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Climate Change and Risks for Business in Australia Research Paper

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Updated: May 3rd, 2021

Introduction

An immense body of evidence elaborated through the last 40 years shows that climate change is real and it is already influencing people’s lives. Global warming was first recognized as a worldwide environmental problem in the 1970s (DiMento & Doughman, 2014). The reason for climate change is considered to be the human-caused greenhouse gas emissions since the 1950s (WWF – Australia, 2004) Goldenberg (2013) states that the present-day environmental crisis is caused largely by 90 companies, which produce nearly two-thirds of the greenhouse gas. If the discharge continues to grow at the present rate, the results of the climate change will affect many countries including Australia within a short timeframe (WWF – Australia, 2008).

Environmental crises also pose problems to businesses in Australia. Climate change poses four types of risks to the sustainability of the enterprises, including physical risks, reputational risks, regulatory risks, and litigation risks (Demertzidis, Tsalis, Loupa, & Nikolaou, 2015). Therefore, boards of directors should make necessary adjustments to corporate strategies to address the hazards (Ramani, 2015). The present paper touches upon the main threats to business sustainability in Australia and provides evaluations for the possible solutions to the problems.

First, the paper touches upon reputational risks environment policies imply to business and offers a way of avoiding problems with the public. Second, the study explains regulatory risks and demonstrates how business owners in Australia should address the issue. Third, the research evaluates the solutions and describes limitations to the work. The importance of the study is uncanny as it offers the reader a concise assessment of the situation concerning the dangers climate change poses to business in simple words.

Reputational Risks

The reputational risks implied by the climate crisis are one of the major concerns to the businesses’ upper management as they notably affect enterprises’ sustainability performance. These risks are connected with the harmful actions of consumers and communities due to the improper operation of businesses about various climate change aspects (Demertzidis et al., 2015). In simpler words, people are unhappy with the enterprises that ignore environment-friendly policies and organize boycotts and protests. Such reactions of the public cause a decrease in the market value of the companies and, consequently, alarm the investors. Hence, it is clear that reputational risks are always associated with conflicts between the community and the company.

Franks et al. (2014) conducted 45 interviews with key individuals, primarily from mining and hydrocarbon companies, to assess the main sources of unexpected costs. The research revealed a “world-class mining project with capital expenditure of between US$3 and US$5 billion suffering roughly US$20 million per week of delayed production in net present value terms as a result of community conflict” (Franks et al., 2014, p. 7578). This example vividly demonstrates how human relations can be converted into sheer numbers and confirms that evaluation of reputational risks is crucial for business. Therefore, the business upper management should consider projecting awareness about current environmental concerns in order to keep employees, shareholders, and customers happy.

Addressing Reputation

The reputational risks should be addressed by showing the willingness to adopt strategies that reduce climate change impact and to disclose information on climate change damage that has already been dealt with. A type of business model that weighs economic decisions with environmental concerns has become a new standard for sustainability in large companies (Mason & Mason, 2012).

Moreover, the upper management of the enterprises begins to realize that delivering information about implying environment-friendly policies to the public has become pivotal for maintaining the reputation of the green industry. In other words, a business should not only be environment-friendly but also deliver this fact to all the stakeholders. The main solution for the problem is creating apprehensive environmental reports to deliver information about the corporate ethos to the stakeholders.

Research conducted by Mason and Mason (2012) shows correlations between creating coherent corporate environmental reports and acquiring the reputation of a company caring about climate change. The study analyses a data set and concludes that creating a persuasive report may be more important than genuinely practicing environment-friendly policies. This example demonstrates the influence the instrument may have upon public opinion. In short, a corporate environmental report is a powerful tool to address the reputational risks of climate change as it directly affects the social attitude towards companies. However crucial human relations may seem, businesses’ upper management should also consider other risks global warming implies.

Regulatory Risks

The other central threats to a businesses’ sustainability are regulatory risks, as they can become one of the major sources of unforeseen costs. Demertzidis et al. (2015) define regulatory risks as “additional costs that might burden the financial structure of businesses when they try to adhere to the requirements of climate change regulations” (p. 96). In simpler words, whenever the government of Australia adopts a new environment-friendly policy, every enterprise owner in the country has to spend money to adapt his business scheme in accordance with the new law.

For example, Australia encourages investment in the development and use of low-emission and renewable technology since 2008 (WWF – Australia, 2008). Consequently, the Australian government may adopt legislation that reduces the value of shares of high-emission industries on the stock market. Therefore, company heads should address these threats with due caution, as the regulatory risks are more frequent than any other types of risks such as physical, reputation, and litigation (Demertzidis et al., 2015). While the economical hazards climate change imposes are impossible to avoid, there are ways to reduce the damage of the new environment-friendly legislation.

