1. Provide brief answers for the following a. Describe the ‘No Regret’ strategy in responding to climate change. b. In the corporate case or sector you have chosen for the assignment are there any ‘

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This week the topic we explore relates to effective business strategies to address the climate change challenge including the ‘No Regrets’ strategy. An effective response requires understanding the carbon exposure of the firm, various business and operational risks (including reputational risks) as well as opportunities provided by the physical impacts and the policy environment. The factors that influence corporate positions on climate change: external, industry and company-specific factors (see e.g. Table 5.1 of Pinkse & Kolk, 2009). Reflect on how these factors influence various corporate positions on climate change.

1. Provide brief answers for the following

a. Describe the ‘No Regret’ strategy in responding to climate change.

b. In the corporate case or sector you have chosen for the assignment are there any ‘No regrets’ strategies available?

2. Assume the Head of Business Solutions at your company (choose the corporate case either a sector or business as per your assignment) has asked you to briefly:

a. Identify and rank two risks to the sector or company from climate change.

b. Identify one opportunity that climate change policy presents the sector or company with?

c. Identify the best strategic choice available to the sector or company?

3. What are the changes that individuals can make in their daily lives to help deal with climate change? State one specific action through which you would like to personally endeavor to make a positive contribution to the effort on climate change.

Reflect: Write two good questions about any issues covered in this tutorial problem set.

