Radical Greening (#8) and Corporate social responsibility and the need for social acceptance (#9) both appeared on the top ten risks facing businesses, according to Ernst & Young’s recently released 2010 Business Risk Report.
On the radical greening front, the report finds that in order to maintain their corporate image and reduce environmental impact, companies must take proactive measures, including more complex decisions regarding capital spending, production procedures, and installed technologies.
The report also finds that, despite uncertainties in the regulatory environment, companies must prepare for changes in regulation and carbon trading schemes.
Here’s what the report says:
While some companies are helping to shape government policy on this issue, and so are ahead of the curve, other companies are finding that different pressures take precedence. Interviewees in many sectors argued that this risk will rise again in the future, and that successful companies will be those who put environmental policy at the top of their agenda and adapt their business to that goal. A consumer products commentator argued, “As growth resumes and environmental degradation continues this will re-emerge as a very powerful force in shaping business.”
However, another panelist emphasized that radical greening is “as much an opportunity as a risk.” This can be said for many of the risks, but there is a clear opportunity here for companies to influence and reduce their customers’ emissions, by enabling and encouraging new and more energy-efficient ways of living and working. For example, the real estate sector requires a new generation of buildings with significantly lower carbon and energy footprints which could imply functional obsolescence of all but the most recent, or recently upgraded, commercial buildings. Likewise, in the telecoms sector, participation in smart grids, lower-consumption handsets, and more energy-efficient outsourcing could create opportunities for companies to gain market share.
In other sectors, companies need to prepare for shifts in regulation. For example, regulators in the insurance sector may, in the future, interfere with or prohibit risk-commensurate pricing, which could ultimately force insurers to withdraw from climate- related risk markets.
Companies also need to prepare for the possibility of carbon- trading schemes. Most industrial countries have already implemented carbon-trading schemes, or soon will. Depending upon the particular business sector, the cost effects of such measures or carbon taxes could be very substantial — up to 10% increases for transportation related sectors, up to 30% increases in the electricity sector, and up to 50% or more in certain carbon- intensive industrial sectors, were figures cited by one interviewee.
These kinds of challenges will require companies to make more complex decisions concerning their capital spending, production procedures and installed technology, but they also might require some companies to develop management competencies in new areas of expertise.
For the first time, social acceptance risk and corporate social responsibility is a top 10 business risk. According to E&Y, companies and governments must take account of public opinion and work to improve transparency and PR efforts, particularly around environmental impacts. Industries most at risk in this category include asset management; banking; mining and minerals; and power and utilizes.
Regulation and compliance took the top spot as the #1 business risk in 2010. This is the number one threat for financial services, oil and gas, real estate, life sciences, technology, and telecoms. It was also a high risk for the automotive and power and utilities sectors.