[This is the fourth part of a five-part series adapted from Dr. Noa Gafni’s report, The New Five Forces: A Blueprint for Business in an Uncertain World. To read more, see Parts 1, 2 and 3 here.]

In the third installment of this series on the New Five Forces, we examined how societal expectations, trust and accountability have become sources of competitive advantage. Yet societal expectations are only one dimension of the pressures businesses now face. The New Five Forces framework argues that organizations must navigate the convergence of Technology, Geopolitics, Society, Environment and Economy, all of which increasingly exert pressure from outside traditional industry boundaries.

We now turn to Environment.

The fourth force: Environment

This force is no longer about just corporate social responsibility, but operational and regulatory risk. The physical consequences of climate change now come with a price as premiums rise or coverage becomes unavailable in climate-exposed geographies. Supply chain disruptions, such as floods, droughts and numerous types of extreme heat events, interrupt agricultural production. These shifts now appear on balance sheets in ways that investors are beginning to quantify and analyze.

At the same time, the regulatory environment is not linear, but still accelerating. The long-term trajectory is clear, even as governments waver on climate regulation. Mandatory climate disclosures, carbon pricing and import tariffs linked to environmental standards will inevitably change the landscape for corporations. Companies cannot rely on the assumption of free or cheap environmental externalities. They must build business models that can withstand increasing climate-related complexity.

This is no longer a conversation about corporate values or stakeholder expectations. It is whether a business model that was viable in the 20th century remains viable under today’s environmental expectations. For a growing number of industries, from agriculture to insurance and real estate, the environment is now a risk factor.

The limits of externalizing environmental cost

Shein, a fast fashion brand, began in China in 2008 and scaled quickly through micro-trend identification, ultra-low pricing and direct-to-consumer logistics. The company processes tens of thousands of new product listings daily. Its rise, in terms of market share, was notably fast.

But it came with an extraordinary cost in environmental terms. Shein’s business model required the production of low-cost garments at volumes that conventional fashion supply chains could not match. Environmental externalities were embedded in the company’s structure, from synthetic fabrics derived from fossil fuels to production runs designed for single use and shipping logistics that prioritized speed.

Regulatory pressure began accumulating from multiple directions. The European Union’s Sustainable Products Regulation created compliance obligations that directly targeted fast fashion. France legislated a penalty on fast fashion deliveries. In the United States, Shein came under sustained congressional scrutiny. And young consumers, the core of Shein’s customer base, showed increasing awareness of their environmental cost. When environmental advocacy organizations began publishing lifecycle analyses of Shein garments, the company faced immense reputational pressure.

Shein has also been impacted by its reliance on cheap fossil fuels. As crude oil prices spiked in 2026, the cracks in Shein’s business model became apparent. Polyester and acrylic prices — both fabrics made from petroleum — rose sharply as a result. Shein also built its empire on air freight, and the sharp rise in fuel prices has had a noticeable impact. Shein has now acquired a sustainable fashion brand, Everlane, in an attempt to hedge its bets.

The Shein case illustrates the principle that business models built on the externalization of environmental costs are not sustainable businesses. They are businesses that have transferred the cost to a future balance sheet. The Environment force shows that the approach is no longer feasible.

This has direct implications for every organization that relies on the environment. We are no longer questioning whether environmental cost will be internalized, but through which mechanism, such as regulation, investor pressure or consumer behavior. Organizations that conduct an honest audit of their environmental exposure will avoid being blindsided by physical crises or regulatory mandates.

Key takeaways

• Environmental externalities are moving onto the balance sheet. Insurance pricing, supply chain disruption and investor scrutiny mean climate risk is now a financial risk. Sustainability reports are no longer sufficient.

• Business models cannot be built on cheap environmental costs. Shein’s case illustrates the principle that betting on environmental externatilities is a ticking time bomb. Companies that do so are becoming increasingly vulnerable.

• In the long term, regulation will prevail. Even with political wavering, we see a clear long-term arc of mandatory disclosure, carbon pricing and import tariffs. Organizations that ignore their regulatory climate exposure will be blindsided.

LEGO: three forces, one solution

LEGO sells more plastic by weight than almost any consumer products company. Their brick toys are made from acrylonitrile butadiene styrene, a plastic derived from petroleum. For a company whose brand is built on children, creativity and generational loyalty, this creates one of the most direct Environment force exposures in consumer goods. LEGO’s core product has a substantial carbon footprint.

The company’s response to the Environment force has been refreshingly honest. In 2020, LEGO committed to making all its core products and packaging from sustainable materials by 2032, backed by an investment of over $1.4 billion in 2023. But in the latter year, LEGO announced it was abandoning its attempt at a brick made from recycled plastic after it produced a higher carbon footprint than the original. LEGO publicly acknowledged that progress was slower than anticipated.

Simultaneously, LEGO’s Geopolitics and Economy exposure escalated with the US–China trade war. LEGO manufactures in China, and US tariffs created cost pressure in the US, its largest market. Even though LEGO is a European company, its response was to accelerate manufacturing in the US, building a new factory in Virginia.

LEGO’s Virginia factory addressed the convergence of all three forces. By manufacturing in the US for the North American market, LEGO eliminated its tariff exposure on Chinese-sourced toys. This reduced the company’s dependence on a geopolitically contested supply chain. And it shortened the distance between production and consumer by thousands of miles, cutting its carbon footprint.

The geopolitical, environmental and the economic problems were not solved separately. Rather, LEGO’s Virginia factory is a strong example of how a single strategic decision can effectively address multiple forces simultaneously.

Beyond Environment

This lesson extends beyond fashion, manufacturing and consumer goods. Organizations that once treated environmental concerns as matters of corporate responsibility must now recognize them as operational, strategic and financial realities. Climate risk and resource constraints increasingly influence supply chains, investment decisions and long-term competitiveness.

Yet environmental pressures do not exist independently of other business realities. Every adaptation, whether driven by sustainability goals, regulatory requirements or physical climate risks, ultimately carries economic consequences. Therefore, organizations must build environmental resilience and the financial flexibility to navigate an increasingly volatile world.

The next entry in this series will examine the force of Economy.

[Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.