Climate change has a significant impact on Finnish businesses

30.1.2020

Deloitte has conducted a study for the Confederation of Finnish Industries (EK) on the impacts of climate change on the Finnish business environment by 2050. The study examines the effects of climate change on different continents and the cross-border impacts of those effects on Finland.

According to the study, companies will face large-scale impacts due to changes in other countries and continents. The physical changes posed by global warming have a significant impact on global value chains, particularly in terms of access to raw materials, logistics routes and the location of production. Particularly Finnish companies acting internationally will face significant changes in the operational environment.

Climate change mitigation actions and adaptation to the physical changes brought by the warming cause societal changes that particularly affect how legislation, technology, migration, access to skilled labor, and investment decisions take shape in different countries.

The study examines the effects of climate change through a scenario analysis with 2050 as its target year. The scenarios are based on two variables that are central for the future of Finnish business:

• What future path will global warming follow? The study examines 4°C and 1.5°C pathways, which represent the extremes in current climate change discussion
• How will the global trade policy develop? The study examines the trade policy directions of protectionism and free trade.

With the current climate targets and actions, the world is heading towards a 3°C warming pathway. On the current path, Finnish businesses need to be active in both climate mitigation and adaptation.

What kinds of changes should Finnish companies be prepared for?

The study examines the effects of climate change through a scenario analysis with 2050 as its target year. Future scenarios were created by examining alternative global warming pathways and trade policy directions. Each scenario identified recurring phenomena for which all companies in Finland should prepare:

Changes in supply chains. More frequent extreme weather phenomena will affect where companies outsource, what kinds of logistics routes they use, and transportation costs –or whether familiar raw materials, intermediate goods or services remain available at all.

Circular economy. The price of raw materials may have risen due to either reduced availability and continued overconsumption or the desire to limit their use in order to reduce emissions and to protect the environment. Both options will increase the need for circular economy solutions.

Climate risks for finance and investment. Both the 4°C and 1.5°C global warming pathways imply physical changes in the environment, which are addressed by shifting investments towards low-risk countries. Low carbon investment targets are the clear winners on the 1.5°C pathway in particular.

Competence development. The impacts of climate change will require new competencies within companies and industries. A situation where raw materials are scarcer, and industries are restructuring will call for continuous investment in competences and product development.

Adapting to climate change and preparing for the resulting changes in the business environment will help companies to anticipate changes in production and cost structures; fluctuations in customer expectations and demand; to assess the profitability of their investments; to get ahead of and differentiate themselves from competitors; and to seize new business opportunities.

What actions should Finnish companies take? 

Each company’s value chain is different. Therefore the physical and societal changes caused by climate change and their impacts on business should be further studied from the perspective of individual company in question. There are four steps to take:

1) Map your own value chain in terms of climate risks: Which are the continents and countries, where changes would have a relevant impact on your operations?

2) Build a knowledge base: What kinds of physical impacts and societal changes can climate change be expected to cause in these areas? Which variables influence the expected changes, and what kinds of future scenarios can be created on the basis of these variables?

3) Conduct a scenario analysis: How would different future scenarios affect our own business? Which common elements exist between different scenarios that we can expect to happen with relative certainty?

4) Define follow-up measures: How should we prepare for the identified impacts? What strategic and operational decisions should we make, and on what timeframe? What are the costs and benefits of the measures?

To future-proof the direction of your organization, the impacts from climate change should be included e.g. in business environment reviews done as part of strategy processes.

Please don’t hesitate to contact if you would like to discuss more about the topic!

Nina Killström
Sustainable business services
nina.killstrom@deloitte.fi
+358 (0)40 7725 889

Lauri Byckling
Managing Partner,
Clients & Industries
lauri.byckling@deloitte.fi
+358 (0)40 5132 226