February 4, 2021

So You Think Climate Change Isn’t a Risk for Your Small Business?

Erica MacKay

Most small business owners seem to be oblivious to just how vulnerable they (and their business) are to climate change. They often seem to believe that climate change is someone else’s problem.

No industry is immune, no industry is even protected, from the repercussions of climate change. Some of these physical repercussions are:

· Rising temperatures (air and water)

· Increasing sea levels, storm surges, and floods

· Increased severe weather events

· Decreasing water availability, and drought in some regions

How do these physical impacts affect your business?

There are the obvious physical risks. The combination of rising sea levels and increased storm surges is leading to large increases in flooding. It’s particularly acute in coastal areas, but also in other areas that haven’t been prone to flooding before.

Then there are the “knock-on” effects: think about the availability of essential materials like packaging, employee absences, or transport disruptions which can affect deliveries of your product. Climate change amplifies other existing risks to create a much larger one. You need to identify not only the risks emerging from climate change that could have a direct impact on your business but also how climate change impacts on others might amplify existing risks to your businesses.

The third set of risks are the “transitional” effects. As the economy changes from carbon-based energy sources to a focus on carbon-neutral energy, there will be a cost and effort associated with making the change. Even something as simple as changing from disposable coffee cups needs thought and planning. Although reusable cups are better for the environment, they need washing and therefore a space to store and clean them. The move to electric cars needs thought about charging and for businesses who provide parking for employees, charging points may need to be provided as well.

Small businesses are particularly vulnerable to climate-related losses

Unlike their larger counterparts, small businesses usually lack easy access to capital resources. Direct damage from events such as flooding, sea level rise, storm surge, and drought can impact small businesses more severely than a larger business with more financial and human capital. Without access to the resources needed for recovery, small businesses can suffer lasting economic damage from a single extreme climate event.

The majority of small businesses operate out of a single physical location. Many small businesses get most their business from within two miles of their doors. This makes small businesses much more vulnerable to loss compared to larger companies that have backup resources at alternate facilities or branch locations.

Because of this, small businesses are particularly vulnerable to power failures, technological or telecommunications failures, employee absences, and supply chain interruptions.

What are the changing customer demands driven by climate change?

Millennials are now the largest demographic in the workforce, which has led to changing trends in consumer behaviour as their spending power increases. Between the increase in millennials’ spending power and the rise of digital technologies, shopping trends and consumer habits are changing – and all this against a backdrop of increased recycling targets as part of legislative changes such as the EU Circular Economy Package.1

75% of millennials are willing to pay extra for sustainable products.2 Sharing is more economically viable for many millennials, and the idea of shared ownership goes beyond housing to other products and services. Examples include online streaming services like Netflix, or fashion rental sites like ‘Rent the Runway’, where users can rent clothes rather than buy them. Rental is fast becoming a more accepted transaction than purchase. With the acceptance of shared ownership spreading, any products that millennials do buy are usually both of a higher value, and sustainable.

Millennials actively use social media to publicly comment on sustainability issues. So with organisations’ sustainability credentials increasingly in consumers’ awareness, those that demonstrate their commitment to sustainability will benefit more from positive social reach. In contrast, organisations who greenwash, or who have less sustainable practices, are less likely to be trusted and purchased from.

What should small businesses do now?

Do a comprehensive assessment of just what the climate risks (and risk multipliers) are that could impact your business, and take steps to address those risks.

· Develop a Disaster Recovery Plan that can inform and guide recovery efforts to maximize the chances of recovery as quickly as possible.

· Think through and plan the transition to being a carbon-neutral business. Start with small changes.

· Evolve your core products and services to address and include climate-related offerings.

· Think about the opportunity side of climate change. Consider developing new products or services responding to changing customer demands driven by climate change.

For a discussion on what climate risks your business could be facing contact erica@themarketingdetectiveagency.com

1.      https://ec.europa.eu/environment/circular-economy/

2.      https://www.nielsen.com/uk/en/insights/article/2015/green-generation-millennials-say-sustainability-is-a-shopping-priority/