On April 4, the Intergovernmental Panel on Climate Change (IPCC) published the third and final installment of its current review of climate science. The report makes clear that there’s a rapidly closing window in which to align to a net zero pathway and avoid the worst impacts of climate change.
The figures speak for themselves. While the rate of growth in global greenhouse gas (GHG) emissions between 2010 and 2019 was lower than between 2000 and 2009, it continues to rise. According to the report, global GHG emissions must peak by 2025 at the latest to limit global warming to within 1.5C. Current nationally determined contributions to reducing emissions are not sufficient to achieve this aim.
The IPCC stresses the importance of policy in reaching this goal. Frankly, however, waiting for meaningful policy interventions has not served us well in the past. The stark reality is that the business community needs to act now, even in the absence of clear regulatory frameworks.
Meaningful shifts already underway
Fortunately, there’s good reason to hope that profound change is possible. This is because the financial markets now have a much clearer-eyed understanding of the risks and opportunities of climate change and are factoring sustainable practices into their investment decisions.
And to be clear, it is also about more than ESG-branded financial projects. Rather, we’re seeing structural change in the way mainstream investment decisions are made. Finance is fast becoming conditional on coherent and achievable climate action plans. Finally, the full impact of the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD) – which ERM helped write the technical guidelines for – is clear: capital will flow to the most sustainable businesses.
The actions and tools to make sustainable business a reality
Given the urgent need to decarbonize, businesses leaders should take several immediate steps. These are actions that climate change leaders are already undertaking, and they promise to drive profound but achievable change to the way in which business is conducted.
Firstly, and as TCFD makes clear, companies must do more than just pay lip service to sustainability through, for example, climate/sustainability reports. Rather sustainability must run through the corporate DNA. In practice that means initiatives such as teaming Chief Sustainability Officers with Chief Planning Officers to enable a deeper integration of climate crisis mitigation into the commercial planning of organizations. With climate risk also a key item for the Chief Financial Officer, digital solutions such as ERM's Climate Risk Impact and Solutions Platform (CRISP) can enable companies to evaluate and respond to climate-related financial risks and opportunities across the organization's global footprint.
Secondly, it means setting clear direction and accountability to the people that run the business, across all functions, to find new ways to drive sustainability and reduce emissions. Our work with the Environmental Defense Fund to create a ‘climate action accelerator’ is just one example of new tools and resources emerging to help companies up their game across the board.
Take regulatory affairs as just one example. Businesses that are taking a lead in fighting climate change have tasked their lobbyists with a strategic priority: to ask government to legislate for sustainable business. For instance, one large organization we work with is lobbying for a market framework to promote investment in and development of carbon capture technologies. Another client is lobbying for a regulated carbon price. Another still for a tax regime favorable to green investment. These leaders know that policy can be slow to materialize and are doing everything in their power to push things along.
And thirdly, on a highly practical level, companies need to ramp up investments in technology options for reducing or storing carbon, such as the use of clean hydrogen and offshore wind and electrification. Through our work to create sustainable energy technology pathways, secure funds for pilots – like the ground-breaking Dolphyn offshore hydrogen project in the North Sea – and scale up established technologies like wind and solar, we can see the most impact is made by companies that can blend strategic direction in the boardroom with practical implementation on the ground.
Think business policy, not government policies
Policy is important insofar as it helps ensure that all people are pulling in the same direction to combat climate change. However, competing national interests and the tendency for short-term economic goals to be prioritized over tough climate-related decisions continue to limit progress – and it is unlikely that will change from a policy perspective any time soon.
Businesses will increasingly lead the way and through internal, organizational policy shifts will reorient operations, processes, logistics, and products to reduce carbon emissions and mitigate the worst impacts of climate change. This shift will happen because the financial markets demand it. Put simply, corporate climate action is becoming a precondition for financial support.
So, while the IPCC report carries a clear warning that time to address climate change is running out, there is every reason to think we can rise to the challenge through rapid corporate action. The tools are available, the direction is clear - the time to act is now.