Will Algarve companies survive climate change?

Direct or indirect climate risks can bring difficulties to companies

It is unanimous that climate change is an increasingly visible and present phenomenon in our lives and in the lives of companies, and this is a problem that cuts across all sectors and not just a problem for large oil companies.

Talking about climate change today is not a conversation about something that is yet to come. Climate change is already very present in our daily lives and throughout the world.

Direct or indirect climate risks can cause difficulties for companies, and complications for them to anticipate their future activity.

On the other hand, your assets may become unusable, their appreciation may be penalized or even financing costs may increase significantly.

Of course, each case is different and the pace of this impact of climate change also depends on the economies where these companies are operating.

In recent years, climate change has changed companies' ability to create value in the long term, and they have had to adapt to mitigate the effects already present.

Effects such as prolonged periods of drought, anomalous weather, floods or hurricanes tend to have negative impacts on companies' productivity and the profitability of their assets, which become unproductive or economically unviable. There are also increases in the expenses that companies have to make to protect themselves from these risks associated with climate change.

In the case of the Algarve, from an economic point of view, these climate risks are increased, mainly because it is a region with a high dependence on the tourism sector, which is the region's main economic driver, and with a micro and small business sector .

The most evident effect of climate change in the Algarve is water scarcity.

The region is widely known for its sun-beach and golf tourism products. Those who usually provide these services are companies linked to the hotel sector and tourist enterprises that bring together a whole set of stakeholders, such as restaurants and similar, real estate and local commerce, which directly or indirectly participate in this economic flow on which the region lives and depends to survive.

Out of curiosity, the activities mentioned above, overall, represent around 40% of gross value added and employment in the region.

Given this fact, the Algarve has a business ecosystem highly exposed to the risks of climate change.

On the financial side of the problem, climate risk, for example, can affect cash flows futures of companies, which, instead of applying their gains in long-term investments or in R&D to improve processes or create new products or services, have to use them in short-term expenses and strategies, to mitigate the effects negative climate impacts that are already present in the region's economy.

But this problem is just the tip of the iceberg.

Because even companies' profits to support short-term costs can be equally compromised in the short term. The fact is that, recently, the Government decided to implement restrictive measures on water consumption in the Eastern Algarve, where, for example, there will be cuts of 20% (50% if there are alternatives for water reuse) in water consumption from fields golf. It is a hard blow for many companies, especially those in the tourism and agriculture sector.

However, it is not enough to cut water consumption. There must be a long-term strategic plan and action on the part of the Government, to guarantee the economic and business sustainability of the region.

Likewise, companies have to make an effort to adapt to this new reality, as, according to a PwC study, the Net Zero Survey Portugal, 60% of companies surveyed say they do not have a climate action plan. It's worrying.

Although the study sample itself is small, it highlights the “non-concern” of companies in preventing the impacts of climate change on their businesses.

Basically, it is essential to incorporate, from now on, new action and risk mitigation plans, as well as more practical and objective climate transition plans, so that the business sector linked to tourism in the region does not lose value in the long term.

Companies must adopt an active and more dynamic approach to this issue, as the problem does not just fall on “the next door neighbor”.

On the State's side, it should play the role of promoting solutions, mobilizing and streamlining the necessary financing so that there is promotion and incentives through various public and private financial instruments, to support the transition to sustainability, particularly for investments in carbon-free or low-carbon solutions, or, in the case of the Algarve, investments with a view to enabling the region with adequate infrastructure for water management and its use.

Therefore, it is not enough to simply replace plastic straws with paper, as measures of this kind only have an awareness-raising effect, as they will not have a major impact on the environment.

This is not the first, nor will it be the last opinion article on the topic of climate change, as, unfortunately, the message has to be constantly revived for the common good of all.

If we want change, we have to be the change!


Author Ricardo Proença Gonçalves has a degree in Business Management and a Post-Graduate Degree in Management of Health Units, from the Faculty of Economics of the University of Algarve. also holds a Executive Program in Management Control and Performance Assessment at Nova SBE. He is also an effective member of the Algarve Regional Delegation of the Order of Economists and a member of the think tanks «Thinking Algarve».

Note: article published under the protocol between the Sul Informação and the Algarve Delegation of the Economist Order



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