in climate change resulting in harsh impacts,
regulatory considerations, and market uncertainties that bar efficient and accurate quantification
of exposures (Esty & Porter, 2005). The two skills regarding the evaluation and control of
financial risk are critical for any international company aspiring to improve on its standards and
guarantee the protection of its shareholders wealth in a shifting environment (Graff Zivin et al. ,
2014). Financial risk management entails testing, measures of potential financial exposures
related to climate change and regulation, and factors of exposure include the ease with which
assets may be damaged, market and regulatory risks or uncertainties (Ackerman & Stanton,
2012). Further, organisations adopt several methods to manage financial risks with the intention
of reducing the impact in order to boost organisational financial flexibility; these strategies
include diversification, insurance, hedging and scenario analysis (Kunreuther et al. , 2013).
Corporations factor climate risk in management decision making, financing and procurement
decisions for the sake of risk sensitivity as well as organizational preparedness in order to
safeguard long term shareholders value (Newell & Paterson, 2010). Through managing and
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mitigating financial risk exposure as a form of practicing responsible business management, the
international businesses will be in a position to foster sound financial health, enhance their
competitive advantage while promoting the sustainable development agenda as espoused by
Kahneman and Tversky (1979).
6. Market Opportunities
6.1 Green Product Development
It is a strategic management initiative that organizations in the global markets employ to design
products that are eco-friendly to meet the consumer needs and wants without embracing adverse
effects on the environment throughout the product’s life cycle (Charter, 2009). It includes the
consideration of the environmental concerns throughout the product life cycle such as material
selection, manufacturing, transportation, and the end-use and disposal stages (Joshi & Rahman,
2015). Businesses may focus on the use of recycled inputs, reusable or recyclable containers, and
energy-conserving technologies when developing products to minimize resource inputs, waste
outputs, and air emissions that result from a product’s life cycle (McDonough & Braungart,
2002). product development include carrying out of life cycle assessments or LCAs in order to
assess the environmental impacts of products and further identify areas for improvement in
aspects like eco-design changes, in the supply chain and take-back or recycling programs (Tilley
et al. , 2015). Companies engage their supply chain, industry partners, and other environmental
stakeholders in sharing best practices and improving the efficiency of creating green products,
with the intent of achieving efficiencies that otherwise may not be possible given limited time,
funding, and expertise (Zhu et al. , 2016). Through direct communication with the consumers
and the application of eco-labels aimed at creating awareness on the environmental impacts of
the green products, companies seek to develop trust and thus encourage consumers to make a
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switch towards environmentally friendly products (Griskevicius et al. , 2010). Thus opening up
green product development door for international businesses can help them in creating better
brand image for them in market place and also to come out with differentiation factor to capture
the emerging opportunities in the green economy as pointed out by Peattie and Crane (2005).
The decision to incorporate green product development is fuelled by regulations, preferences,
and sustainable goals and policies (Reinhardt et al. , 2008). Eco-design directives and other EPR
programmes may compel companies to factor in more environmentally friendly features in
products and production processes (Clifton & Duff, 2010). Evolving customer demand for
environmentally friendly goods and services due to climate change, depletion of natural
resources, and pollution open up new opportunities for enterprise for the production of ‘greener’
goods (Gonzalez-Benito and Gonzalez-Benito, 2006). Management policies and industry
benchmarks, including ISO 14001 and GRI, help to direct companies on the implementation of
sustainable practices and evaluate their environmental impact in product design (Delmas &
Pekovic, 2013).