1. Provide brief answers for the following a. Describe the ‘No Regret’ strategy in responding to climate change. b. In the corporate case or sector you have chosen for the assignment are there any ‘
Climate Change Economics & Policy ECO3CCE Global and Strategic Issues Week 11 Business Strategies and Implications La Trobe Business School 3 Intended Learning Outcomes At the completion of this topic, students should be able to: • Describe business risks imposed by both the physical impacts of climate change and by mitigation and adaptation policies • Describe and evaluate business strategies for addressing climate change. • Understand the carbon exposure of a firm Outline • Introduction • Climate change risks for businesses • ‘No regrets’ strategy • Corporate positions on climate change • A typology of climate change business strategies • Porter and product differentiation • Strategic opportunities 4 Introduction Businesses have to respond to the risks and opportunities that climate change will impose (see https://theconversation.com/how -well -prepared -are -businesses -for – climate -change -37503 ) For example: • Unilever a global consumer goods company estimated that extreme weather events cost it 200 million euros in 2011 • The IPCC estimates that to meet the 2 °C target additional investment in the range of $190 -900 billion is required and 50 – 90 per cent involve projects with benefits that outweigh the costs • LED bulbs had 1 per cent of market share in 2010 – in 2015 28 per cent and that is forecast to increase to 95 per cent by 2025 5 Introduction Significant impacts for investors (see chart) • High emitting firms fared better since 1999 (period of rising commodity prices) • But in recent years (falling commodity prices) the low emitting firms catching up • Moody’s rating agency puts three industries (deregulated power generation, coal mining and coal terminals) at ‘immediate and elevated risk from climate change’ • Allianz, no longer invests in companies that derive more than 30 per cent of revenue form coal mining 6 Source: The Economist Dec 5, 2015 7 Climate change risks Six broad kinds of climate risks identified for business Value Chain Risks 1. Physical risks 2. Price risks 3. Product risks External stakeholder risks 4. Rating risks 5. Regulations risks 6. Reputation risks Refer Engel, Enkvist and Henderson (2015) 8 9 Climate change risks Value Chain Risks • Physical risks are related to damages to infrastructure, assets and supply -chain operations by increased frequency of extreme weather events • E.g. impact of drought or flood on agricultural production • Companies can prepare: • Climate forecasting • Moving from locations with greater exposure to risks 10 Climate change risks Value Chain Risks • Price risks – increased volatility of raw materials and commodities • E.g. price of water rises as a results of droughts or climate regulations drive up prices • Companies can undertake strategies to hedge against rising prices • Product risks – losing market share or core products becoming unpopular • E.g. ski resorts that no longer have adequate snow cover, or development of alternative technologies 11 Climate change risks External stakeholder risks • Ratings risk – possibility of higher costs of capital because of climate related risks • E.g. introduction of carbon pricing or supply -chain disruption • Global capital (especially investment and insurance industries) look to low carbon assets • Reluctant to invest in non -performers on GHG emissions (e.g. evidence that low emitters converging on high emitters) 12 Climate change risks External stakeholder risks • Regulation risk – government actions relating to climate change, different rules or policies the impose costs on businesses • E.g. this can change quickly – such as with a change in government • Firms need to be prepared for different policy options and have an internal strategy to react to it • Direct obligations under a carbon tax/ETS • Indirect e.g. higher energy prices; changes in investment or consumer behaviour 13 Climate change risks External stakeholder risks • Reputation risk – probability of losing profits or market share as a result of a business’s activities or position on an issue • Perception of failure to act or adapt to climate change impacts • Consumer perceptions; investor perceptions • A recent survey suggests (CSIRO, 2014): • The public perception is that climate change is happening – but only 47 per cent believe it is human induced • Perceived level of vulnerability is typically higher for natural ecosystems than infrastructure/energy security 14 Public perception of whether climate change is happening Source: Leviston , et al, (2014) Fourth annual survey of Australian attitudes to climate change, CSIRO 15 Perceived vulnerability to climate change Source: Leviston , et al, (2014) Fourth annual survey of Australian attitudes to climate change, CSIRO, 16 Further climate change risks • Infrastructure risks : • Current infrastructure and capital assets are designed based on past climate, not future climate • Risk assessment of vulnerability of current and future infrastructure assets: • Physical impacts to buildings, transport, water, energy and communication • Buildings codes review • Coastal regions (National Coastal Vulnerability Assessment) 17 Further climate change risks • Competitive risks • Keeping up with competitors – product development • Litigation risks • Liabilities associated with inadequate disclosure to trading partners • Inadequate preparation of the traded commodity/service for adverse climate impacts • Negligence in decision making 18 Business strategies Given these risk the how do business respond? • First ‘no regrets” strategies • Second what is the strategic positioning of a firms (Porter’s analysis of competitive advantage) • Depends on a number of external and industry related factors • Pinske and Kolk (2009) separate strategies into compensation (compliance) and innovation 19 ‘No regrets’ Strategy A ‘no regrets’ strategy defined as Lovins (2008 p.24): ‘Even if the scientists are wrong, and there is no threat to the climate, these are actions that a well -managed business would want to take anyway, because doing so is profitable’ Some no regret strategies : • Energy and material cost savings • Enhanced core business value • Reduced risk ▪ See Lovins (2008) http://natcapsolutions.org/CAPR/resources/climate – manual/chapter -2/the -business -case/ for more details 20 Corporate positions on climate change Influenced by: 1. External factors: • Physical impact, Govt. policies & regulation, stakeholder pressures and perceptions 2. Industry -related factors: • Industry structure, industry growth, concentration level 3. Company -specific factors Refer Pinkse & Kolk (2009) 21 External factors influencing corporate positions on climate change • Physical impacts: Extreme weather events, sea -level rise, floods, droughts, bushfires • Government policy and regulation: Carbon tax/ETS, Mandatory Renewable Energy Targets, Mandatory emission reporting, international agreements • Stakeholder pressures: Investor pressures, consumer pressures, NGOs, media and society at large 22 Industry -related factors influencing corporate positions on climate change Industry structure: • Putting a price on carbon creates a new commodity which in turn affect the trade patterns of related commodities (coal, natural gas, etc.) Industry concentration level • Companies that closely watch the behaviour of competitors (Oligopolistic industries) • No other option but to ‘Follow the leader’ (Knickerbocker, 1993) • E.g. Major auto companies follow Toyota’s lead on hybrid cars 23 Industry -related Factors influencing corporate positions on climate change Technological