A battle is underway over how businesses operate, with an emphasis on preventing climate change. This movement, which has been building for decades, gained momentum with the signing of the Paris Agreement in 2015. The agreement set ambitious goals to reduce carbon emissions and limit global temperature increases, ultimately aiming for net-zero emissions by 2050. This has led to the development of a new regulatory framework to work towards these goals, focusing on controlling businesses’ access to resources such as loans, insurance, and bank accounts.
International organizations like the UN have introduced sustainability principles and alliances, such as the Net-Zero Insurance Alliance and Net-Zero Banking Alliance, which aim to transition businesses towards net-zero emissions by 2050. Businesses that do not comply risk being unable to obtain insurance, loans, or banking services. Additionally, regulatory developments in the financial markets have led to the adoption of environmental, social, and governance (ESG) investing, where fund managers consider non-financial factors such as GHG emissions in their investment decisions.
The development of reporting standards has become a key aspect of this movement, with organizations like the International Sustainability Standards Board and the European Sustainability Reporting Standards setting guidelines for businesses to disclose GHG emissions and climate risks. These standards create legal liabilities for businesses that fail to report accurate and timely information, leading to penalties and potential criminal prosecution. The Corporate Sustainability Due Diligence Directive in the EU also establishes due diligence standards for businesses operating in the region, making them liable for failing to address climate change in their operations and supply chain.
The issue of greenwashing, the exaggeration of environmental action by businesses, is also being increasingly regulated globally. In the US, states are enforcing greenwashing through consumer protection laws, while the EU and UK have adopted new regulations to combat greenwashing and climate washing. This shift towards legal obligations for businesses to consider climate change in their operations is part of a larger debate over the role of businesses in addressing climate change, with implications for small businesses like Joe’s family-owned hardware stores in Florida.
For businesses like Joe’s, the potential impact of these regulatory changes is significant. They will have to shift their focus from purely profit-driven decisions to considering GHG emissions from their operations, suppliers, and products sold to consumers. Failure to comply could result in enforcement actions, loss of access to financial services, and legal liabilities for damages. While some see these changes as a necessary step to address climate change, others view them as an overreach into business operations. Ultimately, the ongoing legal developments in this area will continue to shape how businesses operate in the face of a changing climate.
