• Thursday, February 29, 2024
businessday logo


CEOs see climate change disrupting supply chains, costs

CEOs see climate change disrupting supply chains, costs

A majority of global CEOs expect some degree of impact from climate change in 2023 primarily in their cost profiles and supply chains, more than the safety of their physical assets, according to a recent Global CEO survey by PwC.

The survey, which surveyed 4,410 CEOs from 105 countries and territories, said 50 percent of them expect a moderate, large or very large impact and 42 percent expect it to impact their supply chains.

“Fewer (24 percent) are worried about climate-related damage to their physical assets.

“CEOs in China feel particularly exposed, with 65 percent seeing the potential for impact in their cost profiles, 71 percent in supply chains and 56 percent in physical assets,” it added.

According to the United Nations (UN), climate change refers to long-term shifts in temperatures and weather patterns. The primary cause of climate change is the burning of fossil fuels, such as oil and coal, which emit greenhouse gases into the atmosphere primarily carbon dioxide.

While some of the noticeable environmental shifts have been natural, human actions like the burning of fossil fuels, excessive use of coal, deforestation, pollution, and unstructured urban development have accelerated the pace at which the earth is warming, fostering devastating effects on lives and properties.

In Africa, climate-related problems have been significant including the current floods in Nigeria and droughts in Somalia, Ethiopia, and Kenya

This has made it a global issue as it is considered by business leaders as one of the greatest threats to economic stability.

A 2021 Deloitte Global Climate Check report said most global organizations are already starting to feel its negative impacts.

It said leaders acknowledge the business imperative of climate change and increasingly understand it to be an existential threat that can have long-term impacts on their people and business operations.

“A warming planet creates a wide range of risks for businesses, from disrupted supply chains to rising insurance costs to labor challenges. Climate change and extreme weather events such as hurricanes, floods and fires, for example, have a direct impact on 70 percent of all economic sectors worldwide,” it said.

Some of the ways that climate change is already impacting or threatening to impact companies across the world are operational impact, scarcity/cost of resources, regulatory/political uncertainty, increased insurance costs or lack of insurance availability and reputational damage.

At the 2023 World Economic Forum (WEF) Annual Meeting, international organisations like the World Trade Organization (WTO) and others, warned that deglobalization would negatively impact the world and especially emerging economies.

Alexander De Croo, Prime Minister of Belgium, said creating a trade agenda that prioritizes inclusivity and decarbonization is a major priority.

“Many European governments have welcomed the recent embrace of sustainability in US economic policy. The world can only be happy that the United States has moved to the right side of the aisle on climate,” he said.

Ngozi Okonjo-Iweala, director-general of WTO, said services that are green, digital, inclusive will determine the future of trade.

In a statement, the WEF said many nations have seen a push to relocate manufacturing closer to consumers’ demand, after supply shocks associated with port blockages, the war in Ukraine and the COVID-19 pandemic.

“Moreover, concerns about national security have caused many nations to question their over-reliance on certain countries for critical goods and services, such as European dependence on Russian energy,” it added.

Before climate change became a global priority from a fringe one, the Paris Agreement was adopted by 196 parties at the UN’s Climate Change Conference in 2015.

The Agreement often referred to as the Paris Accords or the Paris Climate Accords, is an international treaty on climate change.

It covers climate change mitigation, adaptation, and finance and the long-term temperature goal is to keep the rise in mean global temperature to well below 2 °C (3.6 °F) above pre-industrial levels, and preferably limit the increase to 1.5 °C (2.7 °F), recognizing that this would substantially reduce the effects of climate change.

Emissions should be reduced as soon as possible and reach net-zero by the middle of the 21st century. And there is an agreement that every five years, there will be an updated plan that would reflect the country’s highest possible ambition at that time.

“Seven years ago, world leaders signed an international treaty to limit global warming to well below 1.5°C. Nonetheless, efforts remain insufficient to limit global temperature rise to 1.5 degrees Celsius by the end of the century,” said Fida Kibbi, vice president and head of Marketing, Communications and Sustainability & Corporate Responsibility at Ericsson Middle East and Africa.

