Climate change has been identified as the top global risk in Global Risk Report 2016 by World Economic Forum. Failure to mitigate and adapt to climate change is closely linked to natural catastrophes, extreme weather events, water and food crisis which in turn will result in large scale social migration and social instability. Without ensuring growth in employment rate, protection of labour and human rights, social inclusion and responsible economic growth, low-carbon economy will not be enough to mitigate long-term risks and ensure the long term survival of the human race.

With Paris agreement being ratified, by more than 55 countries that contribute more than 55% of global carbon emissions, effective from 4th November 2016, we can expect new mechanisms and understanding of co-operations among different countries. These new mechanisms should not only strive for zero carbon or carbon neutral economy but provide a path-way for holistic green economic growth.

The INDCs (Intended Nationally Determined Contributions) submitted by each of the countries are to be reviewed every 5 years. Each government will create strategies to achieve the INDC targets and the target will be broken down to industrial sectors and subsequently to different enterprises. New business strategies need to be created, to analyse the anticipated macro-economic changes in political, economic, social, technological, environmental and legal scenarios due to climate change agreement:

Political: New standards related to increase in renewable energy generation and procurement, usage of renewable material, increased energy efficiency and operational efficiency is expected. The policies should strive for low-carbon not only in direct carbon emissions but also ensure carbon reduction in all phases from cradle to grave. Automotive industry shall need more investments in electric vehicle due to air pollution regulatory requirements. In India, as per Electricity tariff policy 2016, renewable purchase obligations (RPO) have been increased from 3% by 2019 to 8% by 2022 and all states are given targets on solar power implementation. Ten of the large corporates in India are entering into direct power purchase agreement with renewable power producers such as Re-New Power, CleanMax and First Solar.

Economic: Due to the change in political environment, the economic environment is bound to react to climate change. Investment in renewable energy generation, low-carbon technologies, efficient technologies and mass transit systems is likely to increase. It is to be expected that economic environment shall be more conducive to investment in these areas. Carbon markets in different regions shall see a boost, and taxes on use of fossil fuel may be introduced and implemented. Luxembourg Stock Exchange has introduced the world’s first exchange which is to trade only green securities and it predicts issuing $71.8 billion climate friendly bonds in the year 2016.

Social-cultural: Social inclusion is critical in successful mitigation and adaptation of climate change. Social pressure for low carbon product and sustainable product is constantly increasing and will continue to increase. A climate change conscious society will lead to more scrutiny of the enterprises, as well as governments on the issues related to climate change including social, environmental and technological sustainability. In early 2016, hundreds of activists protested to stop the exploration of oil and gas field in Utah followed by protest against fossil fuel exploration at Wyoming. With increased social vigilance on climate change, increased flow of interested talents and social awareness on health issues related to climate change is also expected.

Technology: All sectors shall have to increase R&D for new low carbon and energy saving technologies to meet the low carbon goal. New business models, such as circular economy and shared economy, will be used by various industries for resource optimization, recycle and reuse, thereby reducing ultimate carbon footprint. ‘Internet of Things’ enabled digital platforms will also increase, and enable overall resource optimization and improving efficiency through real time information. Auto giants like Ford and General Motors have already invested in sharing economy. Followed by GM’s investment of $500 million in Lyft, GM plans to deploy its own self-driving cars within Lyft’s ride-sharing service in the future, according to GM’s CEO.

Environment: Understanding overall environmental impact, other than carbon emissions, of the product is also necessary for ensuring environmental sustainability. For example, nuclear power generated electricity has carbon emission factor almost equal to renewable energy, and the average lifecycle GHG emission is 29 tCO2/GWh, however, the acceptance and usage of nuclear power for reducing GHG emissions from power generation is debatable.

Forest degradation, pollution and waste generation has direct impact on climate change. The policies and standards around environmental issues such as air pollution, afforestation and reforestation and waste management will be strengthened. CAMPA (Compensatory Afforestation Management and Planning Authority) has been implemented at national and state level in India in 2016 to compensate for the diversion of forest.

Legal: Increased enforcement in implementation of rules and regulations are likely. Due to the policy changes and resulting implementation of policy, regulations around energy, waste management and pollution will be tightened to meet the long-term goal of climate change mitigation and adaptation. Strong implementation of penalty structure for failure to meet the stipulated regulations is likely. The upcoming Law, Justice and Development Week at Washington DC, from 5 – 9 December 2016, having the theme of ‘Law, Climate Change and Development’ will play an important role in development of legal and regulatory framework to achieve target from the Paris agreement.

Understanding and analysing the macro-economic changes anticipated due to the climate change agreement will provide enterprises an advantage in adjusting to the upcoming changes in the economy. Digital platforms, enabled with ESG related big-data and data management, will help companies to stay ahead of the curve during the time of transition.