HOW FIRMS REACT TO EXTERNAL EVENTS Leo Scrimshaw

HOW FIRMS REACT TO EXTERNAL EVENTS

The COVID-19 pandemic started on December 31st 2019, when several cases of pneumonia with an unknown cause were reported by the Wuhan Municipal Health Commission, and on January 12th, SARS-CoV-2 was identified. The virus continued to spread and was declared a pandemic on 11th of March 2020. There were many difficulties associated with the handling of the pandemic that caused social and economic strain, and these difficulties are of a very similar nature to the difficulties of dealing with climate change. Considering the handling of the COVID19 pandemic, and the impacts it had on businesses, the concern arises that the ongoing climate crisis and the mitigation of this could have the same, if not worse impacts on businesses.

During the COVID19 pandemic, businesses were hit extremely hard due to the global lockdown, so not even MNCs were safe. The lockdown meant that people all around the word couldn’t leave their homes for shopping as often as usual, so other than businesses selling essential goods such as supermarkets, had an extreme reduction in sales, therefore revenue. Many small businesses and lots of larger businesses such as M&Co and Go Outdoors, went into administration or were dissolved, this made many people unemployed. The spike in unemployment created a sharp decrease in GDP and disposable income, and this lack of disposable income means an even larger impact on businesses that are still running. The mitigation of climate change could have similar effects, as the transition to clean and/or renewable energy such as wind and nuclear power, is a very expensive process for the government and companies carrying out the process, therefore requires increased investment (shown in bar chart) as we expand our renewable energy capacity to meet the demands created by our reliance on fossil fuels. This investment would inevitably bring an increase in tax, meaning people would have less disposable income, so businesses selling non essential goods would suffer less sales revenue, therefore lower profit margins. Businesses will also have increased corporation tax, this combined with the reduction of sales can cripple a businesses cash flow.

A more positive impact of COVID19 on businesses, is that the pandemic and decline in sales meant that some businesses decided to innovate and remodel their businesses to function in this new environment. This innovation due to forced rapid decision making, included transitioning from a bricks and mortar business to an online business, operating virtually, or redesigning their products to be more relevant to the pandemic such as covid safe products or products that encourage social distancing or the usage of PPE. The drive for mitigating climate change and the transition to clean and renewable energy can also create innovation in businesses. Corporations are the biggest contributors to climate change, with only 100 companies being responsible for 71% of global emissions since 1988. Due to this comes strong legislation on businesses, such as SECR (Streamlined Energy and Carbon Reporting legislation) requires businesses of 250 employees or more, turnover of £36m or more or balance sheet assets of £18m or more to report all emissions in their end of year reports. This acts as an incentive for businesses to reduce emissions to create a stronger public image. To cut emissions, comes innovation in the way a business operates, whether it be more efficient transport to use less fuel, or remodelling the production plan to be more energy efficient.

It is clear that COVID19 and the handling of the pandemic had severe impacts on businesses and the economy, which put 900,000 small UK businesses at risk during the pandemic, and many high street retailers were put into administration. So, it is clear that one global crisis had these impacts, and it can also be assumed that a global crisis such as climate change, or more the mitigation of this crisis, will have similar, if not the same impacts on businesses.