The Impact of Climate Change on International Business Strategies – Why Corporations Should Pay Attention | Blog
Acknowledging the reality of the current climate crisis, forward-looking corporations are adopting business strategies to make their organizations more resilient to its far-reaching consequences. Climate change can directly impact employee well-being, service delivery location decisions, and other critical business operations. Read on to gain a better understanding of its short- and long-term impacts and what to consider.
“Jakarta is sinking,” screamed headlines as Indonesia announced moving its capital 2,000 kilometers northeast to Nusantara, on the island of Borneo. The move that could cost Indonesia upwards of $30 billion is driven by concerns of Jakarta’s submergence by 2050. Jakarta could be the first of many cities to be adversely impacted by climate change.
The debate on climate change has moved from whether it is real to when will it impact us. Climate change has become inescapable. The discussion on climate change featured primarily in social media, conferences, academia, and educational institutes have moved to boardrooms. Corporates are increasingly concerned about the short- and long-term impact climate change can have on their businesses.
Facing pressure from employees, customers, and investors to act on climate change, corporations are increasingly forced to acknowledge climate change’s economic, physical, and operational impact on their business and human capital.
Hotter summers, colder winters, and an increasing frequency of extreme weather events like storms, hurricanes, and floods are all signs of the climate crisis. According to multiple studies, the earth’s surface temperature has seen the highest increase in the last 40 years, with 10 of the warmest years occurring post-2005. Scientists worldwide have reported record ice cap melting and glacier retreats.
The exponential increase in extreme weather events and natural disasters should be a more pressing concern. In 2020 and 2021, the world has seen a spike in natural disasters in the last few years, with a five-fold increase over 50 years. Climate change has led to warmer temperatures, leading to more frequent heatwaves and droughts. Sea levels have been rising steadily, coupled with frequent coastal region flooding.
Corporations taking notice
Corporations are now acknowledging that climate change can have a significant impact on business functions. Extreme weather events in recent years have disrupted business operations and resulted in the loss of human life, physical assets, and infrastructure.
Companies are trying to think beyond the short-term consequences already being felt and understand the long-term effects of climate change on international business strategies. In addition to business disruptions, climate change can have implications on employees’ mental and physical well-being and, in extreme cases, loss of life. In most companies, especially the global services industry, human capital is the most critical asset. Climate change can significantly impact business operations due to lower productivity, loss of work hours, and possible higher attrition rates.
As companies acknowledge climate change’s direct and indirect business impacts, the more forward-thinking companies have started adopting plans to make themselves more resilient to climate change and its consequences. Although this is just the beginning, a lot more needs to be done in terms of workforce and location strategies.
Location strategies need to consider climate change
Most companies are still more focused on the short-term, like building climate-resilient buildings and reinforcing existing infrastructure to make it more resilient to the impacts of climate change. Location strategy is a long-term decision with significant investment and sunk costs. Once a company decides to start delivery operations from a particular location, it is an irreversible long-term decision due to the high capital and labor investment.
Companies will have to consider the impact of climate change on future location strategy decision making, which traditionally includes talent, cost arbitrage, and conventional operating and business environment parameters. Climate change impacts different regions, locations, and geographies differently. Although two locations might be neighboring coastal cities, the impact of climate change could differ depending on the landscape.
Hence, it is paramount for companies to understand the effects of climate change on the particular location they are accessing and the degree of its impact. The holistic, long-term assessment should consider historical and predicted climate patterns, government mitigation measures and their effectiveness, and geographic factors.
In our recent viewpoint, Impact of Climate Change on Delivery Location Sustainability, we cover climate change’s impact on significant delivery locations around the world, across multiple parameters including rising temperatures, heatwaves, floods, hurricanes, storms, and rising sea levels with qualitative insights on select sites. The report provides a high-level view on short-term and long-term risk management measures to mitigate the effects of climate change on companies and employees.
Also, don’t miss our webinar, 5 Success-driving Actions: How to Unlock Untapped, Affordable Talent, exploring key talent strategies in various geographies.