Since Donald Trump’s return to the White House, the United States has taken an everything-everywhere-all-at-once approach to disrupting the domestic and global status quo, and sustainability and climate commitments have been among its first targets. Trump immediately signed an executive order withdrawing the US from the Paris climate agreement, and his administration then cancelled funding for clean energy projects under the Inflation Reduction Act and the Bipartisan Infrastructure Law. Against this backdrop, some companies are quietly downplaying or abandoning their previously announced environmental and climate commitments.

But no amount of shock-and-awe policy disruption in one country compares to the disruption caused by climate change. Already, the financial costs from disrupted global supply chains – owing to water stress, biodiversity loss and land degradation – are projected to reach up to US$25 trillion by 2060.

Businesses that fail to manage these risks will face higher costs, increased regulatory scrutiny, and reputational damage. For example, automakers that are slow-playing the transition to electric vehicles may find themselves scrambling to catch up as more governments enact legislation to phase out internal combustion engines in the coming years. In time, legacy auto brands are likely to face the same kind of scrutiny and reputational fallout that oil and gas producers have.

By contrast, companies that proactively build greater resilience throughout their businesses and supply chains will benefit from greater investor confidence, and thus lower capital costs. For example, the champagne brand Taittinger has opened a vineyard in Kent to manage the risk that climate change poses to production in France.

But with the climate finance industry focused mostly on the net-zero agenda ( reducing emissions ), physical risks and climate adaptation needs have not received the attention they merit. As a result, banks, asset managers and ( especially ) insurers are sitting on a time bomb of potential liabilities. Adapting to a world characterized by biodiversity loss, water stress and other risks is now crucial to maintaining corporate profitability over the long term.

Far-sighted countries and companies will recognize that this upheaval represents an opportunity. In separate studies, McKinsey Sustainability and the World Business Council for Sustainable Development estimated the economic opportunity represented by the sustainable transition at US$12 trillion per year by 2030.

Similarly, Kantar BrandZ assessments show that perceptions of sustainability enhance brand equity ( value in the eyes of customers ), drive sales and allow brands to command a premium. Yet even as sustainability perceptions add as much as 10% to the value of the top 100 brands, these companies are still leaving an estimated US$600 billion on the table. The next decade of business will be defined by companies that recognize sustainability as an economic imperative, rather than just a regulatory requirement.

Economic power is shifting fast with the impending generational transfer of wealth. In the US alone, the transfer of wealth from baby boomers ( born between 1946 and 1964 ) to millennials ( 1981-96 ) and Gen Z ( 1997-2012 ) could amount to US$84.4 trillion over the next 20 years.

As millennial and Gen Z consumers become more dominant in the marketplace, they are seeking brands that reflect their values, and chief among these is a preference for mutualism over individualism: a sense of community and shared responsibility for collective gain in the face of anticipated uncertainty and adversity. In this context, businesses like Airbnb, Vinted and Ikea are stealing a march with brand communications that focus on cooperation, community, and a sense of belonging. Airbnb’s stated purpose, for example, is to “create a world where anyone can belong anywhere”.

Most of the business community understands what it at stake. In Kantar’s work with the Climate Governance Initiative, 88% of board directors told us that climate change requires new thinking and new forms of leadership from top executives to the workforce, and 84% viewed climate-related challenges as opportunities for business innovation.

As global business leaders increasingly recognize the need for a new mindset, one finds more and more brands exploring circular business models – such as reuse, repair and rental – that allow them to differentiate themselves, strengthen customer loyalty, and unlock new revenue streams. Ikea’s Cirkulär initiative, for example, uses financial rewards, humour and green imagery to encourage customers to buy and sell used Ikea items, decoupling growth from the production of new items.

As global markets increasingly focus on business resilience and respond to the rise of industrial policy and longer-term investment strategies, companies that adapt to generational change will be best positioned to lead the next industrial revolution. We are experiencing much more than the shock of US policy shifts. To remain credible in the eyes of consumers and investors, brands and businesses will have to get serious about building climate resilience into their operations – whether by addressing single points of failure in their supply chains or by implementing robust crisis and recovery plans.

For businesses, the need to adapt to climate change isn’t going away, and neither is consumer demand for sustainable solutions. Globally, 85% of people surveyed still want to make “greener” choices in their purchases. Companies that shun, renounce, or postpone climate-attuned strategies do so at their own peril.

Jonathan Hall is a managing partner of the sustainable transformation practice at Kantar, a non-executive director at Water Unite and a member of the executive council for the Oxford Future of Marketing Initiative.

Copyright: Project Syndicate