The change in climate has its impact on the companies that has international presence because the products they manufacture and the procedure are not always environment friendly. Thus, it poses danger for the global citizens and the environment (Intergovernmental Panel on Climate Change 2014). The present day environmental conditions pose a big challenge for the viable conduct of business and companies both international and local need to adapt to the changing global atmosphere so that they do not lose the marketplace for their products.
The risks that the climate poses on the business are divided into 2 types; value-chain risks and external-stakeholder risk. The physical risks can be further subdivided into physical risks, price risk, and product risk. Whereas, the external-stakeholder risk is subdivided into Ratings risk, reputation risk and regulation risk (Wolf 2014).
Physical risk are the risks that arise in which infrastructure and other assets like supply chain and factories receive the damage. The damage is inflicted by the extreme weather conditions like hurricanes, wildfires, droughts and flood. These extreme weather conditions damage the performance of the company both in visible and real ways. These kinds of extreme weather conditions are difficult to control, however if the climate patterns of the location are analyses beforehand. Then, necessary steps can be taken to minimize the damage from the occurrence any natural calamity (Chen, Sohal and Prajogo 2013). Price risk signifies the volatility that occurs in prices of the raw materials and the various other commodities. Climate related events can increase the price of the energy, while the drought conditions increases the prices of water. Thus, natural events play a big role in deciding the market price of goods during a natural calamity. Hence, to cope up with such events renewable sources of energy can be used to reduce the reliance on nonrenewable and conventional sources of energy. This will help the company to stay insulated during the times of price hike and volatility (Bartram 2015). Product risks refers to the main or the iconic products of a company which is losing its popularity and ultimately becoming unsellable. Although, in a competitive market, it is obvious that one product will displace another. However, in this case the environment factor adds up. Often due to policies implemented by the government, certain product gets banned or often loses its popularity. Thus, to cope up with these situation, greener technologies and greener products can be adopted which can reduce the impact on the environment and at same time will have a smaller footprint. Companies can bring up a sustainable approach to its production strategy, recycle and reuse the waste to minimize waste generation. Producing energy efficient and carbon efficient products are the strategies that a company can utilize during its product design (Chen, Sohal and Prajogo 2013).
Ratings risk refers to the risk that originate due to the additional cost of capital arising to the incidence of climate change. Phenomenon like carbon pricing, product obsolesce and chain disruption are some of the product risks. This risk can be effectively dealt if the companies come together and share their carbon emission quota. This can effectively reduce the carbon emitted and will help in carbon trading (Hilscher and Wilson 2016). Regulation risks are the risks that occur when governments take action due to the climate change. The several steps taken up by the government, such as hindering certain production activities, providing subsidies to the market competition and even withdrawing subsidies. Thus, to effectively deal with such situation a company must first understand the options that are mentioned in the policy. The next step involves effectively framing strategies that will adapt to the changing government rules and regulations. The final step includes a cooperation with the external stakeholders and the other industrial groups that promotes the perspectives of the concerned company (Hilscher and Wilson 2016). Reputation risk refers to the risks that surface due to the nature of the policies framed by the company or the change in perception of the customers of the company. The probable risks that originates due to change in climate change is that when the general starts to think that a product of a company is specifically affecting the environment’s health. Thus, to cope up with this risk a company can invest in several control measure like increasing the commitment of corporate social responsibility and work for the welfare of the affected people (Gatzert, Schmit and Kolb 2016).
Therefore, from the above disclosure it can be concluded that, climate change is inevitable and companies must try to adapt to the changing environmental conditions to reduce or minimize loses and make the business process much more viable. However, the companies need to adapt to the changing conditions and make necessary changes that will be helpful for the conduct of business. There are also other challenges that arise due to the environmental laws imposed on the companies that violate these laws. Sometimes closure of the companies takes due to the ill practice.
Bartram, S.M., 2015. The Impact of Commodity Price Risk on Firm Value--An Empirical Analysis of Corporate Commodity Price Exposures.
Chen, J., Sohal, A.S. and Prajogo, D.I., 2013. Supply chain operational risk mitigation: a collaborative approach. International Journal of Production Research, 51(7), pp.2186-2199.
Gatzert, N., Schmit, J.T. and Kolb, A., 2016. Assessing the risks of insuring reputation risk. Journal of Risk and Insurance, 83(3), pp.641-679.
Hilscher, J. and Wilson, M., 2016. Credit ratings and credit risk: Is one measure enough?. Management Science.
Intergovernmental Panel on Climate Change, 2014. Climate Change 2014–Impacts, Adaptation and Vulnerability: Regional Aspects. Cambridge University Press.
Wolf, J., 2014. The relationship between sustainable supply chain management, stakeholder pressure and corporate sustainability performance. Journal of business ethics, 119(3), pp.317-328.