Climate Reputation Management
The impact of climate change is increasingly hard to ignore. According to the 2020 Global Risk Report by the World Economic Forum (WEF), environmental threats are now the dominant global risk in terms of likelihood, taking the top five spots on the list. The effects of climate change are well-known and difficult to overstate. The pressure on governments and businesses to take responsibility is increasing.
For businesses, our climate crisis includes unique reputational and financial threats. These threats are not limited to fossil fuel producers: any business with a public profile should expect to be held accountable for its impact on the environment. Many have found climate change to be an important part of their brand story. From AB InBev to Ikea, brands are seeing their response to our climate crisis as a critical component of their value proposition… and key to retaining employee talent, customers and investors.
Millennials and others prioritize their environmental values when choosing who to buy from and who to invest in. This trend is not lost on businesses labeling their brands as “green” in a variety of ways. Expect regulations that are designed to ensure green marketing reflects the reality of the brand.
The World Economic Forum notes that as the effects of climate change proliferate, “it will become increasingly difficult to treat those risks as externalities that can be ignored.” As a result, businesses should expect to face greater repercussions for the environmental damage they cause. For those who are not actively reducing their contribution to climate change, the financial risks are quickly growing. The Carbon Disclosure Project (CDP) is one nonprofit, amongst several others, that is measuring, quantifying and publishing the carbon footprints of corporations. So far, most have chosen to highlight the good actors… those companies that are managing their supply chain footprints, manufacturing emissions and the sustainability of their products. More and more, these watchdogs have begun to focus on the bad actors who are not working to truly reduce their GHG emissions and toxic wastes.
As these findings surge, so will the risks of liability. The US has already seen a wave of litigation from cities and states seeking damages from fossil fuel companies, and other countries are following suit. While many businesses are already affected by carbon pricing and carbon taxes, pressure to hold corporations liable for contributions to climate change is on the rise.
The brand portfolio for addressing our climate crisis is a mix of sustainability practices, renewable energy investments and carbon footprint reductions. The public relations component of this features stories that demonstrate these commitments.
Commit to Sustainability
Institutional investors are increasingly interested in the Environmental, Social, and Governance (ESG) factors to measure the sustainability and societal impact of an investment. Even for companies with a weak link to climate change, institutional investors are deploying ethical investment policies aimed at minimizing contribution to environmental damage. This interest stems not from an altruistic motive, but because businesses who are actively pursuing an ESG strategy are experiencing higher returns on investment. Institutional investors consider them a lesser risk.
From a company’s carbon footprint and plastic consumption, to the ethics of its supply chain and waste disposal mechanisms, it is now commonplace for investors to require evidence of efforts to reduce environmental harm. And consumers are prepared to boycott companies that are failing to tackle the crisis. Climate change is now a matter of massive public interest, so organizations should be prepared for media scrutiny of their sustainability initiatives.
Many top brands are anticipating the impact of a carbon tax and are taking advantage of the decreasing prices of renewable energy. Large multinational corporations are addressing regulatory uncertainty and avoiding calling attention to themselves by proactively and voluntarily restricting carbon emissions. At the WEF conference in Davos last month, a coalition of major financial institutions, representing $4.3 trillion in assets, said it would take steps to minimize carbon-heavy investments in its portfolios. A group of 140 of the world’s largest companies pledged to develop a core set of common metrics to track environmental and social responsibility.
Transparency… Avoid Greenwashing
Increased scrutiny demands transparency and honest accounting of environmental impacts. This should include proactive disclosure of current environmental effects; measures taken to reduce these effects; and policies to increase sustainability. A company that is upfront about its environmental impacts, as well as disclosing the countermeasures it has put in place, can demonstrate its commitment to sustainability and improve its relationships with stakeholders… and minimize the risk of adverse press attention.
Governance and Risk Management
Corporations also need to demonstrate active management of their vulnerabilities to climate-related risks. From the potential business disruptions of extreme weather events to the influence of tightening environmental regulations, it is important for senior management to be aware of and plan for the increased risk posed by climate change. As an example, 88% of the real estate sector, that disclosed their data to CDP, cited operational risks related to hurricanes, flooding, storm surges, and sea level rise as potential strains on their business. Insurers and lending banks are two other industries especially vulnerable to climate impacts.
Companies should be working on and deploying climate-related risk strategies and crisis plans. This will require increased climate competence in the C-suite. Fashion giant H&M went so far as to install its Sustainability Manager in the CEO position.
Climate-related financial and risk information should be communicated to all stakeholders. The Financial Stability Board’s Task Force on Climate-related Financial Disclosures has developed voluntary risk disclosures for use by companies in four key areas: governance; strategy; risk management; and metrics and targets. Following these recommendations ensures that companies are meeting industry standards and will help them to avoid legal, reputational and financial damage, such as those currently faced by Exxon Mobil.
Addressing the climate crisis will be costly for business, but the costs of not addressing it are higher. The financial and reputational risks associated with climate change are on the rise. Companies that fail to account for climate-related risk are not only a threat to the environment, they are a threat to themselves. By demonstrating a genuine commitment to sustainability, accountability and transparency, and implementing adequate governance, risk and communications strategies, businesses can guard their reputations and their bottom lines.