Impact of Climate Change on Local Business

24/08/2015 — Graeme Smith

Our CEO, Graeme Smith, answers on questions on the impact of climate change on local businesses.

There are a number of ways climate change can impact local businesses, it very much depends whether you are looking at the direct impact or the indirect impact. So what do I mean by that?

Direct Impact

Well, it’s easy for all of us to understand when, for example, the sea walls in Jersey are damaged or where St Helier suffers flooding from torrential rain. Both local businesses and residential homes then see the damage that has an immediate impact on their property as well as more long term impact through higher insurance premiums and potentially reduced property values. As the impact is direct the reaction and response is much quicker leading, for example, to the rebuilding of sea walls and the substantial work that has been done on the surface water drainage system in St Helier.

Indirect Impact

Where it is much less clear to businesses and in particular smaller local businesses is where the climate event is elsewhere in the world but has a knock on impact which does or could impact on Jersey.

For example if there were another major event like the tsunami destroying part of the Fukushima nuclear plant in Japan, or perhaps even closer in France, it could well be that the knock on impact felt here is that nuclear power becomes a lot more expensive or perhaps its reliability is seriously impacted. Now what would that do to Jersey’s economy and our local businesses? The indirect impact of an event like that, even if on the other side of the world could be catastrophic for Jersey businesses.

It’s easy just to say this is the responsibility of Government or of business, but it is equally the responsibility of all of us, as consumers, to play our part in driving change.

So what can Government do?

Sticking with energy, we certainly can’t control a catastrophic event but we can plan to have more variety in our power supply and less reliance on just one major source. The UK, for example, has made great strides in introducing solar and wind power and we are starting to see some really innovative new businesses setting up in Jersey to service what is a growing demand in this area. Jersey has both sun and wind but we are well behind in developing a renewables sector. One of the reasons for this is that the UK has, for many years, been supporting a diversified energy policy by pump priming the renewables sector through a combination of grants and an ability to sell surplus electricity back to the grid.

If you think about it, we have a vibrant Finance sector here in Jersey which has a high power usage particularly during daylight, so why aren’t all our business offices including States buildings fitted with solar panels that will provide power when it is most needed.

Jersey could and probably should be at the lead in this space but we aren’t as currently we prefer to take advantage of cheap nuclear power from France, which makes solar power less economically viable

So what can Jersey businesses do?

To be honest that really varies according to the size and scale of the business. If we look at a large multi-national business, it will recognize the importance of managing climate risk as well as the commercial challenges and opportunities that may result from global climatic events.

Fundamentally larger businesses are better able to take a longer term view of investment today that delivers longer term benefits in terms of risk management. They are also better able to understand the indirect impact of climate change and how that may affect different parts of their business and also their supply chain.

For a small local businesses however, they are understandably very focused on local events and have a much shorter time horizon. They will struggle to justify material investment to cater for potential global events which may or may not have a real impact on them.

I think another way to look at this is focusing on who are the key influencers that drive change in businesses, for me they are: i) customers, ii) shareholders and iii) staff

So taking these one by one, when customers value a business with excellent environmental credentials then businesses will change to deliver that expectation. When owners or shareholders see the long term benefits of investment to mitigate the impact of climate change or see the commercial opportunities it could create, that too will mean positive change. Lastly when the staff themselves value working for a business with strong environmental credentials then forward thinking businesses who want the best staff working for them will look to improve their environmental credentials.

In simple terms the successful businesses are ahead of the game in understanding what influences our purchasing decisions both now and in the future, so the more climate change is understood by the wider public, the more likely it is, we will see positive change.

So what can we do?

What is common for all businesses is that they need to create real value in the products or services they deliver so it is only when the environmental impact of a business becomes part of their customers decision making process that they will adapt their business models. So it is up to all of us to choose to buy from businesses that demonstrate great ‘environmental’ credentials. That is how we drive real change.

If we think of a small local builder, how many of us hand on heart would say that a key factor when appointing a builder to do a house extension involved an analysis of their environmental credentials. If however that builder is able to show us that installing triple glazing and solar panels will have long term economic benefits (as well as having positive environmental impact of course) then we may well move away from purely price and then we will see greater change.

In summary

Deliver change is all about creating momentum. First we need to develop and prove the long term economic argument, that builds real public initial interest, that in turn encourages businesses to come up with new initiatives and products to satisfy that need and then we see real positive change.

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