This article is part of a series dedicated to guiding corporate leaders and sustainability practitioners along their climate journey as they work to build business resilience in a rapidly changing environment.
It lays out the case for an ambitious transition to sustainable business in simple language, cutting through the noise and exploring the facts, but it also provides actions and strategies on how to get started, illustrated by best practice case studies from major companies.
We can no longer take for granted just-in-time supply chains, or continued demand, supply, and travel for economic growth. Black swan events like the ongoing COVID-19 outbreak have driven this point home.
It's incredible how quickly unprecedented capital has been mobilised in the face of these unsettling times. As South Pole's CEO Renat Heuberger points out, this investment should be used as a longer term force for good.
The current situation may unfortunately be a foretaste of what's to come if we don't address climate change – a slower moving, systemic risk. Disease pandemics often follow extreme weather disasters and, much like other shocks, spread faster among the less privileged and hit more vulnerable populations the hardest. There are also less obvious, causal links between how we manage the natural world and viruses that spread like wildfire. Recent scientific research shows that by clearing forests for agriculture, for example, we are unleashing diseases from their natural havens, and these pathogens are infecting livestock and human communities.
COVID-19 has highlighted the fragility of our modern world, but also exposed the shortcomings of corporate resilience in the face of a rapidly changing landscape of risks.
The economic fallout, including a likely recession, will test all business models. Shareholders, stakeholders, and the public will ask increasingly more difficult questions about the long-term security of their investments, pensions, and the businesses that hold together the fabric of society. Financial and planetary debt, and how they are governed, are at the top of this resilience agenda.
Before COVID-19, the 2020s were already shaping up to be the perfect climate storm of pressures on business, focusing attention on their sustainability response and credentials like never before.
This reflects both the burgeoning investment in the green economy and a shift in the political and cultural agendas. This year, for example, wind and solar will account for most of the additions of new generation capacity in the US. Joe Biden, the Democratic party hopeful, is campaigning for an investment of US$1.7 trillion of federal money in clean energy over the next decade. The European Commission meanwhile unveiled a plan to unleash €1 trillion until 2030 under the European Green Deal, on top of efforts by individual EU Member States.
Mark Carney and Michael Bloomberg's Task Force on Climate Related Financial Disclosures (TCFD) has responded to investor concerns by creating a dedicated reporting framework around climate-related risks. This is designed to align the US$12 trillion market capitalisation of 1000+ signatory companies with a carbon constrained economy, by allowing them to scrutinise investments for climate risks, and maximise the opportunities for green growth.
Such industry initiatives go hand in glove with regulatory action. New regulatory drivers are impacting the political economy in a way that forces corporate climate action. The TCFD framework will for example be integrated in the EU's revamped Non-financial Report Directive, now up for public consultation. The groundbreaking piece of legislation may however be the EU's Sustainable Taxonomy, a classification system for sustainable assets and activities. This is bound to have ripple effects across markets around the globe.
Bellwether eco-celebrity brands (think Tesla and Impossible Burger) are increasingly in the public eye, as are philanthropic commitments, such as Amazon CEO Jeff Bezos's US$10 billion climate fund. Celebrities such as Leonardo Dicaprio have turned to climate activism with his documentary 'Ice on Fire', while climate activist CEOs are no longer a thing of the future, with people such as former Unilever CEO Paul Polman leading the way. Multilateral fora such as the International Platform on Sustainable Finance will accelerate the dissemination of regulatory principles and practices.
The 'Greta effect' has galvanised a new generation of activists and spilled over into the mainstream. A more vocal and informed public is demanding that commitments from businesses reflect the true scale of the climate challenge and are underpinned by real, measurable action on the ground. This sentiment is shared by consumers and employees, with the latter being seen to take stands on employers' pledges – or lack of – on climate action.
Despite the mounting coverage on extreme weather, there is still a yawning gap between a 'science-based' decarbonisation pathway to limit global temperature rise to 1.5-degrees and the aggregate climate commitments from governments.
The Paris Agreement, which was due to come into force this year at the COP26 climate summit, enshrines country carbon reduction resolutions – through policy commitments to change to energy and transport infrastructure, among many other things. However, as they currently stand, national commitments would at best limit warming to a 3-degree rise.
This shortfall must be met by a wholescale transformation of business. From efficiency improvements and technology changes to, most importantly, a fundamental shift in corporate strategy in order to align with the necessary transition to low carbon.
The vast majority of businesses are yet to embark on their climate journey in a meaningful way. Only 850 have so far committed to setting science-based targets, and only 350 have actually set them. Big business, such as Microsoft and BP, have made welcome commitments to a net-zero pathway, but they are the tip of the iceberg. It remains to be seen whether all these ambitious pledges will be achieved within the timescale that science requires.
At what point does the business case for climate leadership move from piecemeal plans to strategic priority? Where and how to start? An encouraging number of companies are starting to ask these critical questions – and not a moment too soon.
Today, business risk is global. This means that companies must look at global trends, including pandemics, and how they will affect commercial activities. In this vein, climate change is one of the main drivers of global systemic changes that will have consequences on the same scale as the current outbreak we are witnessing.
Long-term sustainability, competitive advantage, and the ability to create shared value in the face of growing systemic risks will not become any easier for companies. Multinationals with global supply chains need to understand and take measurable action on their climate risks to build resilience – today.
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