Stakeholders respond to climate
These reactions comprise risks and opportunities for business
The biggest challenge was that Arguzo was not utilizing technology properly. Too much of the work was still being recorded manually, which meant that the numbers took a long time to note down and then to be analyzed. Live data was also not available and decisions can only be made after all the required data and been received. This was holding Arguzo back; they knew they could corner more of the market if they had the ability to be more mobile. The work addressed three critical issues for Pharm Ltd.:
- Improve sales and operations and production planning:
The teams focused their efforts on a few of the highest-value S&OP levers in order to review the current planning process, identify gaps in the planning infrastructure and analytically understand demand and supply variability. - Determine the right inventory level:
With hundreds of medications in the market, Pharm Ltd. needed a proper method to predict and manage their inventory. Using a mean absolute percentage analysis (MAPE), the teams defined appropriate levels for raw materials and finished products by mapping actual versus forecasted sales on the most important SKUs. -
Optimize the supply chain for perfect order planning:
The diagnostic determined the stressors that affected sales and service levels. The teams focused on resolving issues related to higher-than-normal back-orders and lead times, which stressed the entire supply chain and led to delays in medications reaching consumers.
Key questions
Understand the
playing field: What
evidence do you have
of stakeholders’ views
of your services and
operations?
What are the risks and
opportunities for the
business?
Understand the
influencers and the
chain of influence: Do
your shareholders have
a significantly different
view than that of other
stakeholders? How will
stakeholders influence
each other and
influence shareholders?
How do you monitor
how quickly you should
move?
Be ahead of the curve:
What is the specific
correlation between
climate-related events,
the role of the company
in such events (if any)
and the subsequent
stakeholder reaction
against the company?
Do you understand the
cost of action versus
inaction?
Key trend
There are both foreseeable and unpredictable
stakeholder reactions to climate-related events,
presenting economic and non-economic risks
and opportunities for companies.
Your stakeholders may include a combination of
investors, shareholders, litigants, non-governmental
organizations (NGOs) and activists, governments,
communities, suppliers, customers and employees.
These stakeholders are increasingly focused on
climate-related matters. This is due to a better
understanding of climate change risks and increasing
political and activist positioning. Extreme weather
events like hurricanes, fires and floods, and reports
like the Intergovernmental Panel on Climate Change
(IPCC) Sixth Assessment Report, Climate Change
2021: The Physical Science Basis, only serve to
heighten this awareness.
Relevance to chairpersons and boards
The economic risks of these stakeholder behaviours
and reactions to climate events can include
changing cost of capital, more frequent and more
successful litigation, policy change increasing the
cost of doing business, a reduction in customers or
difficulty in sourcing suppliers who can comply with
your emissions targets.
Reputational risks may include an inability to gain
traction and influence with stakeholders, including
governments and NGOs, and difficulty in attracting
and retaining the best talent for your company.
More high-impact actions or reactions could present
existential threats to companies, including material
legal actions, significant financing impacts or even
violence or attacks on company assets or staff.
Stakeholder reactions to a company policy or
proposal may not always be the result of a clear
causal link between the company and the issue
of concern.
The coincidence of events, rather than causation,
can be a more significant factor in reaction severity.
Another indication of stakeholder reaction severity
is the alignment between a company’s actions and
current stakeholder expectations – the expectation
gap is an important indicator for the board to monitor.
In the Deloitte Global 2021 Millennial and Gen
Z survey,1
60% of respondents indicated fear
that business will deprioritize actions to combat
climate change in the aftermath of the pandemic. If
companies can find ways to both prioritize climate
change and address challenges stemming from
the pandemic, they will be ahead of the curve and
more likely to gain stakeholder support.
Call to action
It is increasingly important to understand your
stakeholders’ views on climate events and risks,
as well as how your stakeholders may influence
each other in their position on these risks or
company operations. For example, community
responses to new projects may influence the
actions of governments or NGO positioning may
influence investor behaviour and demands.
Opportunities to be proactive and position your
company ahead of emerging issues balance the
challenges of stakeholder reactions to climate events.
By taking real and authentic climate action, aligned
with stakeholders’ evolving expectations, companies
can thwart greater impacts and potentially more
harmful reactions, and differentiate themselves from
competitors. Monitoring and reporting changes in
stakeholder sentiment ensure that companies’ actions
are aligned with the expectations of their stakeholders.
The surest way to avoid stakeholder pressure
(especially high-impact responses) is to take rapid,
meaningful, measurable steps to mitigate and adapt
to climate change.
Stakeholders increasingly understand climate risk and action
They expect companies to set targets and anticipate and mitigate the risks
Deloitte reviewed stakeholder reactions to technology
and physical climate-related events in order to test
potential implications in a pragmatic fashion – i.e. by
testing against actual responses to past events.
This review considered the greatest sensitivities and
concerns to each stakeholder group, how each
group reacted to historic climate-related events,
which events caused unexpected or strong reactions
and how these reactions are likely to change in the
future, including possible high-impact responses.