She said the ramifications and severity of climate change vary depending on where you live. “In Africa, climate-related problems have been significant including the current floods in Nigeria and droughts in Somalia, Ethiopia, and Kenya as few examples to mention.”

During the 2021 UN’s Climate Change Conference commonly referred to as COP26, another agreement called the ‘Glasgow Climate Pact’ was signed by 197 parties. It aims to reduce unabated coal usage.

And in that conference, Nigeria committed to achieve net-zero emission by 2060. President Muhammadu Buhari has already signed into law the Climate Change Act, 2021, which was passed by the National Assembly in October.

According to PwC, the Act seeks to provide a framework for achieving low GreenHouse Gas emissions and to mainstream climate change actions into national plans and programmes.

“The increased focus on environment, sustainability and governance which would affect supply chains,” Kenneth Erikume, partner at PwC said.

He added that this will have a major impact on manufacturers in the medium and long term because the European Commission has come up with the European Green deal to cut down emission levels to 55 percent by 2030 and by 2050, they must achieve net zero emission,” he said.

The PwC survey further revealed that business leaders who feel most exposed to climate change are more likely to take action to address it.

Some of the actions companies take to prepare for the risk of climate change are the implementation of initiatives to reduce companies’ emissions, innovate new, climate-friendly products or processes and developing a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks.

Others are implementing initiatives to protect one’s company’s physical assets and/or workforce from the physical impacts of climate risk and applying an internal price on carbon in decision-making.

“Combating climate change requires a coordinated, long-term plan. It won’t be solved if the only companies working on it are those that face immediate financial impact,” PwC said.

It said they also don’t know how much the actions that are being undertaken most frequently in decarbonisation initiatives, along with efforts to innovate climate-friendly products and services will move the needle, particularly in the near-term, which, in light of emissions already in the atmosphere, promises continued warming under virtually every scenario.

Apart from climate change, inflation, economic volatility and geopolitical risk are other top risks facing CEOs this year.

“All three are immediate, headline-grabbing issues that can reinforce and compound one another, as, for example, the war in Ukraine pushes up prices, encouraging central banks worldwide to intervene through growth-dampening interest rate hikes,” it said.

It said the picture changes for CEOs’ medium-term (five-year) outlook. “Over that time frame, cyber risks and climate change join inflation, macroeconomic volatility and geopolitical conflict in the top tier of risk exposure.”

Read also: Climate change: A pandemic we must collectively address now

The report added that the biggest near-term challenge facing CEOs is the state of the global economy, which nearly 75 percent believe will see declining growth during the year ahead.

It said: “Not surprisingly, nearly three-quarters of CEOs responding to this year’s survey project that global economic growth will decline over the next 12 months.

“Those expectations, which held across all major economies, represented a stark reversal from last year, when a similar proportion (77 percent) anticipated improvement in global growth.”

Last week, nearly two-thirds of the chief economists surveyed by WEF predicted a global recession this year, despite being optimistic about inflation and strong balance sheets.

The PwC report also cited changing customer preferences, regulatory change, skills shortages and technology disruption as the forces most likely to impact their industry’s profitability over the next ten years.

“Forty percent of the CEOs think their organisation will no longer be economically viable in 10 years’ time, if it continues on its current course,” it said.

It said the pattern is consistent across a range of economic sectors, including technology (41 percent), telecommunications (46 percent), healthcare (42 percent) and manufacturing (43 percent).

In the current environment, most business leaders report cutting costs and spurring revenue growth — but do not plan to reduce workforce or delay deals due to their recent experience with employee attrition, which surged over the past year, according to the report.

“If, as many CEOs anticipate, the war for talent remains fierce, even amid deteriorating economic conditions, keeping workers happy and engaged will be a mission-critical priority.”

It added that flexibility, fair pay, fulfilling work and the opportunity to be one’s authentic best self at work are critical determinants of employee decisions about whether to stay or go. “Leaders do have levers to pull when it comes to employee retention.”