Why climate risk means financial risk for those who fall behind

Although the UK’s spring Budget was not as climate-centered as some had hoped, it involved some interesting green initiatives.

The UK Government announced it will issue green bonds, create a retail saving programme to give individuals the opportunity to invest in green products. It will also create a UK infrastructure bank in Leeds to invest in the green industrial revolution, with an initial £12bn capitalisation and £40bn investment as part of its 2021 budget.

This is an important step in reaching the UK’s net-zero target by 2050.

However, while significant funds were allocated, the Budget did not detail how exactly they were going to be spent. The transition to a green economy will need significant investment, as net-zero requires switching to an energy system that relies solely on renewables, as well as energy efficiency and green transport projects.

What is important is that a mechanism to drive green competition is emerging worldwide, challenging companies to reduce their environmental impact and offer sustainable products. If the money is allocated correctly, through the UK infrastructure bank, the UK will spur this change, becoming a global environmental leader.

Governments, investors, and the public are pushing companies to slash emissions. As a result, climate change commitments are becoming an area of competition for companies. Businesses in every region and sector of the economy are making ambitious new commitments to decarbonise their operations.

The result is a positive feedback loop in which stakeholders harness market forces to drive this positive change towards more sustainable operations. Cutting down on emissions is, therefore, the only way for companies to make future-proof strategic decisions, ensuring that their business models are compatible with a sustainable economy that protects the liveability of the planet.

Additionally, as reducing emissions often implies increasing efficiency, it is also the most cost-effective solution, pushing companies and sectors to compete and innovate, ultimately delivering better products.

Companies now have two options: proactively invest to make their business models sustainable and get ahead of the curve or fail to innovate and be swept away by the green transition. The rewards to be reaped by those who fully embrace sustainability are plenty, but so too are the financial risks for those who fall behind.

Nabil Lodey is CEO of Envitia, a data software and services company based in Horsham whose clients include the Ministry of Defence and the UK Environment Agency.