Across and within stakeholder groups there are
varying views on the need and urgency for climate
action. Gender and age also play a role, with men
being generally more sceptical than women about
climate change and older people being generally
more sceptical than younger people. While in
developing nations the biggest determinant of strong
supportive views on climate action is education, in
developed nations such as Australia, the US and
United Kingdom the two biggest determinants are
political ideology and worldview.2
In 2022, climate-related issues dominated the top
ten most severe risks on a global scale over the
next 10 years according to the World Economic
Forum’s Global Risks Perception Survey. The report
recognizes the consequences for stakeholders will
be far reaching: a loss of agency for individuals, loss
of control for governments and loss of market share
for businesses.3
For those who hold firm views against climate
change action, extreme climate events appear to
have little impact. However, for those undecided on
the topic, these events can have a major impact on
driving them to be in favour of action.
Most severe risks on a global scale 2022
Stakeholders increasingly react to climate risk
While behaviour drivers are somewhat known, there is high unpredictability
What is driving behaviour?
The rapid rate of climate, technological and social
change in recent years has disrupted traditional
business models and systems, with impacts rippling
through families, communities, organizations,
governments and nations.
Stakeholders are reacting to these changes in
both foreseen and unforeseen ways. The volatility
and unpredictability of these reactions are also
increasing as stakeholders grapple with the extent
of changes. The pace of climate-related changes,
such as the manifestation of physical impacts,
scientific consensus and technology development,
is increasing. Future climate-related events include:
– IPCC reports and climate conferences,
government or multilateral policy changes;
– Increased cyclones impacting equipment
supplies, operations and customer shipping
(e.g. Hurricane Ida);
– More extreme droughts, bushfires and floods
causing
– Unpredictability
Unpredictability in stakeholder
responses can stem from a concern or fear that
possible changes may impact their interests,
whether community or financial. Academic
research indicates that a lack of clarity on what
the changes mean for stakeholders can drive
irrational fears and unpredictable behaviours.
The unpredictability of stakeholder reactions
to these and other events in response to the
accelerating pace of change is likely to increase.
Events not related to climate (e.g. environmental
disaster caused by a company) can also trigger
reactions that do relate to climate:
– Foreseen reactions
Where they were once
the domain of activists and “early adopters”
of climate action, climate issues are now
becoming mainstream and embedded in the
institutional responses of many stakeholder
groups, including investors, litigants, NGOs and
governments. Participants in a consultation
process with a multinational client forecast an
incremental increase in the severity of reactions
from stakeholders over time.
– Unforeseen reactions
There is a view that
the cumulative effect of a growing focus on
climate change, combined with catalysts such
as extreme weather events or forecasts within
major scientific reports, has the potential to drive
step changes in reaction severity. Increasing
linkages and interactions between stakeholder
groups can also drive high-impact reactions
outside of historical norms, such as material
legal actions from combined stakeholder
groups, significant financing impacts or even
climate-inspired cyber terrorism.
Millennials and Gen Zs fear business leaders
are not currently focused on protecting the
environment.
60% of respondents fear business will
deprioritize combatting climate change in the
aftermath of the pandemic.4
Understanding Stakeholder views
Stakeholders act individually –but also influence each other
It is increasingly important to understand your
stakeholders’ views on climate events and risks,
as well as how your stakeholders may influence
each other’s position on these risks or company
operations (e.g. community responses to a new
project will influence governments; NGO positioning
will influence investors). Figure 3 provides an
example of individual stakeholder influence on
other stakeholders. It does not describe individual
stakeholder influence or importance but rather
a method to understand the interactions across
stakeholder groups. Read the table in rows to
understand how one stakeholder group (in the rows)
influences the behaviour of another stakeholder
group (in the columns). This exercise should be
tailored to your sector, region and business.
Individual stakeholder influence on others
Each stakeholder presents different trade-offs
Climate action is imperative but boards and their stakeholders need to
understand the near-term trade-offs
Questions chairpersons should be asking
Understand the playing field
What information will assist the board in
balancing the interests of all stakeholders,
including shareholders?
What level of engagement with various
stakeholders is appropriate for the board?
Whose interests are aligned and competing?
Which stakeholders’ interests will have the
most influence over other stakeholders?
Calculate cost of action and inaction,
prepare a programme of work,
monitoring and evaluation
What is the plan of action?
The final key is to question and understand the cost of action versus inaction, which will inform the programme and schedule of work to prepare.
Monitor the situation and influence pathways
closely to ensure you implement the work
programme at the right time and can accelerate it
if necessary.
Understand the influencers and
the chain of influence
What information will assist the board in
balancing the interests of all stakeholders,
including shareholders?
What level of engagement with various
stakeholders is appropriate for the board?
Whose interests are aligned and competing?
Which stakeholders’ interests will have the
most influence over other stakeholders?
Analysing the associated risks of the potential reactions
What are the risks to the business?
Economic risks include the increasing cost of capital, compensation payments
via litigation, policy change – including carbon tariffs, the increasing cost of doing business, fewer customers or difficulty sourcing supplies.
What trade-offs (financial and non-financial) may you need to make?
Non-economic risks include an inability to gain traction and influence with
stakeholders, including NGOs, and difficulty attracting and retaining the best talent
Be ahead of the curve
What is the specific correlation between
climate-related events, the role of the
company in that event
(if any) and the subsequent stakeholder
reaction against the company?
Once you understand the influencers, what
are the actions to prepare for:
– Foreseeable reactions
– Unforeseen and unpredictable reactions
(due to the lack of correlation) to climaterelated events.
Do you understand the trade-offs your
stakeholders are increasingly required to
make decisions on?