Addressing Regulatory Risks

The main ways of addressing regulatory risks are by shifting the focus from the immediate results to long-term strategic planning and adopting systematic assessment of companies’ policies in terms of the new legislation. While the statement may seem vague, it implies specific actions the upper management should perform to avoid additional costs. First, although new laws are impossible to predict, the overall tendency of Australian legislation shifting towards lowering the emissions of greenhouse gases into the atmosphere is evident.

Therefore, rather than trying to lower the damage of a specific regulatory action, the company should assess the situation through a broader lens and develop a long-term strategy in accordance with the overall tendency of the Australian government (Ramani, 2015). Second, the corporation should hire specialists with expertise and background on key environmental issues (Ramani, 2015).

A growing number of company heads, including Coca-Cola, Unilever, and Intel have made steps towards shifting from quarterly financial reports towards considering a long-term value creation model through methodical assessment of the sustainability performance (Ramani, 2015). As climate change is among the major issues that influence corporate sustainability, the above-mentioned companies have the example for the Australian industries demonstrating a system for approaching regulatory risks of the environmental problems. In short, there is no panacea for addressing regulatory issues; however, long-term commitments and qualified staff can make the matter less costly.

Evaluation

Some further considerations should be made concerning the solutions for the environmental problems mentioned in the paper. On the one hand, the solution for regulatory problems Australian industries may encounter is consistent and rational. A number of large companies have put this solution to practice and have met with limited success (Ramani, 2015). On the other hand, addressing reputational risks solely through corporate environmental reports seems to be insufficient. A company’s reputation builds up not only through the reports but also through press releases in respected periodicals. Consequently, such media announcements can be used to improve the picture of an industry in terms of environmental policy.

The present paper is a concise evaluation of the risks that climate change poses for businesses in Australia. The current research provides information restricted to business borders, however, further investigation outside business borders is needed to estimate climate change risks. While the present paper is suitable for obtaining a basic picture concerning the influence of climate change on business, physical risks, including frequency of hurricanes, droughts, and sea level, and litigation risks should be assessed to enhance the study.

Conclusion

Greenhouse gases have become a major threat to the global environment over the last 50 years. While causing considerable ecological problems, climate change also poses a number of economic challenges for businesses in Australia. Company owners should consider reputational and regulatory risks environmental changes imply and react to the challenges accordingly to avoid additional financial losses.

References

DiMento, J., & Doughman, P. (2014). Climate change. Cambridge, MA: The MIT Press.

Franks, D., Davis, R., Bebbington, A., Ali, S., Kemp, D., & Scurrah, M. (2014). Conflict translates environmental and social risk into business costs. Proceedings of the National Academy of Sciences, 111(21), 7576-7581. Web.

Demertzidis, N., Tsalis, T., Loupa, G., & Nikolaou, I. (2015). A benchmarking framework to evaluate business climate change risks: A practical tool suitable for the investors decision-making process. Climate Risk Management, 10, 95-105. Web.

Goldenberg, S. (2013). . The Guardian. Web.

Mason, M., & Mason, R. (2012). Communicating a green corporate perspective: Ideological persuasion in the corporate environmental report. Journal of Business and Technical Communication, 26(4), 479-506. Web.

Ramani, V. (2015). . Web.

WWF – Australia. (2004). Climate Change. Solutions for Australia. Sydney, Australia: WWF Press.

WWF – Australia. (2008). Climate Change: Solutions for Australia 2008. Sydney, Australia: WWF Press.

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IvyPanda. (2021, May 3). Climate Change and Risks for Business in Australia. Retrieved from https://ivypanda.com/essays/climate-change-and-risks-for-business-in-australia/

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"Climate Change and Risks for Business in Australia." IvyPanda, 3 May 2021, ivypanda.com/essays/climate-change-and-risks-for-business-in-australia/.

1. IvyPanda. "Climate Change and Risks for Business in Australia." May 3, 2021. https://ivypanda.com/essays/climate-change-and-risks-for-business-in-australia/.


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IvyPanda. "Climate Change and Risks for Business in Australia." May 3, 2021. https://ivypanda.com/essays/climate-change-and-risks-for-business-in-australia/.

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IvyPanda. 2021. "Climate Change and Risks for Business in Australia." May 3, 2021. https://ivypanda.com/essays/climate-change-and-risks-for-business-in-australia/.

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IvyPanda. (2021) 'Climate Change and Risks for Business in Australia'. 3 May.

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