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Business Risk Report 2010 - Top 10 business risks - 8 Radical greening - EY - Global

The EY Business Risk Report 20108. Radical greening

As evident from the lack of coordinated global political action, it will be up to the private sector to innovate and find ways in which to work with the public to reduce environmental impacts.

Radical greening — environmental regulation, consumer demands and strategic responses — remains a pressing long-term issue across the majority of sectors, but in the current economic climate, environmental issues have slipped to eighth place from fourth last year.

With the public’s increasing awareness of climate change, companies must invest resources in developing effective business plans to maintain their corporate image and lessen environmental impacts by becoming more sustainable.

Moreover, in a world where there has not yet been coordinated global political action and there remains little hope of it in the near future, it will be up to the private sector to innovate and find ways in which to work with the public to reduce environmental impacts.

The move to green will be led by business

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.

Carbon trading schemes

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.

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