Want to stay competitive and lower your cost of capital? Start integrating climate change

"Climate change is not just a regulatory burden; it requires a fundamental shift in mindset. Businesses must recognise that addressing climate change is not only a necessity but also a strategic opportunity. By integrating climate change into your business model and reporting, you can secure your organisation’s future and realise substantial financial and competitive advantages."

Jose Hopkins, Founder and CEO Simplify Climate.

Winds of up to 82mph were recorded as Storm Ashley swept across the UK (Photo: Brian Lawless/PA)

We have outlined the key factors below, explaining why this shift in mindset is essential, with a particular focus on the financial impact:

1. Reduce your cost of capital – A key focus for CFO's

Adopting a forward-thinking mindset when it comes to climate change can directly reduce your cost of capital. Investors are increasingly incorporating climate-related risks into their decision-making processes. Companies with robust sustainability strategies are rewarded with lower financing costs, while those that ignore these risks face higher borrowing costs. Insurers are also reacting to the rising frequency of extreme weather events, with premiums projected to triple in the next six years. By shifting your mindset to proactively manage climate risks, your business can avoid escalating costs and negotiate more favourable financing terms.

Case Study: Ørsted’s strategic shift from fossil fuels to renewable energy significantly reduced its cost of capital. Investors saw Ørsted’s climate-focused approach as a reduction in long-term risk, allowing the company to benefit from better financing conditions. This illustrates how a change in mindset towards climate strategies can lead to tangible financial benefits.

2. Insurance premiums

   
   

Insurance premiums are expected to rise significantly—projected to triple over the next six years—as insurers factor in the increasing risks associated with extreme weather. Companies that adopt a proactive approach by investing in climate adaptation will be better positioned to mitigate these risks and secure more favourable insurance terms, ensuring long-term continuity.

3. Protect and enhance your brand reputation

   
   

Shifting your mindset towards climate leadership also strengthens your brand. Consumers, investors, and stakeholders now expect businesses to act responsibly on climate issues. Companies that ignore these expectations may suffer reputational damage, while those that embrace sustainability see brand loyalty and customer trust increase.

Case Study: Unilever’s proactive mindset on sustainability, exemplified by its Sustainable Living Plan, has enhanced its brand reputation. Brands like Dove and Ben & Jerry’s, which align with sustainability values, have consistently outperformed competitors, showing how integrating climate strategies can boost brand reputation.

4. Minimise disruptions from extreme weather

   
   

A shift in mindset towards climate resilience is essential for safeguarding your operations from the impact of extreme weather events. Floods, storms, and droughts can halt operations, damage infrastructure, and disrupt supply chains.

Water scarcity, driven by unsustainable consumption levels, is another growing concern.

Case Study: Toyota’s experience during the 2011 Thai floods serves as a reminder of the importance of climate risk management. The floods halted production and disrupted supply chains, but Toyota has since incorporated climate resilience into its operations, strengthening its supply chain to reduce vulnerability to future disruptions

Conclusion

We are transforming and simplifying the integration of climate change. It is crucial for businesses to increase their understanding and start the integration of physical and transition risks related to climate change as this is crucial for long term strategic success.

Email help@simplifyclimate.co.uk to schedule a discussion with our consultants.

Sources:

Global property & casualty insurance premiums expected to more than double to USD 4.3 trillion by 2040, Swiss Re Institute forecasts | Swiss Re

How Higher Property Insurance Premiums Mirror Climate Risk - Knowledge at Wharton (upenn.edu)

The critical role of cost-of-capital in net zero transitions | World Economic Forum (weforum.org)