Specialists urge businesses to make changes: those who ignore them promise sad scenarios

The specialists interviewed by “Tvari Lietuva” also identify the physical and transitional risks of climate change for business, explain why it will not be possible for companies to avoid these risks and what steps companies who want to reduce their impact on the environment should take first.

A. Rutkauskas: the physical risks of climate change also affect Lithuania

Audrius Rutkauskas, head of the Sustainability Department of SEB bank, points out that there are two types of risks associated with climate change – physical and transitional.

“In terms of the physical risks of climate change, Lithuania is in a certain “climate pocket” – a region where climate change phenomena are currently not as noticeable or extreme as, say, Southeast Asia or certain regions in South America. The phenomena of climate change are already strongly felt there and lead to changes in everyday life and business opportunities,” A. Rutkauskas clarifies.

“Nevertheless, physical climate risks also affect Lithuania: in the analysis prepared by the Lithuanian Hydrometeorological Service, Climate Change Risks in the 21st Century. for the middle of the year, the study indicates that moderate and significant droughts, high rainfall, and heat are most likely in Lithuania. When evaluating different scenarios of how the climate will warm, the regions of Kaunas, Klaipėda, Tauragė, and Panevėžys face an average flood risk,” he adds.

The specialist also emphasizes that it is most important to assess the physical risks of climate change for those business enterprises that work in certain sectors that are strongly dependent on climate factors, such as agriculture. Also for those companies with long and complex supply chains spanning several countries, some of which are already strongly affected by climate change, such as companies with suppliers in Asian countries. In addition, according to the “Tvari Lietuva” interviewee, real estate developers must assess the locations of the buildings under construction – whether they are located in areas with an increased risk of flooding.

A. Rutkauskas also points out that climate change can limit the cultivation of certain products.

“For example, already in certain regions where cocoa was traditionally produced in the past, it is becoming more and more difficult to do so, and in the future it may even become impossible, as a result of which cocoa prices are rapidly increasing. Climate change can also disrupt the normal chains of transportation of goods, for example, when the Rhine river in Germany collapsed, transport was paralyzed. Disruptions in logistics chains are also caused by floods in certain regions of South-East Asia”, – he mentions the impact of climate change on businesses.

The business will need to implement new technologies and adapt

According to A. Rutkauskas, companies may also face more than one transitional climate change risk.

“First of all, it is a risk arising from political will: legislation, new laws and directives that try to curb climate change and introduce certain restrictions. For example, laws and directives limiting the emission of greenhouse gases (GHG) into the atmosphere, setting taxes for the release of GHG into the atmosphere or legal liability for company managers who do not take care that the environmental pollution caused by their companies decreases”, explains the sustainability specialist.

“Such risks include legislation aimed at energy efficiency and building efficiency, how car manufacturers must gradually reduce average emissions, and regulation of banks to assess climate change risks in financing and thus transform capital flows, which would aim to move towards a zero-emissions economy,” he adds.

In addition, according to the interviewee of “Tvari Lietuva”, business enterprises face risks arising from consumer expectations and their changing needs.

“Consumers around the world are increasingly willing to use more sustainable products and are even willing to pay more for them,” he says.

According to A. Rutkauskas, the risks of climate change in the transition period for business also arise from the new technologies being implemented, which aim to move towards a zero-emission economy. For example, replacing natural gas with green hydrogen or technological solutions that allow high temperatures in production processes using electricity, carbon dioxide capture technologies.

The specialist points out that risks also arise from financing, European Central Bank policy, stricter requirements in the financial sector, limiting lending to unsustainable companies or increasing capital costs in the long term for companies that operate in polluting sectors and do not want to move on the path of sustainability.

“Finally, companies also face reputational risks if they get involved in “green brainwashing”, scandals related to the environment, pollution to residents or society,” says the interviewer of “Tvari Lietuva”.

“All this means that the business will need to implement new technologies, adapt, invest, and not only that – and constantly increase the competence of its employees, follow the market in order to take advantage of emerging pollution-reducing technologies in time and not lose competitive advantages,” he summarizes.

G. Žigienė: it will not be possible to avoid risks related to sustainability

For her part, Kaunas University of Technology (KTU) Faculty of Economics and Business Professor Gerda Žigienė emphasizes that those who ignore sustainability and those who condemn social responsibility almost inevitably still rely on the article by the Nobel Prize laureate, economist Milton Friedman, published half a century ago in the New York Times Sunday” magazine.

