The Climate Compliant Business: ESG, the Carbon Market and other best sustainability practices for businesses.

Introduction

As the global community seeks to accelerate climate actions, it has become increasingly vital for businesses to align with climate compliance standards. Companies can mitigate environmental impact drive growth, enhance resilience, and meet the rising expectations of consumers, investors, and stakeholders by integrating climate considerations into their operations. This article discusses the evolving business space by emphasizing the important role of climate compliance in ensuring sustainability and long-term success. It examines the economic advantages of adopting sustainable practices and the risks of non-compliance. Additionally, the article highlights innovative strategies and technologies that forward-thinking companies are implementing to reduce their carbon footprint and enhance environmental sustainability.

Climate Impact on businesses.

Climatic conditions are essential to the smooth running of businesses. Extreme climatic conditions pose significant threats to businesses. Firstly, natural disasters such as flooding, hurricanes, wildfires, etc., not only prevent business activities but also destroy business infrastructure and products.[1] This leads to losses and poor business performance. Also, the unavailability of resources including shortages of water and raw materials, can limit production capabilities and raise operational costs. Companies in agriculture, manufacturing, and other resource-dependent industries are especially susceptible to these effects, making proactive measures to enhance resilience and continuity planning essential.

Furthermore, businesses have to deal with the shift to a low-carbon economy. This means that companies will have to watch their carbon footprint and adapt to the evolving regulatory terrain aimed at promoting climate sustainability. The transition would also mean that companies are prepared for carbon pricing and emission trading systems.[2] There will be market shifts that will influence consumer preferences for eco-friendly products and services, which can affect the demand for conventional offerings. Furthermore, advancements in clean technologies and renewable energy sources challenge existing business models, requiring businesses to adapt.

Environmental, Social, and Governance (ESG) requirements for businesses.

Environmental, Social, and Governance requirements refer to the standards required of companies to be aware of the impact their business has on the environment. It is employed by investors to screen potential businesses for possible investment.[3]

ESG requirements envisage environmental, social, and governance best practices. On the Environmental requirement, companies must take cognizance of the impact of their business activities on the environment. This includes carbon emission control, waste management, and recycling. The Social ESG principle requires that a company’s business activities be done in line with proper relationships with employees, suppliers, customers, and the community at large. Businesses should prioritize best labour practices, human rights, workplace diversity and inclusion, community engagement, and consumer protection.

Finally, the Governance principle highlights the need for appropriate internal systems, controls, and procedures in the leadership of businesses. Board diversity, transparency, executive compensation, and shareholders’ rights are usually contemplated under this feature. ESG has emerged as an important consideration by investors before the decision to invest in a company is made. Compliance with environmental laws and policies is no longer of abstract benefit to businesses. They now directly feel the impact through the level of investment they attract and the level of patronage they enjoy.

Sustainable Practices of a Climate-Compliant Business

To meet global climate action standards, businesses must indulge in some sustainable practices to emphasize their commitment to ESG requirements and other sustainability obligations.

1.????? Reducing carbon footprint: Businesses must ensure that they reduce the amount of greenhouse gases they emit in every step of their business process, from production to delivery.[4] This can be achieved through a transition to renewable energy sources as opposed to traditional fossil fuel energy sources. Implementing carbon offset programs like reforestation while supporting sustainable transportation for its employees and goods/service delivery will emphasize the business’ readiness to lead the way as a climate-compliant business.

2.????? Sustainable Technology: Deploying technology that uses less energy is one way that businesses can support climate action. This would include upgrading to LED lighting systems, using high-efficiency HVAC (Heating, Ventilation, and Air Conditioning) systems, etc. This does not just reduce the amount of energy consumed but also reduces the operational cost of running a business while meeting sustainable environmental standards.

3.????? Sustainable Partnerships: Businesses can enhance their commitment to climate-friendly practices by collaborating with other companies that also prioritize sustainability. This can be achieved through actions such as conducting audits to verify that suppliers meet sustainability standards,[5] sourcing from local suppliers to minimize transportation-related emissions, and ensuring that raw materials come from renewable or recycled sources.

4.????? Producing green products and services: Businesses can further emphasize their sustainability posture by producing green products and services. This includes designing products that can be recycled or degraded biologically,[6] offering services that promote sustainability, such as energy audits or eco-friendly consulting, etc. This ensures that businesses meet the growing global demand for compliance with environmental sustainability goals.

Benefits of Climate Compliance for Businesses

Running a climate-supportive business is beneficial in several ways. Businesses that comply with climate action requirements help in mitigating the effect of climate change on the planet in general and their business in particular. Climate action by businesses ensures that environmental hazards are avoided while business setbacks like supply chain disruptions, resource scarcity, and damage to physical assets are avoided.

Adhering to energy efficiency saves costs that are usually spent on non-renewable energy sources. Upgrading to energy-efficient lighting, heating, ventilation, and air conditioning (HVAC) systems, and utilizing renewable energy sources such as solar or wind power saves the cost that is usually incurred perpetually in utility bills and other related costs of operations.

