We all know it. On the one hand, you want to contribute to limiting climate change, but on the other, you also have your day job. In addition, you have your day-to-day tasks, and you don’t really know where to start with sustainability. These are well-known reasons why companies are reluctant to change in favour of the climate, while it actually offers opportunities to stand out. Moreover, postponing these changes initially seems like a cost saving, but in the long run it leads to various risks and actually higher costs. No worries, you’ve come to the right place. In this article, we describe the possible risks and we are your guide as to how you can tackle them and make the most of the opportunities.
Transition Risks
So-called transition risks are risks in the sustainable transition for companies. The Dutch Central Bank [1] defines these risks as follows:
“Transition risks result from the process of adjustment towards a carbon neutral economy. These adjustments are driven by changes in climate related policy, disruptive new low-carbon technologies and/or shifting market segments. The failure to appropriately address these changes may also directly increase reputational and/or liability risks for organisations.“
These risks are manifested in various areas. At the same time, these risks offer opportunities. We list the most important risks and the corresponding solutions.
Policy and regulatory risks
- Risk: Policy and regulations change. Significant changes will occur at the legislative level – in line with the EU Green Deal – for large organisations and the smaller SMEs in the chain. The most important is the Corporate Sustainability Reporting Directive (CSRD). This legislation requires companies to report on their impact on people and the environment. The CSRD will become compulsory from 2023 and tighten up the current NFRD (Non-Financial Reporting Directive). The CSRD focuses on more comprehensive and in-depth sustainability reporting.
- Solution: to comply with these laws and regulations, you must be able to provide correct and complete information regarding the sustainable impact of your organisation. This requires specific knowledge and experience that can be mapped with LCA. Read more about CSRD and how we can help you in this article.
Technological risks
- Risk: Besides the risk of changes in laws and regulations, technological risks arise. These are product and market risks when a company lags in development and sticks to existing products and techniques. In addition, the availability and supply of raw materials due to climate change is also a risk for your production. Therefore there is a considerable chance that competitors will catch up with you with better alternatives.
- Solution: One way to solve this risk is innovation. Product innovation can be steered by means of life cycle assessment (LCA). By performing an LCA, the potential benefits of the sustainable decisions can be mapped out and compared to the costs. This allows you to investigate product innovations with the most significant environmental benefit. Read more about the LCA in this article.
Reputational risks
- Risk: Many companies want to profile themselves as sustainable. They see the market wants this. Greenwashing causes reputation damage because customers and consumers no longer trust you. So always be transparent about your sustainable claims and substantiate them with data from LCA and CO2 footprint studies.
- Solution: Always be transparent about your sustainable claims and substantiate them with data from LCA or carbon footprint studies. Insights from these studies will also help you to steer your sustainability strategy. This allows you to communicate your current impact, create opportunities to become more sustainable and attracts motivated employees.
To anticipate these risks and to distinguish yourself, it is therefore important to take action. Use the opportunities to create a future-proof business with our expertise. Would you prefer to discuss this directly with one of our team members? Contact us for more information.
Sources and links
[1] https://www.dnb.nl/media/a4gdcovq/consultation-document-good- practice-integration-of-climate-related-risk-considerations-into-banks-risk-management-nov-2019.pdf
