As the global shift toward a zero-carbon future accelerates, organizations must adapt to the profound changes in the business environment. A well-crafted climate strategy is essential for navigating this transition, helping companies assess risks, capitalize on new opportunities, and align their operations with sustainability goals.
Inspired by the inaugural episode in Unravel Carbon’s series on climate strategy featuring Co-Founder and Chief Sustainability Officer Marc Allen, this article explores how integrating climate strategy into business planning can drive resilience, reduce costs, and position organizations for long-term growth in a decarbonizing economy while addressing common challenges such as cultural resistance, evolving regulations, and the risks of compliance-focused approaches.
What is a climate strategy?
To mitigate climate change, a global shift toward a zero-carbon future is underway, reshaping industries, markets, and supply chains, creating both risks and opportunities for businesses. A climate strategy is a strategic plan that helps a company adapt to the economic transformation that climate change triggers.
Central to a climate strategy is applying a climate-focused lens to assess how a company will perform in a decarbonizing economy, where reducing emissions, evolving energy sources, and shifting regulatory landscapes redefine the competitive environment. In a climate-focused lens, the company will analyze multiple potential futures—scenarios in which climate policies, technologies, and consumer behaviours evolve differently—and develop a roadmap that best prepares the company for these changes.
Climate strategy versus business strategy
Climate strategy and business strategy are closely linked but distinct. Business strategy focuses on long-term growth, competitiveness, and financial performance. In contrast, climate strategy applies a climate-focused lens to business decisions, assessing how climate change, regulatory shifts, and decarbonization impact operations and risk exposure.
As climate-related disclosures become mandatory and regulatory frameworks take hold, companies must integrate climate considerations into corporate governance to minimise financial and operational risks. Climate strategy ensures businesses remain resilient by evaluating their emissions, operational footprint, and exposure to climate-related disruptions.
While both strategies are forward-looking and involve scenario planning, climate strategy is not about reinventing business strategy but embedding sustainability and risk mitigation into corporate decision-making.
Climate strategy is vital to business strategy, aligning sustainability with an orgazisation’s long-term growth and resilience.
Why does climate strategy matter?
Integrating climate strategy into an orgazisation’s business strategy has five key benefits.
Climate mitigation strategies lead to cost savings
Taking action through climate mitigation strategies will help reduce emissions and generate significant cost savings. These savings will primarily stem from the anticipated rise in carbon pricing across the economy.
Investing in climate action now—such as reducing emissions through energy efficiency projects—presents a dual benefit: it helps mitigate future costs related to carbon pricing while achieving immediate savings from improved efficiency and reduced resource consumption.
Carbon mitigation strategies increase market opportunities
In addition to the cost savings associated with reducing emissions and preparing for rising carbon prices, companies will also benefit from increased market opportunities. Numerous studies highlight that the market potential emerging from climate change adaptation, low-carbon technologies, and low-carbon marketplaces is vast, reaching into the trillions of dollars.
Implementing carbon mitigation strategies can position companies to tap into this growing demand. Businesses can capitalize on emerging trends by developing green products, delivering sustainable services, or entering eco-friendly markets. As markets evolve to support decarbonization, those able to leverage these changes will be well-positioned to gain a larger market share in the emerging low-carbon economy.
Climate adaption strategies create long-term value
Long-term value creation is also increasingly tied to how companies adapt to climate risks. Investors are progressively directing capital toward businesses that embrace climate adaptation strategies and integrate green technologies into their operations. This shift is reflected in the growing interest in companies that are not only performing well but also disclosing their climate strategy and risk exposure in accordance with the IFRS S2 framework and ISSB standards.
These frameworks require businesses to report their climate risk exposure transparently, empowering capital markets to make more informed investment decisions. Companies that proactively address climate challenges will be better positioned to attract investment and sustain long-term growth in an increasingly sustainability-focused market.
