The undeniable impact of climate change has garnered widespread consensus across society, governments, businesses, and individuals. While the urgency to address this challenge is evident, finding effective solutions remains a topic of debate.
Activities - notably the burning of fossil fuels, deforestation, and agricultural practices - have led to the rapid surge in greenhouse gas (GHG) concentrations, and unless we act decisively, we are on course to surpass the critical 1.5-degree warming limit by 2027.
Climate change transcends borders and has far-reaching consequences at the macroeconomic level. With extreme weather events becoming routine, nearly 70 per cent of all economic sectors face regular disruption. For businesses, the imperative is clear: contribute collectively to cutting global GHG emissions by approximately 50 per cent by 2030.
While sustainability and decarbonization present opportunities for larger corporations, SMEs face unique challenges due to limited capital resources. These businesses tend to be risk-averse, hindering their ability to respond promptly to efficiency-improving measures. Nonetheless, with determination, firms can navigate these obstacles and fortify their core operations against climate risks through three pivotal strategies:
Keep suppliers closer
The geography of supply chains plays a crucial role in tackling climate change. Rising temperatures adversely impact staff productivity, posing health and safety concerns during scorching summers, especially in labour-intensive industries like construction and manufacturing. While larger companies may relocate or adjust suppliers, capital-constrained SMEs have less flexibility.
Emphasizing proximity matters; establishing local suppliers offering substitutes aligns with cost-cutting objectives and minimizes transactional complexities.
Recent trends in supplier sustainability highlight a shift from audits to catalysing supplier-driven sustainability programs. This approach optimizes economic gains while diversifying sourcing locally, reducing transport-related emissions, and fostering enhanced oversight, profit margins, and turnaround times.
Trash into cash
Material resource use, extraction, and processing contribute to 90 per cent of terrestrial biodiversity loss and water stress. To confront this challenge, waste-producing companies can leverage the circular economy, thereby curbing emissions and alleviating landfill costs for by-products and waste.
Embracing circularity not only combats climate change but also fortifies commercial resilience against global supply chain disruptions and inflationary pressures on raw material costs. Annually, over $700 billion worth of excess inventory and unused materials destined for landfills can be repurposed, generating new revenue streams, and embedding sustainability at the core of business practices, offering strategic opportunities for innovation.
The low global adoption rates of circular economy are not explained by a fault in the systems that govern them. Rather, a management failure to identify and embed these opportunities at the core of business operations, rather than a CSR afterthought.
Digitization matters
Digitization offers immense potential in reducing emissions, especially in high-emitting sectors like energy, materials, and mobility. Leveraging big data analytics fosters efficiency and circularity, while the Internet of Things (IoT) enables real-time decision-making in mobility. Resource-sharing platforms decentralize ownership, curbing costs, and driving innovation.
To close the gap between digital adoption and sustainability, businesses should allocate a budget for digital technologies that meet their unique needs, standardizing their reporting procedures to support, rather than disrupt, their existing systems for a smooth transition. However, management needs to ensure their current and future workforce are adequately committed to proactively embedding new technologies, or risk fragmentation.
To derive real value from the low-hanging fruits coupled with supplier diversity, a circular economy, and digitization, long-term commitment is required. These processes seem simple in the quest for creating more sustainable and lean business models, but firms must accelerate knowledge sharing as a catalyst among both internal and external stakeholders.
Managers should identify psychological barriers to change, collaborating closely with solution providers, partners, suppliers, and clients to achieve commercial goals. However, monitoring the health metrics of this collaboration will be the ultimate indicator of progress. At a critical juncture in human history to ensure actions align with words, only time will tell which businesses weather the climate storm.
