• Sustainability
    • General Sustainability
    • Sustainable Supply Chain

Understanding the environmental risks facing your business

  • 4 min read
  • Article

With COP26 focusing attention on climate change and the need for governments to act to achieve net zero, we look at the risks businesses face from the climate emergency and how to mitigate them.

The overarching message from COP26 was one of collaboration to address the challenges and opportunities of climate change.

At HSBC we’re committed to working with businesses to transition to net zero carbon emissions, to secure the benefits of change and to reduce the risks.

Understanding potential risks

It starts with understanding the environmental impact of your business, the degree of risk, and where those risks come from.

Not measuring the environmental impact of your business or how a greater focus on sustainability could have an impact in the future, may mean missing opportunities to reduce these risks. And you could also be missing the chance to secure the benefits that transitioning to net zero can offer.

Investors and banks too are increasingly focusing on the environmental impact of the projects and businesses they fund, but they also want to invest in viable and sustainable businesses, so ensuring you have accounted for environmental impact in your business planning could make a difference.

81% of businesses aren’t measuring environmental metrics

Source: HSBC Sustainability Survey in conjunction with YouGov

Competition risk

Many customers are increasingly looking to work with businesses whose operations and products are sustainable, choosing to spend money with those that demonstrate clear credentials. 1 in 3, for example, rank sustainability as a top 3 purchasing criteria1

Other businesses you supply may also have their own sustainability targets and be keen to work with firms who share their vision and are taking action. Failure to transition or to at least have a plan to become more sustainable could make you less competitive.

1 https://www.accenture.com/_acnmedia/PDF-134/Accenture-COVID-19-Pulse-Survey-Wave7.pdf%20-%20zoom=40

43% of businesses felt pressure from customers to be more environmentally sustainable

Source: HSBC Sustainability Survey in conjunction with YouGov

Operational risk

While some climate change consequences may be unavoidable, taking steps to mitigate their impact will place you in a stronger position. Diversifying your supply chain, establishing continuity plans, and taking steps to become more sustainable could make your business more robust, resilient, and competitive.

The transportation of your goods and services may also need to change in response to measures put in place to address climate change. Whether that’s considering switching vehicles to low carbon alternatives or understanding how operating in or travelling through an Ultra Low Emission Zone (ULEZ) could affect your bottom line.

More directly, climate change could increase incidents of flooding, storm, and extreme heat, which could test the resilience of your systems directly. Having a contingency plan to manage those possibilities will be important to keep your business operational.

Reputational risk

General awareness of the dangers that failing to address climate change or not meeting the targets set out in the Paris Agreement, is growing. Activism too is increasing. Events such as COP26 and the build up to it, as well as widespread media coverage, are creating a growing focus on sustainability and people are looking to businesses to lead the way.

Businesses that don’t consider the environmental consequences of their activities and don’t address these, risk losing customers to those businesses that do.

35% of SMEs have no plans to transition to net zero

Source: HSBC Sustainability Survey in conjunction with YouGov

Regulatory risks

Although the Taskforce for Climate Related Disclosures (TCFD) will extend its scope to companies with more than 500 employees and a turnover of more than £500m or those that are AIM-listed from April 2022, the expectation is that smaller businesses too will eventually be included in regulations.

Already industry-specific legislation is in place. Many consumer and non-consumer electronics, for example, are included in the 2021 Right to Repair regulations. April 2022 will also see the introduction of the Plastic Packaging Tax. Small businesses that manufacture or import less than 10 tonnes of plastic packaging in a 12-month period are exempt, but others will be charged at £200 per tonne on finished plastic packaging components manufactured in or imported into the UK, which contain less than 30% recycled plastic.

And larger businesses may increasingly be reviewing the environmental credentials of their suppliers as part of the procurement process. Our Navigator report, for example, found that 20% of businesses state that their suppliers are not meeting their sustainability requirements. Getting used to reporting/measuring environmental impact could be worthwhile to keep your business ahead.

55% of businesses are currently doing nothing to focus on sustainable practices

Source: HSBC Sustainability Survey in conjunction with YouGov

How can you mitigate environmental risk to your business?

  1. Have a look at our ‘How to get started on sustainability’ guide, which contains helpful and practical hints on where to start and what benefits sustainability can offer businesses. It also shares inspiration and personal experience from other businesses on why and how they’ve started on the path to net zero and what they’ve learnt.
  2. Take time to measure your environmental impact. Our Sustainability Assessment Tool can help guide you through the process and discover the steps you can take to become more sustainable.
    Developed in partnership with FutureFit, our Sustainability Assessment Tool is an easy-to-use questionnaire that takes just 15-20 minutes to complete. In return, you’ll get a view of how sustainable your business is, practical tips on how to improve your business’ sustainability, and support to help you identify potential opportunities for your business through becoming more sustainable.
  3. Undertake a thorough and regular risk analysis to help you identify potential risks, including those from climate change, that may affect your business, your employees, and your customers. It can help focus your mind and build contingency plans to ensure your business is as resilient as possible. Find out more about Business Continuity Plans here.
  4. Make environmental risk and resilience part of your overall business planning process and share this with employees, customers, and investors. It can help show them that you’re taking the Environmental aspect of ESG seriously and that you’re a responsible business with clear goals. It could even give you an edge.
  5. Talk to us – whether you want to discuss the findings from using our Sustainability Assessment Tool or discover more about the opportunities that sustainability could unlock, we’re happy to talk.

If you’re ready to consider funding to help your business become more sustainable, our Green SME Fund, or Green Trade or Asset Finance could help you achieve your aims.

To find out more, why not speak to your Relationship Manager or visit our Sustainability Hub.

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