advancements and competition • Development of a new fuel (e.g. Biofuel) for passenger vehicles means changing product designs and vice versa • When auto manufacturers design hydrogen cars, it has implications for fuel suppliers 24 • Position within the supply chain • Companies that position higher up in the supply chain (e.g. commodities) have less opportunities to differentiate compared to companies closer to the end -consumer • Economic situation and market positioning • History of involvement with (tech) alternatives • Degree of (de)centralisation • Degree of internationalisation Company -specific factors influencing corporate positions on climate change 25 • Availability & type of internal climate expertise • Corporate culture and managerial perceptions • Capacity to anticipate risks, spread of vulnerabilities Company -specific factors influencing corporate positions on climate change 26 A Typology of climate change strategies Organisation (structure) Main aim (strategic intent) Innovative Compensation Internal (Company) Process improvement (1) Internal transfer of emission credits (2) Vertical (supply chain) Product development (3) Supply chain measures (4) Horizontal (beyond supply chain) New product/market combinations (5) Acquisition of emission credits (6) Source: Pinkse & Kolk (2009), p.99 27 A Typology of climate change strategies Pinkse & Kolk (2009) presents a matrix of climate change business strategies with 2 dimensions: 1. Main aim (strategic intent) Innovation the main focus is on innovation; process, product Compensation (the main focus is on compensation; internal transfer of emissions, supply chain measures or acquisition of emission credits 2. The form of organisation (degree of interaction) 28 A typology of climate change strategies Innovation ▪ Process improvements • E.g. energy efficiency, reduced materials ulitization and decreasing transport costs. • High energy -intensive firms have more options to improve efficiency but greater external pressure to reduce emissions (chemicals, mining, metals, utilities, oil & gas) ▪ Product development • E.g. design of products/new products to reduction emissions (chemicals, mining & electronics); Life -cycle programmes – BMW, GE, IBM, Unilever, DELL 29 A typology of climate change strategies ▪ New product/market combinations by strategic alliances • E.g. California Fuel Cell Partnership – Ford, GM, Toyota, BP, Shell, etc.); a new market based on Hydrogen as a major fuel Compensation ▪ Internal transfer of emissions (BP, Shell); diversified portfolio of products (Daimler) ▪ Supply chain measures (DELL requires its most important suppliers to disclose information about emissions) ▪ Acquisition of credits (offsets from CDM,JI and voluntary markets) 30 Porter and strategic positioning of a business • Michael Porter – “choose either differentiation or low cost , and then configure internal operations to support the choice” 31 Strategic positioning – An example from the international hotel industry Source: Dowling et al. (2009), p.363 32 Strategic positioning – An example from the international hotel industry • In the previous slide, Four Seasons positions itself as a luxury chain and emphasises the value of its product offering • Marriot and Starwood offer sufficient value but are not luxury chains • Budget hotels and backpacker places position themselves as low cost options but they feature less in this market segment (hotels with a global presence) • Imagine a product differentiation, in terms of green product offerings, Carbon neutral or Low Carbon products • Can you apply this model to your chosen firm/sector? 33 Strategic opportunities in managing carbon constraints Three areas to gain competitive advantage: 1. Minimising additional costs • Diversifying fuel consumption to allow flexibility to exploit divergent price trends that competitors locked in • Active carbon asset management to reduce potential exposure to carbon price fluctuations • Public/shareholder public relations enhance sales or share price 34 Strategic opportunities in managing carbon constraints 2. Product differentiating through bundling ▪ Fuel supplier might be able to secure low -cost carbon credits and offer electric utilities short on permits a combination of fuel and credit product that matches its customer allowances ▪ An insurance company may offer a package of insurance and carbon credits to offset emissions from a new build 35 Strategic opportunities in managing carbon constraints 3. Turning carbon credit supply into a profit centre • Projects specifically designed to offer low cost reductions • Speculation that the carbon credit market may become the largest traded commodity in the world! 36 Summary • McKinsey and Co present six different climate risk for business • There is a strong case for action by businesses even if the adverse climate change impacts did not eventuate – ‘No regrets’ strategy • Corporate positions related to climate change are influenced by several factors: external; industry -related and company -specific • Pinkse & Kolk matrix presents 6 specific business strategies based on the firm’s intent and structure • Firms can differentiate their offerings using climate change -related sustainable strategies 37 A useful Reference Tang, K. and Yeoh , R. (eds.) (2007). Cut Carbon, Grow Profits: Business Strategies for Managing Climate Change and Sustainability, Middlesex University Press. 38 Thank you
1. Provide brief answers for the following a. Describe the ‘No Regret’ strategy in responding to climate change. b. In the corporate case or sector you have chosen for the assignment are there any ‘
TUTORIAL 4 : CLIMATE CHANGE ECONOMICS AND POLICY ECO3CCE Page 1 Read: The lecture slides and required readings in Module 3 Week 12. Think : This week the topic we explore relates to effective business strategies to address the climate change challenge including the ‘No Regrets’ strategy. An effective response requires understanding the carbon exposure of the firm, various business and operational risks (including reputational risks) as well a s opportunities provided by the physical impacts and the policy environment. The factors that influence corporate positio ns on climate change: external, industry and company -specific factors (see e.g. Table 5.1 of Pinkse & Kolk , 2009 ). Reflect on how these factors influence various corporate positions on climate change. Respond: Submit the tutorial to the LMS dropbox by the due date . In your answers use credible published sources (references) to support your arguments (excluded from the word count). 1. Provide b rief answers for the following a. Describe the ‘No Regret’ strategy in responding to climate change. b. In the corporate case or sector you have chosen for the assignment are there any ‘No regrets’ strategies available? 2. Assume the Head of Business Solutions at your company ( choose the corporate case either a sector or business as per your assignment ) has ask ed you to briefly : a. Identify and rank two risks to the sector or company from climate change. b. Identify one opportunity that climate change policy presents the sector or company with? c. Identify the best strategic choice available to the sector or company? 3. Wh at are the changes that individuals can make in their daily lives to help deal with climate change ? State one specific action through which you would like to personally endeavor to make a positive contribution to the effort on climate change. Re flect : You can choose just ONE of the following two tasks : a. Write two good question s about any issues covered in this tutorial problem set. b. For the cartoon below, c ome up with interesting text relate d to climate change.

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