6.2 Renewable Energy Markets
Global renewable energy markets are central to managing change and reorganization in the
global business system; they provide a sustainable source of energy, enable reductions in carbon
emissions and offer cost savings for international businesses (Sovacool & Dworkin, 2015). These
markets consist of renewable resources of energy such as the solar energy, wind energy, Hydro
energy, bioenergy or biomass energy, and geothermal energy, which serve as pure and versatile
options to the commonsensical fossil fuels (Grossmann & Diez, 2019). Renewable energy
markets are avenues through which business entities can participate in the buying, funding,
owning and operation of clean energy assets like solar power plants and wind farms in order to
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balance their energy sources as well as reduce risks associated with high fossil fuel prices and
help to achieve the global goal of low carbon electricity system transformation (BloombergNEF,
2020). Energy trading platforms, carbon markets, and green investment funds are the primary
forms of engagement through which organizations can contribute towards the renewables trading
markets; and support the deployment of renewables and sustainability schemes through financial
tools and marketplaces (Gallagher & Zhang, 2019). Further the development of renewable
energy technology markets is facilitated by a blend of policy push, technology push and market
pull, this means the productive base for renewable energy businesses is offering them good
opportunities for undertaking new ventures (Jacobsson & Lauber, 2006). Taking part in
renewable energy markets makes sense for international businesses that together can improve
their energy security, lower their emissions, and contribute to the implementation of the global
climate agenda (IEA, 2019). Renewable energy markets are influenced by different factors such
as policies, technology, and market forces as presented in the analysis below The analysis was
prepared using data obtained from Lazard (2020). Subsidized markets with key policies
including the feed-in tariffs, tax credits and the renewable portfolio standards offer the financial
support and policy stability that curtail the cost unpredictability related to renewable energy
investments thus expanding the market and its competitiveness (Blyth et al. , 2003). Further,
advancements in the renewable technologies, for instance; solar PVs, wind turbines, and storage
technologies has seen the costs come down, efficiencies improved and wider applicability
observed — It appears that renewables are increasingly crowding out convention Multilateral
treaties like Paris Agreement and SDG 7 and other related goals contain guidelines for the
deployment of renewable energy systems and climate change actions, and make it mandatory for
business companies to adapt their global strategies to these global goals and help in building the
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sustainable and resilient electricity system in the long run (United Nations, 2015). al sources of
energy (Mazzucato & Semieniuk, 2018).
6.3 Sustainable Business Models
Suppressible business models are gradually identified as crucial strategic archetypes for
capturing en social concerns into global organisations and their value delivery systems (Boons &
Lüdeke Freed, 2013). Sustainability management models that are strategic in nature focus on
harmonizing business strategies with sustainable development objectives under principles of
economic, environmental and social sustainability (Schaltegger et al. , 2012). Low impact
business models like platform & product-service systems, ecosystems, and knowledge sharing
make organizations develop mutual platforms to improve on resource management & innovation.
In addition, some other forms of sustainability may include the idea of promoting inclusive
business, which seeks to solve corporate social responsibilities by ensuring individuals and
groups that are at the base of the economic pyramid are incorporated in markets and their value
is added, while at the same time being provided with opportunities hence receiving worth from
their interaction with business and markets besides having access to affordable goods and
services (Kolk et al. , 2008). Stakeholder interactions, disclosure and voluntarism : sustainable
business models focus on the acknowledgement, dialogue and sustainable relationships with
consumers, shareholders, governments and society, hence leading to credibility and sustainability
of future business organisations in an evolving global environment (Stubbs & Cocklin, 2008).
When it comes to sustainable business practices, international businesses can work on reframing
business value propositions and improve the standard of living in the society, while, in the
process, the business can advancements, sustainability, and competition in product markets in the
long run (Hart, 2005). The implementation of sustainable business strategies is influenced by
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both the organization’s forces and external influences such as market forces, stakeholders and
legislation (Schaltegger 7; Wagner, 2011). Explicit consumer concerns about degrading
ecosystems, social injustices, and ethical consumption are influencing changes in consumers’
evaluations of products and brands; thus, opening up market spaces where sustainable business
practices can be developed as a basis for competitive advantage (Luchs & Kumar, 2017). Also,
investors increasingly request sustainability aspects within investment decisions known as
environmental, social, and governance (ESG) criteria, motivated by the increase in the financial
relevance of sustainability issues; this is; encourages companies to implement sustainable
business models and report on non-financial performance indicators (Clark & Watson, 2019).