Sustainable actions also ensure that businesses are set up with an eye for longevity. Businesses that imbibe climate actions into their core strategies are better positioned to adapt to regulatory changes, shifting market dynamics, and evolving consumer preferences. This long-term resilience can lead to sustained growth, profitability, and customer confidence.

Businesses that comply with climate action requirements usually qualify for green financing and other incentives from financial institutions and governments. These range from tax credits, grants, green bonds, and other financial options tied to environmental sustainability.

Businesses that comply with best climate practices gain a competitive advantage as customers who are increasingly aware of environmental issues will most likely rate such businesses highly. Businesses that prioritize sustainability can differentiate themselves from competitors, attract eco-conscious customers, and build loyalty among existing ones. This positive brand perception can also lead to increased media coverage and stronger relationships with stakeholders who value corporate responsibility.

Compliance with climate action requirements also ensures that businesses meet up with regulatory and compliance provisions made by the government for environmental sustainability. This prevents businesses from incurring fines that could be attracted by non-compliance.

Challenges faced by businesses in the Sustainability era and Solutions.

Several factors militate against the adherence of businesses to climate actions. Below are such challenges and possible solutions:

1.????? Installation cost: Businesses may find it difficult to imbibe sustainability practices due to the initial cost required to set up. These costs include investing in renewable energy sources, buying energy-efficient equipment, retrofitting existing buildings, etc. For many businesses, especially small and medium-sized enterprises (SMEs), this provides a significant financial burden.

Solution: In a bid to soar above the financial limitation on sustainability practices, businesses can seek access to available funding opportunities to scale the financial hurdles that come with sustainable practices.[7] Importantly, change can be gradual, it need not be automatic. Thus, implementing changes can be done gradually to ease the financial burden. Other arrangements like leasing equipment, pay-as-you-save structures, etc., can all be deployed to effect climate change goals.

2.????? Rise in Sustainability disputes: Businesses will face and have to institute more disputes on climate change and sustainability. Policies in the natural resources sector is already facing significant impacts. This has given rise to several disputes connected with carbon emissions and energy agreements.[8]

Solution: Businesses should proactively prepare for disputes. From ensuring that the dispute resolution clause is properly drafted to including sustainability clauses, businesses can avoid disputes or be adequately positioned when disputes arise.[9]

3.????? Sustainability measurement: It can be difficult to measure the impact of sustainability measures. This is due to the unavailability of a particular metric for doing same. Generally, tracking environmental, economic, and social contributions is usually difficult. Similarly, there is a need for transparency reporting which will help to build trust with stakeholders.

Solution: The Global Reporting Initiative (GRI) and the Carbon Disclosure Project (CDP) are examples of clear sustainability metrics that can be used in measuring sustainability impact and activities. They can be used in setting specific targets and reviewing the progress level from time to time. Sustainability software and tools can help collect, analyze, and accurately report data relating to climate actions. Reports can also be verified by engaging external auditors.

4.????? Deficit in Expertise: Sustainable practice measures require expert knowledge for implementation. This level of expertise is usually not available within many businesses. Such expertise includes knowledge of climate change in general, sustainability practices, regulatory and policy requirements, sustainable technology expertise, etc.

Solution: Businesses should prioritize investing in their sustainability knowledge base for their employees. This can be in the form of workshops, seminars, certifications, online courses, etc. This also involves the inclusion of sustainability knowledge requirements as hiring criteria for new intakes or setting up a sustainability team.?

5.????? Tracing sustainability practice chain: It can be very difficult to trace a business’ supply chain. Especially for small or medium-scale enterprises, getting to know the origin of the raw materials can be very challenging. Even when they do, larger suppliers may not always heed their demands or requests, making it hard to develop a sustainable supply chain model.

Solution: Sustainable collaboration is important. Businesses can also engage in supply chain auditing and the use of data management tools to improve the transparency of their supply chain. Other solutions include requiring sustainability certifications like Fair Trade, Rainforest Alliance, B Corporation, ISEAL Alliance, Green seal,[10] and other sustainability standards before commencing or continuing business relations.

Sustainability practice certifications

There are several environmental compliance certifications that investors, businesses, and customers can use in accessing the sustainability posture of businesses. They include the Eco-Management and Audit Scheme (EMAS), an environmental management tool for businesses and other organizations to deploy in evaluating and improving environmental performance.

Fairtrade certification[11] ensures that products are produced with due regard to social, environmental, and economic standards. Another important certification is the FSC (Forest Stewardship Council) Certification which is mainly applicable in the wood and paper industry. It requires that products must come from responsibly managed forests that is managed to give environmental, social, and economic benefits.[12]

The LEED (Leadership in Energy and Environmental Design) certification is one of the most widely used measures of sustainability in building design, construction, and operation.[13] It was developed by the United States Green Building Council, and it focuses on the efficient management of energy in materials, air quality, and the usage of water.?

