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Research Paper

MGTS7610Management Communication

Topic: Climate Change


Name: YuJie Wang
Student Number: 43966840
Tutors Name: Ken Tann
Date & Time Submitted to Blackboard: 11:20 7 May 2016

Abstract
Traditional energy companies are facing serious challenges of climate change
nowadays. This paper examines three internal challenges and three external
challenges that are troubling those companies. In order to help traditional energy
companies have sustainable growth of business under those difficulties, the author
argues that it is considerable for those companies to receive prior warnings of perils of
climate change and know how to control them by comprehensively presenting two
feasible solutions consisting of risks-warning systems and climate resilience.

Introduction
Climate change is a challenge but also an opportunity for traditional energy
companies. Considering that traditional energy companies belong to the group of
climate-change sensitive business, a large amount of them are confronting internal
and external risks of climate changes nowadays. The combined effects of inner and
outer problems have made them suffer great loss in both their tangible and intangible
asset portfolios. In this research paper, I will categorize six challenges of climate
change into internal and external risks for traditional energy corporations. Then I
would like to provide two viable solutions about building up effective risks-warning
systems and climate resilience, which are aimed to supply constructive insights and
tactics for those vulnerable energy companies exposed in changing climate to discern
hazardous scenarios and manage negative impacts with effective strategies.
Problem1
Traditional energy companies are facing internal risks comprising financial, physical
and credit risks of climate change. Internal risks here represent perils that derive from
the interiors of fossil fuel corporations because of climate change. In the following
three paragraphs, the details of the inside challenges will be elaborated respectively.

Firstly, as for financial risks, heavy additional costs like energy taxes are imposed on
those corporations generating coal, oil and gas. Actually, 63% of the accumulative
global warming emissions of industrial carbon dioxide and methane was produced
from 90 companies between 1751 and 2010, and 87 among the 90 companies were
traditional energy companies (Goldenberg, 2013). Under such circumstance,
high-emission fossil fuel corporations are forced to pay massive energy taxes, which
is considered to be an increasingly heavy burden for a large amount of traditional
energy companies. Apart from energy taxes, another financial risk of climate change
traditional energy companies are suffering is the lack of new investments. Since the
risks of climate change have been added to the cost of traditional energy corporations,
the whole industry is falling out of favor from capital. Because a great deal of capital
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has been transformed to green energy industry and sustainable business practices
and losing liquidities for further business operations.

Secondly, the physical risks of climate change is related to profound damages of fossil
fuel corporations own transportation channels due to more frequent natural disasters
like flood and hurricane. As the balance of the earths climate system has been
disturbed by mass greenhouse gas emissions since the Industrial Revolution
(Abatzoglou et al, 2015), more and more natural catastrophes derive from the climate
change. The fossil fuel industry is very reliant on marine transportation and
high-quality ports with adequate facilities. Considering the sea level is rising gradually
and floods continually occur in many costal cities with premium harbors for cargoes,
traditional energy companies are likely to meet tough problems about seeking for safe
alternatives to discharge and conserve their assets, such as oil and coals. Moreover,
as for gas, which is transferred by pipelines on the ground, is also influenced by
severe climate events. Since increasing numbers of hurricanes and hail storms
happen under climate change, those exposed pipelines are easily destroyed and
damaged.

Thirdly, as for credit risks of climate change, the creditworthiness of traditional energy
companies is eroding on account of the increasing business risk exposure to lower
international oil price and heavier carbon taxes. Considering the serious greenhouse
effect on the earth mostly from consuming fossil fuels such as coal, oil and gas
(Goldenberg, 2013), many countries are searching for green and renewable energies
like nuclear and solar energy as alternatives. Given that situation, the international
crude oil price is deteriorating. At the same time, the higher carbon taxes are levied
from traditional energy companies by governments. Due to the two reasons
mentioned above, the credit ratings of wholesale traditional energy companies are
downgraded by authorities like Standard & Poors. Considering that credit rating is an
important evaluation reference for investors and shareholders when they choose to
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invest a company, lower credit rating of traditional energy corporations signifies


escalating business risks and unsuitable investing environments.
Problem2
Not only internal risks, traditional energy companies are also facing external risks
including policy stringency, reputational and market risks of climate change. External
risks mean challenges and pressures surrounding fossil fuel corporations under the
issue of climate change. Specific contents about the exterior risks will be
demonstrated in this next three paragraphs.

