When you talk about climate change in relation to your business, you need to be thinking about two key things:

•  Your effect on the climate and environment in which we live.
• The impact a changing climate will have on your business under various scenarios: for example, with increases in global temperatures of 1.5, 2.5 and 4 degrees.

Once you’ve considered those two areas, start thinking about the changes you need to make immediately.

These changes fall into two key approaches:

•  Transitional arrangements
•  Adaptational arrangements

What do we mean by transitional arrangements?

Transition is about moving your business from being reliant on carbon to being carbon-free or, at the very least, carbon-neutral within a set time period. This covers the necessary changes in working practices, supply chains, and technology so you have a reduced environmental impact. Here are six easy steps to plan your transitional change:

Step 1: Identify where you are now

By knowing the details of your current business practices, you can easily see what needs to be changed and how to change it.

Step 2: Identify where you need to be by 2030

2030 is a key year for carbon commitments. You may want to look at your commitments over five years or over 10 years, but you should have a ‘stretch’ goal for the future. That’s a goal that you’re going to have to work hard to achieve because you need to do the most you can to have a positive impact on the environment.

Step 3: Carry out a risk assessment

It’s important to have a good quality risk assessment that highlights the potential risks to your business from climate change and how you will mitigate and manage them. You can read more about how to prepare and review a risk management plan here.

Step 4: Create a plan for how you get from Step 1 to Step 2

This plan should include the steps you need to take, the partners or collaborators you need to work with to reach your goals, and the costs of your transition approach.

Step 5: Include the plan in your business plan

Your transition plan is part of your overall business strategy and could have cost and operational impacts, so it should be included and reflected in your business plan.

Step 6: Include the KPIs from the plan in your quarterly reporting

Measurement is really important in any business planning, so make sure you add KPIs to your transition plan and report on them regularly. This doesn’t just help with your internal planning; it can be used externally to tell employees, customers and your community about the changes you’re making.

If you have already started working on a risk register, remember to review it regularly, update your risks, and add new ones if relevant.

Show me an example!

Let’s assume you own a commercial property, and it is being heated by a gas central heating system, which is heavily dependent on carbon. Therefore, one of your goals may be “To have the office powered by solar and air source heat pumps by 2025.” The cost of transition will be, perhaps, £36k to get the work done, and you plan to save £3k a month to finance this over the next two years.

Use this information and build it into your business plan and cash flow planning—repeat until you have identified and included all of your transition costs.

There may be transitions where the cost or timing are unclear. In these cases, do your best to measure and mitigate them.

For example, if you have a fleet of diesel flatbed trucks, you will have to replace them because they are increasingly expensive to run. Legislation may be making it more tricky for them to enter certain areas of the country because of carbon zoning. So, you need to set a programme of replacement or conversion over a number of years and build that into your business plan.

What would you do if the government were to bring forward plans to ban diesel trucks by 2030 completely? What would the financial effect be on your business?

You will also need to consider the cost of inaction on the business. If you fail to plan ahead or start some transitions now, what could the medium and long-term costs be to your business?

What do we mean by adaptation arrangements?

We have to accept that climate change will have effects in the UK and around the world. All we’re doing currently is trying to limit its effects and, hopefully, reverse the changes over centuries.

So your business will be affected by climate change, like it or not.

Adaptation is about scenario planning for the potential effects of something outside your control on your business. We mentioned above the idea of planning for different levels of change in global temperatures. That’s because the effect on your business of a 1.5-degree increase will be significantly less than that of a three or four-degree increase. So, you will need more than one adaptation plan.

Let’s revisit your risk register. What are the likely changes or effects of climate change on your business, and what changes do we need to make to mitigate and manage those risks?

For example, if you are in—or even close to—an area that has flooded in the past, you may want to consider the cost of moving your office somewhere less exposed to future flood risk. So, you need to start building the cost, timing, and potential business interruption of a move into your business plan.

The cost of moving to a new property will likely increase as other businesses try to do the same – commercial rental and purchase properties in ‘safer’ areas will be at a premium. You may find that there are impairment costs of trying to sell or dispose of your current property as fewer and fewer businesses are willing to situate themselves in flood-risk areas. So, you need to start realistically assessing the costs you’re likely to incur and plan how you will manage them.

There are many other issues related to climate change where our only option is to adapt rather than change. A good adaptation plan covers as many potential scenarios as you can imagine, giving you a clear picture of how to ensure your business’s survival.

Why does this matter?

Climate change is happening, and its impact is already being seen and experienced around the world. It is going to affect your business. So, for us, working with clients on transition and adaptation planning is part of a sensible and pragmatic approach to successful business planning.

We need to assign costs to future liabilities and try to reduce the exposure to the downward risks the business may face. The reality is that the longer you leave making the transitions and adaptions, the more expensive it may be, and the significant impacts are felt more quickly by your business than predicted.

Why not contact us to see how we can help you research and plan your transition and adaptation processes?

Please note: This is not meant to constitute professional advice. It is generic guidance only, and things may have changed since it was written. Please always seek specific and tailored advice for your circumstances.