Impact of Climate Change on Business

Published: 2017-11-13 10:22:13
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Harvey Mudd College
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Research Field

The field of climate changes and its impacts on the international business has been covered in several studies. However, the adaptation mechanisms have not been well outlined in these studies (West and Brereton 2013 p. 23). The recognition that there is a key relationship between climate change and international business has become common in the global business community. Developing a unified framework that can be used by businesses during these times is very critical (West & Brereton 2013 p.1). As a result of the climate changes, the investment portfolios as well as the global market adjust and opportunities created that result to both winners and losers. The industries that develop a competitive advantage become the winners while those who do not are presumed as the losers (Jones and Levy 2007 p. 430). This study will, therefore, focus on the ways to deal with the impacts brought by the climate changes. The effects on various industries will be discussed and the necessary measures to tackle the changes will also be presented.

Companies understand that sustainability is not a choice but a market fact. While many businesses have taken some measures to adapt to the unexpected impacts of climate changes, other enterprises are not aware of the future risks and the necessary adaptation measures (West and Brereton 2013 p. 23). Adaptation to these changes reduces the business’ vulnerability both in the short and long term. Adaptation measures can be either low cost or high cost but regardless, businesses should struggle to implement them. Some of the strategies developed by the firms in relation to climate changes denote patterns of market approach (Jones and Levy 2007 p. 430). Climate change effects can be well observed due to the rise in global temperatures, changes in heavy rain, and even the extreme weather events. These changes have become common in global business.

Problem Statement

Every year, there arise new challenges in international business strategies that need to be addressed. For many companies, the effects of these changes are huge. According to a report by the International Leaders Forum (2012, p. 5), water shortages that are yet to be experienced will cause serious problems in the direct operation, distribution networks, consumer markets, and the general supply chains. Businesses must, therefore, come up with the right procedures to cope with these climate changes. These changes will also bring some changes in the market thereby shutting off some markets and creating new ones.

The distribution and benefits of climate changes are core interests to many policy makers and business leaders (Bettina et.al 2009, p. 12). As a consequence, the changes have become a constant agenda in many companies in the world. Many corporate boards have regarded the phenomenon important in reviewing the strategies in terms of investment, brand management, and product development.

The response of the business to the climate change depends on its sector, the leader’s point of view, exposure to the change, and its capabilities (Jones and Levy 2007, p.2). However, despite the risks posed by these changes, many business leaders do not consider them while pushing for development of new products. It is therefore vital for businesses to adapt to the changes if they want to prosper in the future.

Saudi Arabia is the largest exporters of fossil fuel in the world. Fossil fuel is also believed to be the major contributor to the current global warming leading to adverse climate change in the country (Depledge, 2008, p.34). Being a fast growing economy, a lot of energy is needed that in turn require a large amount of water for the machines. The government has been faced with the challenge of reducing the amount of fossil fuel consumed within the country in order to reduce the level of pollution (Nachmany et al. 2015, p.18). Climate change has brought change in the average annual rainfall and the average change of temperature in Saudi Arabia (El Kenawy et al. 2016, p. 660). Climate plays significant roles in the smooth operation of business both locally and internationally (Kasa et al. 2008, p.114). Before an individual venture into international trade, he or she has to consider the weather conditions in the targeted market.

High Capital Required for Emission Control

In an attempt to reduce the level of pollution, the Saudi government has launched a national energy efficiency program (NEEP) (Stern et al. 2006, p. 25). This has reduced the demand for fossil energy in the country causing diversity in business. The NEEP body has also put regulations in place to reduce the number of emissions, companies, therefore, have to spend additional capital on reducing the amount of emission they make into the air (Depledge, 2008, p.34). The cost of externality caused by the industries is directed to the companies through additional tax depending on the nature of the enterprise’s operation. Companies are also subjected to the purchase of credit that is approximated to the amount of pollution they cause on nature (Nachmany et al. 2015, p.18). For companies that continue to release more pollute, they are required to buy more credit. The additional credit causes an increase in the cost of production of goods and services that are reflected in the prices of goods and services.

Change in the Price of Goods and Services

With climate change in various regions, the weather pattern has to change throughout the globe (Kasa et al. 2008, p.114). The weather change leads to a lot of adverse effect on the human activities forcing insurance companies to spend much in compensating individuals who have incurred losses (Depledge, 2008, p.34). Poor weather always interferes with transport system leading to increasing the prices of goods and services across the world (El Kenawy et al. 2016, p. 660). Some goods also take a long time to mature during cold weather leading to increasing in their demand at a low supply thus cause a deficit in the market.

Change in Demand for Goods and Services

Some goods and services could only be demanded at a given weather. The demand for warm clothes will be low at a high temperature caused by global warming; therefore, companies producing warm clothes run at a loss (El Kenawy et al. 2016, p. 660). No tourist will dare visit the beach during the cold seasons leading to low demand of for tourism along the coastlines. It is the demand for goods and services that keep business people in operation, a fall in demand will automatically lead to the collapse of various business (Kasa et al. 2008, p.114). Taking the case of Saudi Arabia, there is zero demand for warm clothes following the presence of warm climate in the area.

Change in the public perception

The image of a firm is a very crucial factor that every business always strives to keep clean (Stern et al. 2006, p. 25). The public will always attempt to associate and purchase goods and services from firms that are having a positive public image. A company that causes high pollution on the environment will experience a loss as most of the customers will shy away from buying its produce (Depledge, 2008, p.34). Most of the firms have now changed their production methods to new technology that is a bit expensive in order to reduce the amount of air pollution (El Kenawy et al. 2016, p. 660). Firms in Saudi have adopted the use of atomic and renewable fuel in their production to win the public trust. 

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