Businesses struggle to cope as climate-change laws pile up
The increasing number of laws and regulations meant to combat climate change has left many businesses reeling as they scramble to comply.
A new report titled “Succeed in a Lower Carbon Future” by global professional services firm Herbert Smith Freehills notes that by mid-2019 more than 1,600 laws and policies relating to climate change had been created across 164 jurisdictions — a 25-fold increase since 1997, when the Kyoto Treaty was signed as part of efforts to commit parties to reduce greenhouse gas emissions.
The result, according to the report, is that many companies are sitting on potential climate change-related costs and risks, all of which could negatively affect their value and reputation unless addressed.
Businesses and individuals are under increasing pressure to reduce their greenhouse gas emissions amid mounting evidence of climate change and the threat it poses to humankind, including freshwater shortages, climate instability and famine.
President Cyril Ramaphosa recently signed the carbon tax into law, which is meant to compel businesses and individuals to reduce their greenhouse emissions. The tax penalises large emitters of greenhouse gases as countries move to meet the global climate change targets set in Paris in 2015.
According to a recent report by the IMF, carbon tax is the most effective way to reduce greenhouse gas emissions, as it allows for a reduction in energy consumption, favours cleaner energies and provides much-needed revenues, which could be used to finance sustainable and more inclusive growth.
The report by Herbert Smith Freehills cites a 2019 Global CEO Outlook survey by KPMG, which found that 1,250 CEOs rated environmental/climate change risk the single biggest threat to business growth.
Climate change considerations are also starting to feature more frequently in investment treaties. Investors are attempting to enforce state compliance against countries, especially if that country provides investment incentives, according to the Herbert Smith Freehills report.
Furthermore, claims against corporations (sometimes from national or regional governments) as well as from shareholders or other private claimants, either relating to climate damage or the inadequate or misleading disclosure of the affect of activities on the climate, are also on the rise. For institutional investors, there is also a growing threat of legal challenge from activist groups, policyholders and savers.
The report highlights that risks relating to climate change are growing for all businesses, not just those in high-emission producing sectors. But corporates that weigh up the risks and identify where they can reduce or negate their affect on the climate will contribute to a thriving and sustainable economy, as well as their own ongoing security, growth and profitability.
The authors of the report said that there is a need for companies to take a nuanced approach to balancing climate risk mitigation measures with other environmental and social impacts, and for firms to find ways of effectively communicating with regulators and communities about how they propose to balance these sometimes competing considerations.
However, climate change for all its negative connotations and risks to businesses can also bring investment opportunities for those businesses that can quickly and effectively adapt to a lower-carbon future.
According to CDP, formerly the Carbon Disclosure Project, “the benefits to businesses investing in sustainable/lower emissions products and services is almost seven times the costs involved. It means corporates that futureproof their operations, engage with governments, regulators and NGOs, practise strong governance, integrate climate change risks into their wider risk management activities and measure their affect can expect to thrive in a lower-carbon environment,” the report states.
Herbert Smith Freehills partner Silke Goldberg said: “The risks associated with climate change go way beyond the purely environmental. In this report we consider the political, regulatory and commercial pressures arising from climate change and examine the opportunities for corporates leading the charge into a lower-carbon future.”