Business Continuity In A Changing Climate: Threat Or New Opportunity?

Climate change is one of the global challenges that has a wide impact on various aspects of life, including the business and economic sectors. This phenomenon not only brings threats in the form of natural disasters, infrastructure disruption, and economic instability, but also opens up opportunities for certain industries to thrive. Some sectors, such as agriculture and renewable energy, are beginning to adapt to changing climate conditions and are successfully increasing productivity and competitiveness. Therefore, understanding the impact of climate change on the business world is important so that businesses can anticipate risks while taking advantage of opportunities that arise.

Unlocking Opportunities

Climate change is not only a global challenge, but it also opens up great opportunities for sustainability-oriented businesses. More and more companies are looking for eco-friendly solutions to reduce their carbon footprint. With increasing consumer awareness and strict regulations on climate change, businesses that innovate in this area can attract big clients.

(Source: Avani Eco)

An example is Avani Eco, a science-based start-up company that focuses on creating bioplastic products. These bioplastics are eco-friendly products which are made from natural materials such as cassava starch and vegetable oil derivatives. Avani Eco comes to bring solutions to climate change by offering products that are friendly to the environment. Through interviews with Utomo (2017), it is understood that the selection of cassava starch is because Indonesia is a large cassava producer, reaching 24–25 million tons a year. However, cassava starch is rarely considered because it is usually used for animal feed, which is then also used as a basic material in making this bioplastic. Avani Eco then sells its products in Bali due to the potential of foreign nationals there who appreciate environmentally friendly products. Clients who use Avani Ecos products include big-name companies, such as Ritz Carlton, Alila, and Marriott. In addition, Avani Eco has successfully exported its products and made exports a source of income, accounting for up to 80% of its sales.

Another example is electric vehicles(EVs), which are becoming increasingly attractive because they produce less GHG emissions and pollution over their lifetime when compared to gasoline and diesel cars. This creates a huge opportunity for the automotive and energy industries to invest in greener solutions. As global regulations on carbon emissions tighten, demand for vehicles that reduce greenhouse gas emissions will continue to rise, opening up a broader market for EV manufacturers as well as battery technology and supporting infrastructure providers.

In addition to reducing greenhouse gas emissions, electric vehicles also contribute to reducing noise pollution, which is a major problem in big cities. Unlike gasoline and diesel vehicles that produce noise from the engine and exhaust, EVs operate more quietly, creating a quieter and more comfortable urban environment. Business opportunities in this sector are not only limited to electric vehicle manufacturing, but also include the development of EV-based transportation ecosystems, such as ride-sharing services, electric vehicle rentals, as well as the formulation of urban policies that support noise pollution-free zones.

The improved energy efficiency offered by electric vehicles also paves the way for innovation and business growth in the renewable energy sector. With higher energy efficiency than conventional vehicles, EVs can reduce dependence on fossil fuels, which in turn reduces operating costs for both consumers and companies. This provides opportunities for businesses engaged in providing charging infrastructure, producing more efficient batteries, and developing digital-based energy management systems that can improve the performance of electric vehicles in the long run.

(Source: Wuling)

In Indonesia, EV sales performance is increasing. During the January–August 2024 period, EV sales in electric car vehicles recorded sales of 23,045 units, 177.32% higher year-on-year, when compared to sales in 2023 during the same period. This is supported by the governments role in providing a number of incentives for buyers, such as the 1% Value Added Tax (VAT) incentive policy as well as the exemption of import duty and Sales Tax on Luxury Goods (STLG) on completely built up (CBU) imports (Gaikindo, 2024).

Not Free from Threats

On the other hand, a number of threats due to climate change are inevitable for a business. According to Ulfa (2018), climate change has had a major impact on the economy of fishing communities in Tamansari Village, Dringu District, Probolinggo Regency. This village is a coastal area where the majority of the population depends on the fisheries sector, so weather uncertainty, rising sea levels, and reduced fish catches have worsened their economic conditions. The uncertainty of the fishing season due to climate change makes it difficult for fishermen to determine the right time to go to sea, which in turn affects the amount of catch and the stability of their income.

(Source: Diane Durongpisitkul/Stocksy)

In addition, the distribution of fish to more distant locations due to changes in seawater temperature means that fishermen must increase the distance they travel to catch fish, which has implications for increasing operational costs, especially in terms of fuel consumption and boat maintenance. This condition is not always matched by an increase in catch, leading to an imbalance between fishers income and expenses. To make matters worse, the increasingly long lean season due to extreme weather has caused many fishermen to lose their main source of income for a long time. This situation forces them to go into debt to middlemen or local financiers with high interest rates, which ultimately plunges them into a cycle of poverty that is difficult to break.

Limited access to government assistance programs and formal capital also worsens fishers economic conditions. The majority of fishers do not have the collateral or documents needed to access loans from banks or other financial institutions, so they remain dependent on the less favorable informal financial system.

Climate change also affects financial market stability and increases credit risk for companies. A study conducted by Ho, Yan, & Kong (2024) showed that increased risk due to climate change led to an increase in corporate bond credit spreads in China. This happens because the secondary bond market is increasingly aware of the potential losses due to economic disruption caused by climate change. In addition, increased volatility in corporate profits and declining investor sentiment also contribute to an increase in default risk, which in turn has an impact on the increase in bond credit spreads . Thus, climate change not only impacts the physical sector, but also affects the financial stability of companies and investor confidence.

(Source: Franklin Peña Gutierrez/Pexels)

In addition to financial risks, climate change also puts pressure on the economy through the increased frequency of natural disasters such as floods and storms. Damage to infrastructure such as roads, bridges, and other public facilities requires substantial repair costs, putting a strain on public and private sector budgets. In addition, the increased likelihood of natural disasters also leads to a spike in insurance costs for businesses and properties, impacting their operations (Cho, 2019). Disruptions in global supply chains due to extreme weather also increase logistics costs and slow down the distribution of goods, potentially hampering economic growth and companies competitiveness in the global market.

(Source: sergeycauselove/Freepik)

Climate change also brings threats to the agricultural sector, especially in food production. Research conducted by Malau et al. (2023) showed that most provinces in Indonesia are affected by the El Nino Southern Oscillation (ENSO) phenomenon, as indicated by the negative correlation between the Oceanic Nino Index (ONI) and rainfall. Static panel regressions indicate that ENSO has a significant impact on rice and soybean production, with El Nino causing a decrease in rainfall that results in drastic yield reductions. Meanwhile, La Nina, which increases rainfall, has more influence on soybean production. In general, the impact of El Nino on food crop production is much greater than La Nina, making dependence on weather patterns a major challenge in Indonesias agricultural sector.