The Business of Climate Change

The Business of Climate Change

Posted on 02 Jul 2022

Climate change is the paradox of our era. Rising global temperatures have proved to create both opportunities and challenges to individuals, organizations and governments. The future rate of global warming is still unknown and weather forecasting is becoming increasingly important. During the Cop26 climate summit in Glasgow, countries pledged to revisit carbon emission goals by the end of 2022 with the target of limiting global warming by well less than 2 degrees Celsius, and ideally 1.5 degrees by the end of 2030. Whether this can be achieved is unknown, a rise of 6 degrees would prove disastrous on a global scale.

Rising global temperatures have generally proved to be of benefit to those in more Northern areas, and given those closer to the equator increased causes for concern. Melting glaciers and warming temperatures have given Greenland new opportunities including better fishing as well as easier access to minerals, such as oil and gas. It is thought that the increased wealth generated by climate change may lead to Greenland’s full independence from Denmark, creating the world’s first climate change country. 

In his book ‘Windfall: The global business of global warming’, McKenzie Funk suggests that the notion that organizations simply need to reduce their carbon footprint is now in the past. Global warming has already happened, and organizations need to take both a mitigation and adaptation approach. 

Adaptation tends to be local, companies in wealthier countries may take a different approach to those in the majority world. Even within the same country, different districts may have different approaches to adapting to their changing environment. On the other hand, mitigation is global, if organizations anywhere in the world can reduce their carbon footprint, the effect is felt around the world.

Business Opportunities:

There is a growing financial sector involved with the buying and selling of hedged water rights. Some investors are buying the rights to water supplies, and then selling them to nearby cities. In Australia, investors are buying the water rights from ranchers, and then renting them back to the farmers. The investors benefit from an increase in value of their investment as droughts, and global warming gets worse, as well as receiving a constant and virtually guaranteed rental income. 

Not all water investments are successful however, an example being the Canadian hedge fund manager who purchased the rights to a melting glacier, with the intention to tow parts around the world. Unfortunately the weight of ice meant that the venture was prohibitively expensive, especially when compared with the ever more efficient desalination technologies.  Another example of the dangers of global warming investment was the drive of a large oil company to start drilling in the Arctic. Investing over £4billiion, the project went up against nature, and was plagued with misadventure, including fires, emission regulation breaches as well as the threat of collision with a rogue ice sheet.

The Harvard Business Review suggested that businesses that treat climate change related issues as those of pure corporate responsibility will run the greatest risk in the future. Greenhouse gas emission controls should mesh with an organization's overall business strategy. This would reduce the overall exposure to climate change risks, including the rising cost of carbon based fuels. Implementing an overall strategy might involve replacing fossil-fuel powered after-sales service vehicle fleets with hybrid or purely electric ones, improved route planning to reduce the distance traveled, or even changing the product design to allow for remote diagnostic checking.

According to some estimates,  global corporations have the potential to capture £20 trillion in opportunities and create 65 million new jobs by 2030 through climate change adaptation. However this needs to be seen in conjunction with increased governmental regulations, taxes and laws that organizations will be required to follow.

New business opportunities fall into three broad categories:

Climate diagnostic companies:

These organizations are involved with analyzing, processing and predicting global weather trends. As an example, at OpenWeather, we create weather data products that are aimed at the needs of our customers and that make working with weather data effective and straightforward. 

Resilience Solutions Businesses:

These provide solutions to help mitigate against the immediate effects of weather conditions caused by climate change. These primarily include insurance companies, but also cover security and disaster response organizations. 

For example, insurance companies are learning from Californoa’s recent wildfires to create products aimed not just at insuring those at risk, but investing in the prevention and mitigation against future natural disasters. In addition, insurance companies are looking at their traditional models, and finding that they need to be significantly modified to take into account the effect of climate change.  

Climate Response Businesses:

These respond to new needs of consumers and businesses resulting from global warming. This could refer to new goods and services or new revenue structures. 

An example of this is within the construction industry, which is addressing climate change at multiple levels. It is examining the way it can reduce the greenhouse gas emissions created during the construction process itself, as well as investing in the research and development of new technologies and materials that lead to more efficient buildings. One of these technologies is the process of Business Information Modeling (BIM), which can reduce waste and increase energy efficiency through the data management of the construction process.  

New Innovation and Collaboration

There are a multitude of new and innovative businesses in this category, including those that create artificial snow to extend the season for ski resorts. The 2022 winter Olympics in China planned to use 100% artificial snow for the events, using 2.5 million cubic meters of water to create the needed conditions. Ironically, these plans were disrupted by unseasonal high snow falls, meaning that officials actually had to remove the real snow to give the athletes the consistent artificial surface to ski on. 

Effective innovation often means solving two problems with one solution. Researchers at Rice University have tackled the issues of plastic pollution and rising greenhouse gas levels by creating an ultra porous ‘sponge’ made from recycled plastics, that would otherwise be destined for landfill. This new technology could be used in flus to soak up C02 that would otherwise be released into the atmosphere.

In April 2022, scientists at MIT and the National Renewable Energy Laboratory announced the development of a prototype solid state device to convert heat energy to electricity with an initial 40% efficiency, and potential to reach the 50% mark. Traditional methods of using turbines driven by steam heated by fossil fuels run at an average of 35% efficiency, and involve a multitude of expensive parts that need regular maintenance. The thermophotovoltaic (TPV) cell by contrast has no moving parts, and can lead to additional innovations in renewable energy storage, and thermal energy conversion.  

New startups are embracing the opportunities that climate change presents. Climate Launchpad is an organization that brings together small businesses and individuals with big ideas. One of the most innovative was an idea by ‘Greener’ who created an app that can be used by shoppers, that allocates them points when they purchase products with a low carbon footprint, and advises them when they may be choosing a less environmentally friendly option. In effect they were gamifying the process of shopping, and bringing together consumers with greener producers.

Financial Instruments

The Paris climate agreement obliged countries to reduce their greenhouse gas emissions to a point where global warming would be limited to 1.5C by the end of the decade, with zero emissions by sometime around the year 2050. This means that countries and organizations are permitted to release C02 into the atmosphere, creating a ‘Carbon Debt’ that would need to be repaid by removing the excess Co2 from the atmosphere at a later stage to prevent runaway global warming after 2050. 

The issue is that carbon removal technologies are in their infancy, and there is nothing forcing companies to remove any excess Co2 from the atmosphere that they release. In an article in Nature magazine, Johannes Bednar, a researcher at the International Institute for Applied Systems Analysis in Austria and a PhD student at Oxford University has suggested that a new financial instrument can be created called a ‘Carbon Removal Obligation’ (CRO). The CRO would be a physical liability in tonnes of Co2 that would be entered on the company's balance sheet, and which interest is paid, and which would need to be paid back in due time. Like any other debt, financial organizations such as banks would issue the debt, and would be held liable in case of insolvency.

Predicting the future has never been an exact science. Business has always created opportunities out of challenges. That is still true today, though they are also facing the global scrutiny and legislation that is being created as a result of the new climate. Both large and small small businesses are adapting, innovating and working with governments to create a new blueprint for our futures.

In our next article, we will examine how our climate is changing, and how we are learning to adapt to these changes.

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