Adapting to the climate crisis: Turning risky business into opportunity

Any business ignoring the climate crisis does so at its peril. Investments risk becoming stranded, insurance premiums are going to rise, global security will face new threats, and entirely new markets are going to emerge, usurping those which fail to adapt. 

In July, the world's leading climate scientists at the IPCC issued an unequivocal warning: due to high carbon human activity the planet is hotter now than it has been for at least 12,000 years. 

Following its publication in July, former Bank of England Governor Mark Carney said: "The latest IPCC report is a must read for boards, and its implications are an imperative for immediate strategic action."

Fortunately, there is still time to prevent the worst climate outcomes, and achieving net zero by the middle of this century offers the greatest hope of a habitable planet and a stable economy, the IPCC emphasised. Yet whether or not that future is secured, there are myriad implications for business - from raw materials, supply chains and infrastructure to markets, investment, consumers and even staff. 

So, with the changing climate reshaping society and the economy, it's no wonder investors and regulators are increasingly demanding robust risk data and climate strategies from companies to ensure they are adequately prepared, says chartered accountant Emma Cox, global sustainability and climate change leader at PwC.

"The accountancy profession has a huge role to play in helping deliver that clear information in order for the right decisions to be made, business to be held accountable, track how they are measuring up to government targets, and making it clear, comparable and reliable," she says.

Assessing those risks is the first step. Here, the guidelines of the Taskforce on Climate-related Financial Disclosures (TCFDs) are a critical tool for accountants, and G7 governments recently committed to making such disclosures mandatory for public companies. From there, specific actions to address identified risks can flow, including, for example, science-based emissions reduction targets covering the core business and supply chain. "If you don't start with some sort of baseline, you don't know where you are," argues Cox.

Damandeep Singh, director of risk disclosure at non-profit CDP's India office, agrees. Indian companies working with CDP are collectively on the hook for $100bn from climate-related risks in only the next five years, and regulations to force disclosure of these risks are being tightened. But he says the companies already doing so are far better prepared to adapt and seize the opportunities of the accelerating green economy. 

"What we're finding is that the companies that actually see the light are going far ahead," Singh says. "For a lot of global companies, board level oversight of climate change is not that high, but in India, if they are taking action, then board level oversight is up to about 90% plus."

In India and Pakistan, water shortages feature among many intensifying climate threats to food security and livelihoods, while demand for resources is growing with the population. 

It’s an issue food multinational Mars is now all too aware of. After mapping the amount of water used across its supply chain, it identified irrigation-grown rice in the region for brands such as Ben's Original (formerly known as Uncle Ben’s) as one of its riskiest pressure points. So, alongside the UN, WWF and the International Rice Institute, it helped establish the Sustainable Rice Platform alongside a new industry standard to encourage more resilient, efficient and climate-friendly farming methods.

Mars has committed to sourcing 100% SRP-certified rice, and works with thousands of basmati rice farmers in the region to reduce water use, while also boosting yields and supplier incomes. The journey from climate risk assessment to action has benefitted the bottom line, while helping to safeguard the future of the rice industry, according to Mars.

"As more farmers learn sustainable rice farming techniques—and more manufacturers commit to sourcing sustainable rice—we can support a high-quality rice crop for the billions around the world who depend on it for their nutrition and livelihood," says Denis Winkler, Global VP Commercial & Supply for Mars Food.

As the UK’s largest food and support services company, Compass Group UK & Ireland is another organisation primed to influence suppliers, consumers and wider industry to safeguard its business and capitalise on new market opportunities. The firm has been reviewing its governance to align with the TCFDs, and is now targeting net zero by 2030, backed by a suite of ambitious, science-based climate goals across its business and wider value chain. It is also developing similar targets for nature and biodiversity. 

But most interesting is the vision for its menus: By 2030 Compass Group UK & Ireland aims to switch 40% of the meat it serves to plant-based proteins, and source 70% of its fresh meat, dairy and vegetables from regenerative agriculture, in order to "help build a sustainable food system". This promises to reduce supply chain CO2 and risk, nudges suppliers and clients alike towards more sustainable choices, and positions the firm as a leader in the growing market for plant-based diets. Levy, one of the firm's subsidiaries, will even be serving up sustainable dishes at the COP26 UN climate summit in Glasgow.

For Carolyn Ball, Compass Group's net zero delivery director for UK and Ireland, climate and market changes are already underway, making adaptation, innovation and deeper collaboration with suppliers essential. And whether it's assessing risk or the financial case for action, the company's accountancy staff have been "critically important" throughout its sustainability journey, she says.

"This challenge is complex and vast," she says. "To achieve it, we need talented, energetic finance teams engaged around the same purpose."

From offices overheating and stressed supply chains to spying opportunities, climate change presents a range of issues accountants may not have had to consider before. But their role in preparing for this new epoch cannot be overestimated, argues Richard Spencer, ICAEW’s technical thought leadership director.

"There is no business, no prosperity, and no jobs on a dead planet," he says. "Accountants are absolutely central to helping a business understand what the risks and their implications are, and how it should adapt to meet them."