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CEOs say climate change disrupting supply chains, increasing costs

by Matthew Atungwu January 26, 2023
written by Matthew Atungwu January 26, 2023
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A recent PwC Global CEO survey has indicated that the majority of global CEOs expect some degree of impact from climate change in 2023, primarily in their cost profiles and supply chains, rather than the safety of their physical assets.

According to the survey, which included 4,410 CEOs from 105 countries and territories, 50% expect a moderate, large, or very large impact, and 42% expect it to affect their supply chains.

Climate change, as defined by the United Nations (UN), refers to long-term changes in temperature and weather patterns. The burning of fossil fuels such as oil and coal, which emit greenhouse gases into the atmosphere, primarily carbon dioxide, is the primary cause of climate change.

While some noticeable environmental shifts have been natural, human actions such as the use of fossil fuels, excessive use of coal, deforestation, pollution, and unstructured urban development have accelerated the rate at which the earth is warming, causing devastating effects on people and property.

This has made it a global issue as it is considered by business leaders as one of the greatest threats to economic stability.

Read also: UK celebrities join campaign urging banks to stop financing fossil fuels

A 2021 Deloitte Global Climate Check report said most global organizations are already starting to feel its negative impacts. It said leaders acknowledge the business imperative of climate change and increasingly understand it to be an existential threat that can have long-term impacts on their people and business operations.

Some of the ways that climate change is already impacting or threatening to impact companies across the world are operational impact, scarcity/cost of resources, regulatory/political uncertainty, increased insurance costs or lack of insurance availability and reputational damage.

At the 2023 World Economic Forum (WEF) Annual Meeting, international organisations like the World Trade Organization (WTO) and others, warned that deglobalization would negatively impact the world and especially emerging economies.

Alexander De Croo, Prime Minister of Belgium, said creating a trade agenda that prioritizes inclusivity and decarbonization is a major priority. Ngozi Okonjo-Iweala, director-general of WTO, said services that are green, digital, and inclusive will determine the future of trade.

In a statement, the WEF said many nations have seen a push to relocate manufacturing closer to consumers’ demand, after supply shocks associated with port blockages, the war in Ukraine and the COVID-19 pandemic.

Before climate change became a global priority from a fringe one, the Paris Agreement was adopted by 196 parties at the UN’s Climate Change Conference in 2015. The Agreement often referred to as the Paris Accords or the Paris Climate Accords, is an international treaty on climate change.

It covers climate change mitigation, adaptation, and finance and the long-term temperature goal is to keep the rise in mean global temperature well below 2 °C (3.6 °F) above pre-industrial levels, and preferably limit the increase to 1.5 °C (2.7 °F), recognizing that this would substantially reduce the effects of climate change.

“Seven years ago, world leaders signed an international treaty to limit global warming to well below 1.5°C. Nonetheless, efforts remain insufficient to limit global temperature rise to 1.5 degrees Celsius by the end of the century,” said Fida Kibbi, vice president and head of Marketing, Communications and Sustainability & Corporate Responsibility at Ericsson Middle East and Africa.

She said that the ramifications and severity of climate change vary depending on where you live. “In Africa, climate-related problems have been significant including the current floods in Nigeria and droughts in Somalia, Ethiopia, and Kenya as few examples to mention.”

During the 2021 UN Climate Change Conference commonly referred to as COP26, another agreement called the ‘Glasgow Climate Pact’ was signed by 197 parties. It aims to reduce unabated coal usage.

In that conference, Nigeria committed to achieving net-zero emissions by 2060. President Muhammadu Buhari has already signed into law the Climate Change Act, 2021, which was passed by the National Assembly in October.

According to PwC, the Act seeks to provide a framework for achieving low GreenHouse Gas emissions and to mainstream climate change actions into national plans and programmes.

“The increased focus on the environment, sustainability and governance would affect supply chains,” Kenneth Erikume, partner at PwC said, adding that that this will have a major impact on manufacturers in the medium and long term because the European Commission has come up with the European Green deal to cut down emission levels to 55 per cent by 2030 and by 2050, they must achieve net zero emission.

The PwC survey further revealed that business leaders who feel most exposed to climate change are more likely to take action to address it. Some of the actions companies take to prepare for the risk of climate change are the implementation of initiatives to reduce companies’ emissions, innovate new, climate-friendly products or processes and develop a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks.

Others are implementing initiatives to protect one’s company’s physical assets and/or workforce from the physical impacts of climate risk and applying an internal price on carbon in decision-making.

The PwC report also cited changing customer preferences, regulatory change, skills shortages and technology disruption as the forces most likely to impact their industry’s profitability over the next ten years.

It said that the pattern is consistent across a range of economic sectors, including technology (41 per cent), telecommunications (46 per cent), healthcare (42 per cent) and manufacturing (43 per cent).

This story was adapted from Business Day.

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