At the start of August this year, the IPCC issued its latest report providing a scientific assessment of the climate crisis. This was the first of three parts of its assessment report and warns that the window to avoid the worst impacts of climate change is closing rapidly. Long-term business success relies, in part, on responding to the climate crisis and this report has already started to harden the expectations on businesses held by investors, policy makers, employees, customers and citizens. Here are some things companies now need to consider:
Targets to 2050 are not good enough
Unless you’re in a hard to decarbonise sector where the processes and technologies don’t yet exist to decarbonise any faster, 2050 is too far away. The IPCC report describes 2050 as a “minimum target” and plenty of businesses, notably those signed up to the Climate Pledge, are aiming to decarbonise faster. When you consider how fast the carbon markets are evolving (carbon prices rise above 60 euros to set new record), the financial effects of carbon border taxes, and the future possibility of an all-encompassing carbon tax, then it’s already clear there are significant bottom-line effects to cutting GHG emissions faster. Even leaving those considerations aside, the social licence to operate for polluting companies will be fast eroded as extreme weather events bring climate change into people’s homes and towns.
A 2050 commitment also tends to signal the lack of a short-term (2-3yr) plan to get there, which will increasingly contribute to negative effects in the capital markets. Earlier this month Moral Money interviewed Henry Fernandez, the chief executive of MSCI (a leading ESG ratings agency), who said: “I believe that climate is going to be much bigger than ESG…Because the Paris agreement calls for 2050 targets, there are a lot of people that think that we have 30 years to go and that the progress will be like a hockey stick. And I tell them, ‘No, no, no.’ There will be a reallocation of capital and a repricing of assets in the next few years. This thing is happening now and it will accelerate.”
Net Zero on paper is worthless
The idea of Net Zero is facing increasing amounts of criticism as the ‘net’ bit is seen by some as a licence to keep polluting by paying to offset business-as-usual emissions. This is already a poor place to be in terms of corporate action and subsequently reputation, but as the Science-Based Targets Initiative hardens its requirements for companies, and the media continue to focus on issues in the offsets markets, being overly reliant on offsets (particularly avoided emissions, rather than investing in nature-based solutions like ecosystem restoration) will become an increasingly untenable position and an outright reputational and financial risk.
Businesses with sustainability challenges need to innovate and agitate
“We’ll be taking [the IPCC] report with us to the courts.” – Kaisa Kosonen at Greenpeace. Following the court room successes of climate activists against corporates this past year, the IPCC report gives more ammunition to those seeking to challenge the inaction of businesses and governments in the courts. This means legal risk will further become another reason for big businesses to invest and innovate in solutions that can be scaled to solve problems. Beyond R&D, corporates should also be looking to lobby for policy changes that will hasten the creation of investment cases or new markets. Governments have been too slow to act and unclear policy pathways just mean wasted capex, so not only does proactive lobbying demonstrate action to corporate stakeholders and activists and improve reputation, it saves cash.
Companies need positive narratives about solutions not commitments
The choice between 1.5 and 4 degrees is purely a social and political one. The IPCC report makes clear that drastic action now means 1.5 is possible. Partly because of the IPCC reports, climate change is now one of the top concerns for voters in many countries – the current German election is incredibly focused on the issue. As awareness of the problem increases so does the desire for solutions, which are not the same as commitments. Businesses first need sustainability plans that are integrated into their business models, and then they need to communicate regularly what they are doing to solve problems at scale. That is easier to do if you are Tesla vs. a chemicals manufacturer or textiles maker, but the climate crisis affects us all and everyone has a role to play. There is always a good narrative to be found for companies that are doing something to solve problems.