7. Case Studies and Best Practices
7.1 Successful Adaptation Examples
The case studies highlight successful adaptation cases in mitigating climate change and
environmental regulations aid in demonstrating how international business can take options and
adapt to challenges to sustain their goals (Sarraf & Dijkman, 2012). For instance, there are
multinationals corporations for instance Unilever that have very sound sustainability policies that
include resource efficiency, management of renewable energy, minimization of wastes and
materials, and transparency in the supply chain to realize substantial reduction in environmental
and social impacts while realizing competitive and financial performance (Montiel & Delgado-
Ceballos, 2014). Likewise, the automotive companies like Tesla Motors have effectively
implemented the application of new models by introducing electric car technology, establishing
investments in renewable energy generation, and advocating better modes of transport that could
reduce carbon emissions and protest regulatory policies (Musk, 2016). Furthermore, some
companies within the apparel industry, such as Patagonia company, applied sustainable
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management standards by using organic textiles, fairly traded products, and transparent supply
chain which earned them customer confidence and loyalty and competitive advantage in the
growing green conscious market (Chouinard, 2016). This conceptual integration of adaptation
examples further emphasize the need for assertive leadership, the envisioning and planning of
innovations as well as effective engagement of stakeholders in the context of climate change and
shifting regulatory environments to achieve sustainable business improvement and lasting
organisational value in managing significant risks and opportunties (Epstein & Roy, 2003).
7.2 Innovative Regulatory Responses
More sustainable approaches to regulation and politics regarding climate alterations and other
environmental issues are vital to manage the behavior of international business and contribute to
the sustainable development (Kolk & Pinkse, 2008). To describe some examples, the emissions
trading systems and the carbon taxation are the main economic instruments which promote the
decrease in greenhouse gases dioxide emissions, and shift to the using of the low-carbon
technologies and solutions (Stiglitz et al. , 2019). Also, the policies that support green
purchasing, sustainable purchasing, and environmental labeling policies create awareness and a
market pull for companies to adopt green products and services, this in turn ingrains the cultural
change and innovation on green technologies and processes (Brammer & Walker, 2011).
However, with cooperative governance models like multi-stakeholder partnerships, public
private partnerships, and voluntary measures, the necessary cooperation between and within
government institutions, businesses, civil society organizations, and other actors regarding such
environmental issues persists in order to achieve common goals of sustainable development
(Andonova et al. , 2009). These new modes of regulation point to the ways in which policy
innovation, regulatory dynamism, and consultation with relevant stakeholder constituencies offer
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the key to sustaining systemic transformation and mobilizing the business field to embrace its
possibilities (Hsu & Zomer, 2018).
7.3 Cross-Industry Comparisons
Information cross-industry provides useful information on how companies from various sectors
apply strategies addressing climate change and environmental standards; international businesses
can benefit in terms of learning different strategies and practices from other industries (Arimura
et al. , 2008). For example, the energy industry has been changing due to individuals regulatory
requirements and global market shifts, whereby renewable energy sub-sectors are gradual
replacing conventional energy sources with a view of reducing carbon footprints and improving
energy security, as pointed out by Helm (2017). On the other hand, several sectors like
manufacturing or heavy industries have a strong relation to emissions intensive processes and
high energy demands, which comes with certain difficulties regarding regulation and
technological possibilities addressing those issues without doing harm to industries’ competitive
advantages (Graff Zivin & Neidell, 2014). Basing on predesigned roles, service oriented
industries such as finance and insurance industry is crucial in enabling transition to low carbon
economy through investment in clean energy projects, issuance of green bonds besides
conducting climate risks assessment and exercising their extended influence and skill to promote
sustainability throughout value chain (Tol & van der Zwaan, 2012). Businesses and international
organizations should learn from comparative studies, sectoral strategies, and trends to foresee the
threats and opportunities in the sectors for the organizations to develop accurate plans for
strategies, partnerships, and position themselves as sustainable and climate-ready trendsetters
(Porter & Linde, 1995).
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