Whatever the results of the upcoming election, businesses should be ready to tackle climate change. Already, investors are pouring money into environmental, social, and governance funds, pushing companies to address the issue. Most big businesses across different industries are today measuring and reporting their carbon footprints, and taking steps to reduce them over time. A large swath of the business community, including the Business Roundtable, a lobbying group of big-name CEOs like Jeff Bezos and Tim Cook, has called for a price on carbon. What's more, Democrats and Republicans in Congress have been working on climate change legislation.
No matter the outcome in November, as soon as it's over there will be proposals on the table. It isn't so much a question of if but when. Companies should get ready to be held accountable for their carbon impact, up and down supply chains and across areas of influence.
The risk of inaction is great. Not addressing climate change will ultimately bring volatility, which can cut into a business's bottom line. Mounting supply chain disruption from floods, droughts, and fires, increased insurance and health care costs, and border adjustment taxes when exporting products to Europe, where the European Union is investing heavily in a green new deal, could erode any benefits your company might now receive from deregulation.
There are three comprehensive Democratic policy proposals on climate, all aiming for the U.S. to achieve net zero emissions by 2050, in line with the Paris Agreement. And legislative bills and draft congressional discussion papers have put a variety of policy proposals on the table, ranging from incentivizing carbon capture and storage to increasing the price of fossil fuels and capping emissions.
Even in a scenario of political paralysis, businesses should be wary of a so-called pendulum risk: where four years from now a new administration rams through strong legislation to make up for lost time on global warming, and businesses must adapt overnight.
It's also just the right thing to do. CEOs occupy positions of power, and with power comes responsibility. Surveys such as the annual Edelman Trust Barometer show this to be, increasingly, a societal expectation. People expect companies to solve societal problems, and consumers reward and punish with their dollars.
Here are three ways that your business could shift as a result of climate change, no matter who inhabits the White House:
1. The pressure for good stewardship ratchets up.
Demands from investors and activists have been growing, and in addition to climate strategies businesses are expected to take care of their waste, including from packaging, through so-called circular economy initiatives. The circular economy generally refers to the situation where waste becomes a raw material for a new use. Government, investors, and consumers expect companies to be good stewards of the environment through recycling and attention to resource use.
2. Incentives to go green expand.
Incentives for energy efficiency and renewable energy may be in the offing--particularly if former vice president Joe Biden takes office. In addition to his proposal to install a massive green infrastructure plan, he would incentivize homeowners and businesses to make efficiency and renewable energy upgrades through tax credits. He would also incentivize the purchase of electric vehicles.
3. The penalties for failing to comply also rise.
There are different ways to transition the economy from fossil-based power to renewable energy. Ideas include taxing fossil fuels when they enter the country, imposing tariffs on imported carbon-intensive products, and creating a cap-and-trade marketplace where carbon credits can be sold to carbon emitters who need to comply with emissions limits. One popular proposal calls for redistributing a carbon "dividend" to taxpayers to make the price inflation more popular among the public. A carbon tax might still be a long way away, since it would need to be passed by Congress, but should be expected eventually.
That could trigger higher energy costs and possibly higher raw materials costs for businesses of all sizes. Companies should prepare and begin reducing their emissions and reliance on fossil fuels now.
Whether large or small, whether manufacturers or service providers, companies should expect their carbon impact to be under scrutiny. Businesses need consistency, and unfettered environmental deregulation will only lead to volatility, much worse for business. Start chipping away at your carbon footprint, and get ready for the clean energy transition that's coming your way.