ACC620-Climate Change Impact on Business Strategy

Discuss about the Impact of Climate Change and Emissions on Business Strategies.

The attention of cost of the modern organizations is increasing regarding the environmental impact or carbon emission. Such attention is because of the association among climate changes and carbon emission that has persuaded the companies to be aware regarding carbon emission and environmental footprint. The area of developing business strategies is focused on all the supply chain levels such as transport distribution and production (Wahyuni, and Ratnatunga 2015). Certain legal regulations need to be maintained among several regulatory, liability as well as market approaches to attain a consistent, compatible as well as optimally efficient legal regime for responding to the climate change threat. Some inherent opportunities are driven by certain regulation changes which have potential to indicate a substantive variation within business operations, expenditure as well as revenue. “Climate change” itself can pose considerable direct threats with increased CO₂ emissions that are relied greatly relied on stable climactic conditions along with the ones that rely heavily on natural resources exploitation (Wahyuni, and Ratnatunga 2015).

Theoretical Motivation:

The societal issues of “climate change” have resulted in likely legitimacy gap. In order to deal with losses in business reputation, the organisations are involved in public relation activities as well as carbon disclosusres for reflecting their contributions to climate change mitigation, retaining business legitimacy along with keeping the social contract intact (Drake 2014). The organisations operating in carbon intensive industries are prone specifically to the demands of the shareholders as well as the stakeholders and they often display relatively greater involvement in affecting the policy procedures. Besides political lobbying and carbon disclosures, the formulation as well as labelling of low carbon products and services signifies another alternative to obtain legitimacy along with assuring competitiveness (Hahn, Reimsbach and Schiemann 2015).

Literature on legitimacy also indicated that communication servesas an importantstrategy of this theory. In consideration to the same, the annual report of the company has been observed as the vital medium of communication long with data source for the researchers those investigate motivations for environmental disclosures. Understanding the legitimacy theoryis deemed to be vital in realising the interrelationships among the organizations and their business surrounding. Climate change itself can pose considerable direct threats with increased CO₂ emissions that are relied greatly relied on stable climactic conditions along with the ones that rely heavily on natural resources exploitation. Ioannou, Li and Serafeim (2015)presented certain instances of legitimation that complies with the legislation. This also establishes an environmental regulation policy or committee for the environment manager to oversee a company’s climate change impact along with developing committees or networks with the local community representation. Moreover, this theory ensures that the businesses must carry out climate change audits, develop an emergency response system and align the company with environmental advocates(Linnenluecke and Griffiths 2015). 

Literature Review:

Legitimacy Theory Concept

Amran et al. (2016) stated that legitimacy theory considers that the companies carry out comprehensive disclosure as a reaction to the social pressure for legitimising long-term activities along with carrying out social contract. One aspect that effects reaction of the organization to legitimising the actions in consideration to climate change mitigation is level of apprehensionand expectation in the community regarding global warming and climate change. Ben?Amar and McIlkenny (2015) also revealed that as the businesses are relied on community expectations in a situation of legitimacy gap. This might have financial impacts on organizations, trade loss along with operation cut-off. The perception that the concept of legitimacy indicates that companies basically generates likeness between the public principles related to the functions along with social standards. Böttcher and Müller (2015) indicated that information disclosure acts as an efficient strategy in connecting actions and control perception of the organisations with no specific public, ecological and certain business issues. There is an increased attention on the ways in which most of the modern businesses monitor their greenhouse or specifically CO₂ gas emissions. Moreover, it is deemed to be important to anticipate that the organisations will attempt to legitimise such activities by the voluntary disclosures (Böttcher and Müller 2015).

Climate Change and Renewable Energy Consumption Relation with Business Strategy

Damert and Baumgartner (2018) revealed that climate change along with renewable energy consumption is related with development of effective business strategy. The research on this area has contributed to understanding the ways in which social changes for climate changes impacts business initial performance along with offering a detailed understanding on mechanisms of the company.

Ioannou, Li and Serafeim (2015) indicated that the carbon footprint along with reduction strategies serves as the major corporate climate change approaches. Employing more renewable energy sources by the companies is observed to facilitate in decreasing the prices and demand for the coal and natural gas through increasing competition along with diversifying the energy supplies. Ioannou, Li and Serafeim (2015) also indicated that disclosure on carbon emissions and climate changes is deemed to incentivise the business innovation along with improving the environmental performance. Companies these days are held accountable for their own environmental performance and in addition to that the performance of contractors, suppliers and partners are also considered. 