“Friedman’s main doctrine – the social responsibility of business is to increase value for its shareholders. One can continue to rely on this doctrine, which today means simply burying one’s head in the sand and waiting – “maybe it will pass.” But it won’t pass,” says the Tvari Lietuva interviewer.

“The environment in which business will operate over the next decade is a very clear indication that risks related to sustainability will not be avoided. Once upon a time, sustainability was considered a “soft” topic that was simply the subject of good advertising. That has changed. It must now be integrated into strategies and seen as a key business driver and risk mitigation tool, focusing on the ‘triple’ bottom line of the income statement: profit, people, planet,” she concludes.

Concentrating only on reporting is a short-sighted approach

G. Žigienė also emphasizes the fact that companies seeking to meet regulatory requirements should first start by focusing directly on sustainability reports.

Still, she says, focusing only on reporting is a short-sighted approach.

“Sustainability reports, like financial reports, should indicate which indicators have been achieved, but decisions to reach one or other numbers must be made earlier. For this, companies should first of all start with sustainability literacy within the company – the board and managers should deepen their knowledge together so that they can speak in the same terms and concepts”, says G. Žigienė.

“The next important step is clear leadership. It is not uncommon to delegate the preparation of sustainability reports to one of the managers (finance, marketing or human resources) as an additional function. But alone in the field is not a warrior, and sustainability is not an additional feature. It is an integral part of business processes in which all functional managers must participate. Therefore, it would be worthwhile for companies to organize internal training, to prepare a sustainability strategy – at the beginning it is possible as a separate document to refine the main lines, and then integrate it into the main company strategy”, she adds.

Daiva Dėdinienė, a member of the Board of the Lithuanian Responsible Business Association (LAVA), seconded G. Žigienei. She advises companies that want to follow the path of sustainability not to rush, not to try to jump on the departing train and not to rush to write sustainability reports.

“Sustainability reporting should not be the main goal of companies. It is the final stop where the results of how the company managed to achieve the set goals are revealed,” she says.

According to the specialist, companies should first assess their situation, the requirements applied to them, and identify the most significant areas.

“If the company (or its group) is a large public interest company and is already in the first stage of application of the Corporate Sustainability Reporting Directive (CSRD), it is likely that most of the sustainability processes will already be implemented, only certain processes and requirements should be revised according to the newly adopted European sustainability reporting standards (ETAS), including assessment of dual significance”, points out the interviewee of “Tvari Lietuva”.

“The second phase of BTAD application will cover all large companies and their groups that meet 2 out of 3 criteria: balance sheet assets – more than 25 million; EUR, annual income – more than 50 million. EUR and the number of employees – at least 250. These companies will be required to disclose sustainability information in 2025. in the management’s annual report. There is no obligation to disclose it for other small and medium-sized companies,” she adds.

According to D. Dėdinienė, in any case, if you decide to start on the path of sustainability, you need an initial starting point.

“It would be ideal if the company had internal capabilities and could assess not only the impact of its activities on the environment and people, but also remember that we are not in a closed bubble – the environment, ongoing processes (climate change, processes in the value chain, perhaps the lack of raw materials or their prices fluctuations, regulatory environment) also affect the company’s activities, its value, the ability to attract capital, investments”, the interviewee mentions.

She also emphasizes that if the company does not have internal capabilities, at least in the beginning, in order to avoid the panic of “where to start”, it is possible to hire external consultants.

D. Dėdinienė also says that if we used to talk about organic products as healthier and more expensive, it is likely that in the near future it will be the opposite: unsustainable packaging, unsustainable projects or production processes will be more expensive due to higher taxes applied to them, higher interest rates on loans granted by banks etc.

“The fact that climate change is happening is no longer discussed even by the biggest skeptics. It is beginning to be realized that there is no planet B”, emphasizes the interviewee of “Tvari Lietuva”.

According to the sustainability specialist, company employees themselves are increasingly interested in companies’ sustainability strategies.

“For them, not only wages are important, but also a friendly and safe working environment, opportunities to improve and raise qualifications. Business ethics are no less important than environmental and social areas. Risk management and activity planning are relevant for every company. After implementing and properly applying all three aspects of sustainability, the business gains a huge advantage in the long term,” says Daiva Dėdinienė.

“Companies that live today do not have a business vision, a long-term strategy, they are today’s existential entities without the ability to adapt to changing business conditions. Without assessing the impact of the company on the environment and people, without setting goals to reduce that impact, in the long term companies will not only be unable to enter new markets, attract capital investments, receive financing from banks, but they will also face increasing taxes due to non-compliance with sustainability principles, which will automatically increase losses. will reduce the ability to compete with more sustainable companies,” she adds.