More and more stiff policies and legislations related to control greenhouse gas
emissions are introduced to deal with the issue of climate change, which actually
burden traditional energy corporations to follow the harsh requests of climate change
regulations, e.g. clean air act, carbon dioxide act (Demertzidis et al, 2015). According
to Paris Agreement, an international framework convention dealing with climate
change, one of the ultimate objectives agreed in this treaty is to manage to control the
global average temperature increase below 1.5 above pre-industrial levels, which
requires all parties to the Paris Agreement to mitigate the greenhouse gas emission
and cultivate sustainable development (United Nations, 2015). As major producers of
greenhouse gas emissions and major offenders to climate as well, traditional energy
companies definitely become an obvious target of this climate change mitigation
project. Under such circumstance, regulations about carbon-based emissions will be
more stringent on fossil fuel industry. For example, litigation concerns will haunt over
the traditional energy companies and shake investors expectations of the prospect of
this business.

Then as far as reputational risks are concerned, traditional energy companies are
undergoing great mistrust and pressure from the public since they are regarded
generally to be responsible for multiple climate change aspects like global warming.
Large-scale natural resources extraction movements including exploitation and
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relevant processing procedures can tremendously change the surrounding


eco-systems and trigger social fractions (Franks et al, 2014). As a typical natural
resources extraction industry, when traditional energy companies are exploiting coal,
oil and gas, they will inevitably devastate the surrounding environments during the
process. Considering some damages have contributed to climate change, such as
acid rain and sea level rise, consumers and the local communities have
consciousness to boycott traditional energy business with protests and parades
(Demertzidis et al, 2015). Accordingly, the reputations of traditional energy business
among stakeholders are gradually fading away and hard to be rebuilt at present.

As for market risks, it is a trend that climate change has accelerated the development
of new technologies for utilizing clean energies with lower greenhouse gas emissions
instead of traditional fossil energies. Numerous energy consumers, such as
transportation and manufacture industries, are moved from traditional fossil fuels to
renewable and environmental friendly energies like nuclear and bio-energy with
immense investment potentials. It signifies traditional energy companies are losing
markets from their emerging competitors.
Solution1
In order to tackle inner and outer challenges of climate change, it is imperative for
traditional energy corporations to develop comprehensive risks-warning systems to
monitor and evaluate negative scenarios of climate change which are threatening
business growth. Basically, this risks-warning system contains three main aspects
including building accurate climate models for probing severe climate events,
appraising the competitiveness from rivals of new energy industry and monitoring the
relevant policies about climate change.

Firstly, for building up climate models, they are mathematical models of climate
systems, which can contribute to help corporations understand past, present and
future climate and weather conditions (Australian Government, 2015). Extreme
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weather events like ultrahigh temperature and hurricanes always threaten traditional
energy corporations transportation channels including marine and pipelines. With the
assistant of such climate models, companies would be more conscious about which
geographic areas have high incidences of severe climate events through analyzing
climate data of targeted regions.

Then in terms of reckoning the competitiveness from rivals, traditional energy


companies can rely on the risk-warning system to know the development of their
competitors from new energy industry like wind and biofuel. Exxon (2015) anticipates
that global energy demand will escalate approximately 35 percent by 2040. At the
same time, traditional fossil fuels including oil, gas and coal would still be the top three
in the global demand by fuel list. While new energies like solar, wind and biofuels will
have much higher average annual growth rates than traditional fossil fuels (Oil:0.8%;
Gas:1.6%; Coal:0.1%; Nuclear:2.3%; Solar/Wind/Biofuels: 5.8%). Under such
situation, traditional energy companies ought to stay alert to this trend for the rapid
growth of new energy industry all the time with the help of risks-warning systems.