Emission Reduction Initiatives and Related Risks Impact on Revenue

Böttcher and Müller (2015)revealed that carbon emission pricing imposed on the modern businesses impacts their revenue and poses certain risks of increased expenses and decreased profits. Such price is imposed on the companies based on the amount of carbon di-oxide or CO2 emitted by the organisations. Such risks in the carbon emission is affected by carbon pricing imposed on most of the organizations which shifts the burden for damage from GHG emissions back to the individualaccountable for it and can avoid it. Bearing huge expenses on “greenhouse gas emissions” is of great importance for internalising the external expense of “climate change” in the area of increasing economic initiatives for clean development(Ioannou, Li and Serafeim 2015). In addition, most of the companies these days have considered integrating climate change within their strategies on risk management.

Climate change can also result in risks to both the buyers and the suppliers as the physical climate changes might lead to risks within the supply chain. Ioannou, Li and Serafeim (2015) evidenced that poor ecological performance of the upstream organizations enhances the “indirect carbon footprint” focussed on downstream consumers that might affect company’s reputation. Moreover, the buyers might also deal with financial risks in case they have a supply chain that is carbon-intensive. This is for the reason that the raw materials as well as energy costs can amplify because of “carbon taxation” that might be granted by all the companies’ suppliers. Ioannou, Li and Serafeim (2015) also elaborated that variations in the energy demand is deemed to impact the emissions of greenhouse gasses and the net effect is relied on the energy sources which encompass alternative energy employed in the busineses. 

Hypotheses:

The hypotheses that are set in the current research for analysing the “climate change” impact and emission reductions on company are explained below:

• Climate change along with consumption of renewable energy is integrated within business strategy developed by the organizations
• The emission reduction initiatives and related risks have impact on revenue and expenditure of companies 

References

Amran, A., Ooi, S.K., Wong, C.Y. and Hashim, F., 2016. Business strategy for climate change: An ASEAN perspective. Corporate Social Responsibility and Environmental Management, 23(4), pp.213-227.

Ben?Amar, W. and McIlkenny, P., 2015. Board effectiveness and the voluntary disclosure of climate change information. Business Strategy and the Environment, 24(8), pp.704-719.

Böttcher, C.F. and Müller, M., 2015. Drivers, practices and outcomes of low?carbon operations: approaches of German automotive suppliers to cutting carbon emissions. Business Strategy and the Environment, 24(6), pp.477-498.

Damert, M. and Baumgartner, R.J., 2018. External Pressures or Internal Governance–What Determines the Extent of Corporate Responses to Climate Change?. Corporate Social Responsibility and Environmental Management, 25(4), pp.473-488.

Depoers, F., Jeanjean, T. and Jérôme, T., 2016. Voluntary disclosure of greenhouse gas emissions: Contrasting the carbon disclosure project and corporate reports. Journal of Business Ethics, 134(3), pp.445-461.

Drake, F., 2014. Global warming: the science of climate change. Routledge.

Hahn, R., Reimsbach, D. and Schiemann, F., 2015. Organizations, climate change, and transparency: Reviewing the literature on carbon disclosure. Organization & Environment, 28(1), pp.80-102.

Ioannou, I., Li, S.X. and Serafeim, G., 2015. The effect of target difficulty on target completion: The case of reducing carbon emissions. The Accounting Review, 91(5), pp.1467-1492.

Linnenluecke, M.K., and Griffiths, A., 2015. The role of accounting in supporting adaptation to climate change. Accounting & Finance, 55(3), pp.607-625.

Linnenluecke, M.K., Birt, J. and Griffiths, A., 2015. The role of accounting in supporting adaptation to climate change. Accounting & Finance, 55(3), pp.607-625.

Sullivan, R., 2017. Corporate responses to climate change: achieving emissions reductions through regulation, self-regulation and economic incentives. Routledge.

Wahyuni, D. and Ratnatunga, J., 2015. Carbon strategies and management practices in an uncertain carbonomic environment–lessons learned from the coal-face. Journal of Cleaner Production, 96, pp.397-406