Corporate Response to Climate Change

So lately, I’ve been interested in how businesses incorporate climate change policies into their operations. That’s how I came across this slightly outdated paper ‘How Warm Is the Corporate Response to Climate Change? Evidence from Pakistan and the UK’:

Let’s start by stating the obvious – industries have begun to prepare for a carbon-limited scenario. But how did it all begin? Prior to 1996, the industries collectively formed the Global Climate Coalition (GCC) in order to dispute against climate change and demand further evidence of warming. In that year, BP left GCC and affirmed the need for precautionary action, and Shell followed suit, setting the trend. 

This study analyzes responses from companies in the nine most energy-intensive and high-GHG emissions industries in Pakistan (a developing country) and UK (an industrialized country). The factors that influence ‘green’ performance include regulatory pressure, societal demand, economic conditions, alternative technologies etc. Pakistan’s GHG per capita is 1/7^th of that of UK, and it’s GDP per capita is 1/13^th of that of UK.  

I won’t dwell on the criteria or methods the study employed (you can read more here), but they essentially categorized each company as either ‘indifferent’, ‘beginner’, ‘emerging’ or ‘active’ players in climate change mitigation.

As a result, more than 75% of Pakistani companies were either ‘indifferent’, with no climate change strategy or environmental regulations, or ‘beginner’, in their early stages of environmental management. On the other hand, only 30% of UK companies (mostly small) fit into this category. However, let’s keep in mind that the data is from 2007. 40% of UK companies was ‘emerging’, and 30% was active (compared to Pakistan’s 15 and 5%, respectively).

Three main stakeholders are perceived as having a high influence on strategy: the owners, company management and regulatory agencies. The ‘indifferent’ companies reflect minimal influence from these three:

In the UK, many policy instruments exist to regulate emissions, such as the Climate Change Levy and Emission Trading Scheme. In Pakistan, however, there is no specific legislation, and environmental policies have minimal impact due to political instability, lack of government awareness, underpaid environmental agency staff etc.

High costs and lack of financial resources are barriers in both countries, especially in Pakistan: investors bear a high risk due to high inflation rates and lack of sufficient infrastructure and expertise. An absence of regulations also leads to resource waste: in the sugar industry, lack of regulations on buy-back excess power impeded installation of co-generation plants, leading to resource waste. The country must also improve its import policies, minimizing used and inefficient machinery that only reduces short-term cost.

On the other hand, companies in industrialized countries feel they are hindered by the uncertainty of climate change policies. Higher perceived risks lead to stricter criteria when it comes to upgrading infrastructure, and uncertainty in price of carbon emission trading leads to its slow market growth.

Overall, international efforts should continue to support a paradigm shift towards renewable energy. In the light of western economic models, people often question whether environmental consideration will hinder economic growth in developed countries. I think both can go hand in hand, if these countries carve out their own strategies for development. Glass a bit more than half full? We shall see.

Reference:

Jeswani, Harish Kumar,Walter Wehrmeyer, and Yacob Mulugetta. "How Warm Is the Corporate Responseto Climate Change? Evidence from Pakistan and the UK." BusinessStrategy & the Environment. John Wiley & Sons, Ltd., 06 Mar 2006.Web. 10 Nov 2013.