The third aspect is about tracking the relevant policies against climate change. In
other words, traditional energy companies need to know actions towards climate
protections from the local governments of their existing and targeted markets.
Concerning the collective goal in Paris Agreement (2015) mentioned on the third
paragraph, decreasing the greenhouse gas emission is one of the top priorities for
worldwide governments at this time. Undoubtedly, policies and legislations related to
climate change will be generated. For example, carbon price will increase and harsh
standards of greenhouse gas emissions from industries will be launched. In this case,
traditional energy companies can exert risks-warning systems to monitor tendencies
and attitudes of the local policymakers towards climate change mitigation from their
markets, then incorporate some policy makers into companies risks warning
committees, which can help companies to make strategies in reactions to different
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situations timely with periodic risks evaluation reports.


Solution2
Apart from building up risks-warning systems, it is also worthy for traditional energy
companies to develop climate resilience to meet challenges of climate change. Like
the risks-warning system, climate-resilient system can be divided into three parts as
well. Specifically, they are committing corporate citizenship, running sustainable
business and implementing enterprise risk management procedure.

Firstly, in terms of committing corporate citizenship, it is a constructive way for fossil


fuel corporations to reshape their image among the public. According to Exxon s
corporation citizenship report (2015), as one leading fossil fuel producer in the world,
Exxon fulfills its social and environmental responsibilities in actions. For example, it
satisfies increasing global energy demands with the buildup of eight new upstream
projects worldwide, makes commitment for excellence in safety culture and invests in
the future with reduction in emissions (Exxon, 2015). It is a very inspiring case for
traditional energy companies wanting to rebuild their public reputations which have
been damaged due to their responsibilities for climate change. Managing corporate
citizenship requires traditional energy companies to be proactively responsible for
their stakeholders expectations. Specifically, traditional energy companies need to
provide safe workplaces for employees, promise to reduce carbon emissions and
maintain local environments for general consumers and paying taxes in time to
governments.

Secondly, as for running sustainable business, it means fossil fuel corporations should
absorb eco-sustainability into their business modes. Dauvergne and Lister (2013)
cites a prediction from the World Business Council for Sustainable Development that
there will be a more than $6 trillion market for sustainable business over the next two
decades. Considering it is urgent for traditional energy companies to transform their
carbon-based business modes, adding the rapid development for new energy industry,
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it is a right time for fossil fuel industry to seek cooperation with new energy companies.
Namely, fossil fuel corporations can supply sufficient financial supports to new energy
industry like wind and biofuels, in order to produce hybrid-energy products with lower
carbon emissions to atmosphere.

Thirdly, for enterprise risk management (ERM), it is deemed as a management tool


allowing managers to make adjustments towards adverse scenarios which have been
pinpointed (Ramani, 2015). Traditional energy companies are advised to utilize the
ERM process to address the challenges pointed out by risks-warning systems. For
instance, in case of physical damage of transformation channels like pipelines and
marine under severe weather incidents, fossil fuel corporations can choose to pave
pipelines or discharge cargoes including oil and coal on relatively safe locations after
relying on risks-warning systems to collect and compare climate data of specific areas.
Moreover, corporate environmental report is also one method belonging to the ERM
process. Fossil fuel companies are encompassed around huge pressures from
stakeholders like consumers and governments. Therefore, it is effective for
corporations to take real actions towards climate change mitigations instead of
rhetorical claims. Then they publicize what they have done to the public with routine
environmental reports, because customers and other stakeholder would like to see
companies espousing social responsibility (Mason & Mason, 2012). Enhancing
connections with governments is another effective ERM process. It requires traditional
energy companies to build up positive communication and coordination with the local
governments in their existing and targeted markets. Effective communications
contribute to neutralize the conflicts between fossil fuel companies and governments
in the issue about climate change including high carbon taxes and stiff emission
standards.

