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Government Policy and Regulation and Climate Impacts

This lesson is a part of an audio course Business Trends You Need to Prepare For by Ross Maynard

Government Policy and Regulation

Government policy and regulation have driven business change for over 200 years. From the limiting permissible working hours to protecting the health and safety of workers and consumers to limiting emissions and pollution.

Such changes are often driven by pressure from the public. Nevertheless, changes can come slowly with political leaders acutely aware of the tension between economic interests and public politics.

However, many of the trends highlighted in this course are resulting in growing pressure for faster action on Governments worldwide, and this is likely to accelerate policy, legislative and regulatory developments.

For example, The UK has committed to getting to net zero carbon emissions by 2050; while the Scottish government has set its target at 2045 – we like to be different from our neighbour. Other countries, too, are passing laws to curtail carbon emissions.

There is potential for governments to respond to some of these global challenges in a disorderly way with heavy-handed policy changes, unexpected regulation, and disruptive interventions that impose high costs on individuals, companies, and supply chains. Businesses need to monitor developments and prepare to make dramatic changes to how they operate and create value.

And the professional bodies are tightening the regulations that they control. For example, a joint bulletin issued by the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) said:

"Auditors have been put on notice that they need to consider their clients' climate-related risks and, if material, determine whether those risks are adequately disclosed in the financial statements."

Other accounting bodies are following suit, and audit and accounting standards around climate impacts, resource utilisation, carbon emissions, pollution, recycling, and so on are likely to become more demanding. In the UK, the Financial Reporting Council has set up a review to assess the extent to which UK companies and auditors are responding to the impact of climate change on their businesses to ensure reporting requirements are being met.

Government Policy and Regulation Actions

In addition to the actions already covered in this course, your company needs to assess likely and possible regulatory changes and to ensure that they are compliant with current standards as well as plan for future reporting demands.

Climate Impacts on Business

Climate change is real and, for three years in a row, the World Economic Forum's Global Risk Report has identified climate change as the gravest threat for global business and industry.

  • The long-term impacts of climate change – temperature and sea-level rise, and extreme weather events – are compromising critical infrastructure, crop production, and human populations.

  • Climate-related risks are also amplifying tensions stemming from trade, geopolitical, and domestic conflicts.

  • Worldwide economic stress and damage from natural disasters in 2018 totalled $165bn – 50% of which was uninsured.

  • Over 200 of the world's largest firms have estimated that climate change could cost them a combined total of nearly $1tn if they don't take action.

  • Rising sea levels are a critical threat to communities and industries. Jakarta, the capital of Indonesia, could be lost to the sea by 2050, and it is just one of many examples.

  • The UNHCR predicts that, in the next 50 years, between 250 million and 1 billion humans will leave their homes because of climate change.

  • Changes in climate and weather are also forcing flora and fauna to migrate to new areas. Many species are threatened with extinction. This has serious implications for food crops and related business activities.

As well as being a major business risk, climate change offers significant opportunities to businesses. Analysis by the United Nations Global Commission on Adaptation suggests that investing $1.8 trillion over the next decade in measures to adapt to climate change could produce a 'triple dividend' of net benefits worth more than $7 trillion by avoiding future losses; generating positive economic gains through innovation, and delivering social and environmental benefits.

Business planners in your organisation need to develop new approaches to investment analysis, scenario planning, and strategic planning.

Climate Impact Actions

The pace of change caused by climate impacts will increase, and organisations need to be flexible. Market analysis and revenue projection become more critical and more difficult than ever.

Your organisation needs to regularly review potential changes in consumers, markets, and sources of supply and update project plans and project appraisals as necessary.

Thank you for listening to this lesson. In the next lesson, we cover some of the other global issues your organisation needs to prepare for.

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Written by

Ross Maynard