UHY Hacker Young | Chartered Accountants

The environment: will your business pass the test of public opinion?

3 June 2019

Recent extreme weather phenomena have reminded us all that climate change is a threat to the way we conduct our lives and run our businesses. Preparing for such events has now become commonplace, but entrepreneurs should also consider the political and social trends which could just as easily put them out of business.

Weathering the storm

Wildfires in USA, record high temperatures in Australia, extensive flooding in Mozambique, such extreme weather events reach our screens almost daily. Add to this extensive press coverage of the report produced by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, David Attenborough’s campaign against plastic pollution, and the ‘Dieselgate’ scandal, and it is not difficult to appreciate that every business will be affected not only by the physical effects of climate change but also by the pressures of public opinion.

According to a survey of 100 board members from the UK’s top 500 companies, conducted by Ipsos MORI, 67 % of UK corporations will be disclosing climate change-related risks and opportunities in their 2019 annual reports. 72% of those who will be reporting thought that this would improve their reputation and enhance brand value. 31% thought there would be financial benefits, including improved access to capital and strengthened credit ratings. This contrasts somewhat with the findings of a report by Schroders on 11,000 globally listed companies, which found that if these companies properly accounted for physical climate risk they would lose between 2% and 3% of their market value.

Foreseeable and unforeseeable

Some of the effects of climate change on business are obvious and countermeasures are relatively easy to implement as well as cost-effective. It has been estimated that flood barriers, strengthened warehousing, and in some cases, relocation, can cost as little as one-fifth of the costs of restitution following an extreme event. And of course, such events are insurable. On the other hand, few predicted the disruption to supply chains last year when lack of water made the Rhine unnavigable for several weeks. There are other less obvious effects: low levels in natural watercourses can prevent the discharge of waste, high temperatures can reduce the productivity both of plant and employees, and disruptive weather can halt just-in-time delivery chains. In our interconnected world, these problems are not just confined to large companies.

Rapid reaction

Growing public awareness of green issues is arguably becoming a more significant factor even than climate change itself. Who would have thought that plastic straws and stirring sticks would disappear so quickly from our large-chain cafes? Who could have predicted the dramatic fall in the sale of diesel cars that is having such a far-reaching effect on the motor industry? And what about the magazine publishers who have so rapidly had to switch to compostable packaging? All of these changes attract costs and SMEs will not be immune. For example, VW’s new-found environmental zeal has led it to dictate emission reduction standards to all its suppliers. All those involved in any kind of supply chain will be affected by the attitude to green issues of end users.

Turn it to your advantage

The message for SMEs is clear. Assuming first of all that your insurance is up to date and that you have done all that is reasonably practicable to protect your buildings, plant, stock and employees against extreme weather, you need to check that your key suppliers have done the same, or that you have alternative sources in case of catastrophe. It is obvious, but worth mentioning, that you should examine your product range to see if any item contains substances that might become ethically unacceptable in the longer term. Indeed you might have products, processes or packaging that are already questionable and need replacing before they cause reputational damage. Look also at the way you use energy and recycle waste. Once you have dealt with these issues go public and draw attention to your green credentials. Use your website, and perhaps your annual report, to state your attitude to environmental matters and to describe the measures you have taken to minimise your company’s impact. There is evidence that younger consumers are increasingly taking these matters into account in their buying decisions. You can future-proof both your business and the planet!

If you are intending to plan strategically for a sustainable business, in both financial and environmental terms, we can help in many ways, including putting you in touch with relevant experts. Just contact me or complete our contact form.