Risk mitigation through climate change models (benefits and limitations)
Risk mitigation is a critical responsibility of a company’s board, which must identify and reduce exposure to climate-related risks. By integrating climate change models into their risk assessment processes, companies can treat climate change as a material risk on their risk register. This approach allows boards to anticipate future climate risks and implement mitigation strategies to minimize financial and physical exposure.
Taking proactive action helps companies control potential risks, including regulatory changes, market shifts, and even physical damage from events such as wildfires. By embedding climate risk into their broader risk management framework, companies ensure long-term resilience in the face of climate challenges.
Business strategies for climate change
Business resilience is one of the most significant benefits for companies navigating climate change. When integrated into business strategies for climate change, resilience helps companies mitigate the risks associated with physical climate impacts and the transition to a low-carbon economy. First, resilient infrastructure enables businesses to withstand the physical consequences of climate change, such as extreme weather events and rising sea levels, which may cause operational disruptions.
In addition, business resilience allows companies to adapt to transition risks as they move from a fossil-fuel-based economy to a decarbonized, sustainable future. By considering potential climate scenarios and establishing clear signposts to track their evolution, companies can adjust their strategies to stay competitive and future-proof their plans.
Pitfalls of implementing a climate strategy
Implementing a climate strategy is inherently a change management process, and like any strategic shift, it comes with significant risks. Companies must be mindful of the potential pitfalls, as missteps in execution can hinder progress. As businesses embark on their climate transformation journey, navigating these challenges effectively is essential to ensure long-term success and sustainable change.
Cultural resistance against climate strategy
Cultural resistance is a common challenge when implementing a climate strategy, especially in companies with established practices. Organizations operating in the same way for decades may struggle with embracing change, mainly when it involves venturing into new markets or launching new products. Employees and leadership may hesitate to alter their approach, making it challenging to drive the necessary transformation.
To effectively address this kind of resistance, it’s essential to implement a comprehensive change management program that communicates the importance of the shift. Providing solid data, facts, and evidence that support the need for transformation can help build understanding and buy-in. By demonstrating the long-term benefits and aligning the team around a shared vision, companies can successfully overcome cultural resistance and transition to a more sustainable future.
Rapidly changing regulatory frameworks
The challenge of evolving regulations in climate strategy is another significant hurdle for companies to navigate. With a constantly changing landscape of disclosure frameworks and compliance requirements, businesses face difficulty staying updated. The regulations span across two broad types: those focused on financial materiality, such as future-facing, risk-based, scenario-driven frameworks, and those that focus on impact, assessing past performance and environmental or social consequences.
Companies need to implement robust regulatory monitoring systems and dedicated teams to track and interpret evolving climate regulations. They should also invest in scalable solutions that integrate the latest climate change models and disclosure frameworks to maintain compliance across jurisdictions. Creating a culture of continuous learning and adaptation and leveraging external expertise, such as consultants, legal advisors, or solution providers specializing in carbon management such as Unravel Carbon, can help companies stay compliant with regulations.
Complying with the bare minimum for climate strategy
A prevalent trend among companies is the tendency to approach climate action as a compliance-driven, box-ticking exercise rather than a strategic initiative. This mindset often leads to minimal engagement with the broader implications of climate change, potentially overlooking significant opportunities for innovation and competitive advantage.
A recent commentary by the Cambridge Institute for Sustainability Leadership even argues that a compliance-focused approach to sustainability reporting can leave businesses exposed to substantial risks and may erode shareholder confidence.
To address this issue, companies must view climate action as an integral part of their overall business strategy. This involves moving beyond mere compliance to actively engage with the strategic implications of climate change, thereby building resilience and accelerating the transition to a sustainable future.
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To recap, a climate strategy is a strategic plan that helps a company adapt to the economic transformation that climate change triggers.
Organizations that implement climate strategy into their business strategy will enjoy several key benefits, including cost savings, a larger addressable market, risk mitigation, business resilience, and most importantly, long-term value creation. Investors are demonstrating increasing preference for backing businesses that demonstrate they can succeed in a low-carbon economy.
Reach out to our team today to take a first step or accelerate your journey toward a sustainable, low-carbon future.