Evaluation
In summary, there are two limitations of the two solutions which need to be known at
first. One limitation is that neither risks-warning systems nor climate-resilient systems
have been put into practice by massive traditional energy companies at present (P.S.
It Is not excluded some companies utilize similar strategies to deal with their problems
of climate change. For example, Exxon mentioned above analyses data of annual
average growth rate of new energy industry and tries to fulfill its corporate citizenship).
The other one is that it is probable for traditional energy companies to meet an array
of new climate change challenges in the future for which the two proposed methods
would be not enough. However it is still obvious that both of two solutions can play
critical roles to help traditional energy companies to maintain stable growth of
business during such a tough time. Risks-warning systems make fossil fuel
corporations more aware of risks they are facing and climate resilience improves
companies vitality under threatens of climate change.

Reference List

Abatzoglou, J., Dimento, J., Doughman, P., & Nespor, S. (2014). A primer on global
climate change science. In J.F.C. Dimento & P. Doughman (Eds.), Climate
change: What it means for us, our children, and our grandchildren (pp. 15-52).
Cambridge, Massachusetts: MIT Press.

Australian Government. (2015). National climate resilience and adaption strategy


2015. Retrieved from
http://www.environment.gov.au/system/files/resources/3b44e21e-2a78-4809-87
c7-a1386e350c29/files/national-climate-resilience-and-adaptation-strategy.pdf

Dauvergne, P., & Lister, J. (2013). Eco-Business : A Big-Brand Takeover of


Sustainability. Cambridge, US: MIT. Retrieved from
http://site.ebrary.com.ezproxy.library.uq.edu.au/lib/uqlib/detail.action?docID=10
672790

Demertzidis, N., Tsalis, T. A., Loupa, G., & Nikolaou, I. E. (2015). A benchmarking
framework to evaluate business climate change risks: A practical tool suitable
for investors decision-making process. Climate Risk Management, 10, 95-105.
doi:10.1016/j.crm.2015.09.002
Exxon. (2015). Exxon corporate citizenship report 2014. Retrieve from
http://cdn.exxonmobil.com/~/media/global/files/corporate-citizenship-report/201
4_ccr_full_digital_approved.pdf
Franks, D. M., Davis, R., Bebbington, A. J., Ali, S. H., Kemp, D., & Scurrah, M. (2014).
Conflict translates environmental and social risk into business costs.
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Proceedings of the National Academy of Sciences, 111(21), 7576-7581.


doi:10.1073/pnas.1405135111
Goldenberg, S. (2015). Just 90 companies caused two-thirds of man-made global
warming emissions. The Guardian. Retrieved from
http://www.theguardian.com/environment/2013/nov/20/90-companies-man-mad
e-global-warming-emissions-climate-change

Mason, M., & Mason, R. D. (2012). Communicating a green corporate perspective:


Ideological persuasion in the corporate environmental report. Journal of
Business and Technical Communication, 26(4), 479-506.
doi:10.1177/1050651912448872

Ramani, V. (2015). View from the top: How corporate boards can engage on
sustainability performance. Retrieved from
http://www.ceres.org/resources/reports/view-from-the-top-how-corporate-board
s-engage-on-sustainability-performance/view

United Nations: Durban Platform for Enhanced Actions. (2015). Framework for the
convention on climate change. Retrieved from
http://unfccc.int/resource/docs/2015/cop21/eng/l09.pdf

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Self Assessment

The biggest problem for my pre-writing process was that I got confused about some
discourse-specific lexis. Climate resilience was one expression I was unfamiliar
before. I utilized Google to check its meaning, and I understood climate resilience
would be an effective solution for climate-sensitive business. Another problem was my
research plan because I failed to develop a specific plan about how to write my paper.
Luckily, tutor gave me useful instructions to assist me rewrite a clearer plan outlining
specific items I will write in my paper.

During writing process, the biggest problems were genre and lexicogrammar, as I was
uncertain whether I used proper English grammar and clear SPSE structure in
research paper. In order to solve this problem, I inquired tutor and my classmates to
help me review my draft and received constructive suggestions on structure and
grammar. I know that in order to let my paper become more explicit for readers, it is
better to divide my problem and solution parts into small paragraphs with clear topic
sentences.

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