Businesses and the carbon market

The Carbon Market is a system that allows businesses to buy and sell carbon credits and allowances. It is designed to reduce the emission of Greenhouse gases. It allows businesses to manage their carbon footprint and take advantage of economic opportunities by trading emission deficits or buying emission allowances. It is either regulated by national or international trans governmental bodies (e.g., the European Union Emissions Trading System (EU ETS) and the California Cap-and-Trade Program) or outside regulatory frameworks (e.g., the Verified Carbon Standard (VCS)).

The Carbon market helps businesses to comply with environmental regulations. Thus, where a business exceeds its emission limit, it can purchase carbon allowances from other businesses that have not emitted up to the limit permitted for them. It brings climate compliance benefits on businesses as they scale regulatory, reputational, and sustainability requirements through participation in the carbon market. Importantly, it gives a flexible opening in managing costs associated with carbon emissions.

Conclusion

The necessity of climate-compliant business practices is no longer a futuristic ideal but an immediate imperative that cannot be over-emphasized. The business world is rapidly evolving, with regulatory pressures, market dynamics, and societal expectations demanding a sustainable approach. Companies that proactively integrate climate compliance into their operations not only mitigate risks and ensure regulatory adherence but also unlock opportunities for innovation, efficiency, and market leadership. The transition to climate-compliant business practices involves comprehensive strategies which cover emission reductions, investments in renewable energy, participation in carbon markets, and transparent reporting. The journey towards a climate-compliant future is a complex yet rewarding path that promises not only to protect our planet but also to sustain and grow the enterprises of tomorrow. The call to action is clear: adapt, innovate, and lead. The future of business depends on it.

[1] Michael Boyles, 2 August 2022, 7 Ways Climate Change Affects Global Businesses, Havard Business School, accessed on 24 September 2024, https://online.hbs.edu/blog/post/climate-change-affecting-businesses

[2] Here’s how climate change will impact businesses everywhere – and what can be done, 3 May 2024, Zurich, accessed on 24 September 2024, https://www.zurich.com/knowledge/topics/climate-change/how-climate-change-will-impact-business-everywhere

[3] Kyle Peterdy, ESG (Environmental, Social, & Governance), Corporate Finance Institute, accessed on 24 September 2024, https://corporatefinanceinstitute.com/resources/esg/esg-environmental-social-governance/

[4] Mohannad Ali, 23 August 2022, 10 ways companies can do more to fight climate change, Hotjar, accessed on 24 September 2024, https://www.hotjar.com/blog/ten-ways-companies-can-help-fight-climate-change/

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[5] Vrushali?Patil,?Tarkan?Tan,?Sonja?Rispens,?Shaunak?Dabadghao,?Evangelia?Demerouti, April 2022, Supplier sustainability: A comprehensive review and future research directions, ScienceDirect, accessed on 24 September 2024, https://www.sciencedirect.com/science/article/pii/S2667344422000032

[6] Eduardo Carneiro, 27 August 2024, All about ecodesign: what it is, benefits, and how to apply it in your company, accessed on 24 September 2024, https://webjump.ai/en/ecodesign/

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[7] Rohit?Agrawal,?Shruti?Agrawal,?Ashutosh?Samadhiya,?Anil?Kumar,?Sunil?Luthra,?Vranda?Jain, July 2024, Adoption of green finance and green innovation for achieving circularity: An exploratory review and future directions, Science Direct, accessed on 24 September 2024, https://www.sciencedirect.com/science/article/pii/S1674987123001366

[8] Kara Anderson, 27 October 2023, Why the ECT is hindering the fight against climate change, Greenly, accessed on 24 September 2024, https://greenly.earth/en-us/blog/ecology-news/why-the-ect-is-hindering-the-fight-against-climate-change

[9] The Chancery Lane Project, 10 May 2022, Sustainability Clauses in Supply Chain Contracts, accessed on 24 September 2024, https://chancerylaneproject.org/clauses/sustainability-clauses-in-supply-chain-contracts/

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[10] Forest Stewardship Council, 7 August 2024, 44 sustainability certifications for businesses and sustainability professionals, accessed on 24 September 2024, https://fsc.org/en/blog/sustainability-certifications#FSC

[11] The Fairtrade certification system is recognized for its strict standards, independence, and adherence to top-tier certification practices. All types of producer organizations—whether small-scale cooperatives, plantations, or contract-based operations—are required to undergo a comprehensive initial on-site audit before being permitted to sell Fairtrade-certified products. https://www.fairtrade.net/about/certification

[12] Forest Stewardship Council, 7 August 2024, 44 sustainability certifications for businesses and sustainability professionals, accessed on 24 September 2024, https://fsc.org/en/blog/sustainability-certifications#FSC

[13] LEED-certified green buildings are better buildings, accessed on 24 September 2024, https://www.usgbc.org/leed