100 days to COP21: Why should business take impactful action on climate change?Polly Courtice
More than any other COP that has gone before COP21 will place greater emphasis for action at the door of business. But why should businesses be expected to take a lead, and can they be trusted to do so?
The simple answer is that it is in their interests to do so. The risks and opportunities are enormous. So businesses that are thinking for the long term will do what they can. But they can’t get far on their own.
The World Economic Forum 2015 Global Risks Survey identifies failure of climate adaption as one of the top four high-impact, high-likelihood risks, alongside water crises, under/un-employment and interstate conflict. These risks are increasingly materialising on the balance sheets of major companies: Honda lost more than $250m when the Thailand floods damaged its car assembly plants, and quarterly profits at reinsurer Munich Re declined by 38 per cent after more than $350m in claims from Australia’s 2010–2011 floods.
According to the S&P Global 100 Index ninety per cent of companies identify climate risk, including extreme storms, flooding, drought and supply-chain disruptions, as a current or future threat to business.
The flip side of all these risks offers countless opportunities for businesses willing to innovate in order to be part of a low carbon future, and ever growing numbers of companies are grasping this direction of travel.
The Global Commission on the Economy and Climate has estimated that the business opportunity is a US$5.5 trillion global market for low carbon technologies. Indeed, just recently, one company – the global insurer, Aviva, itself a member of CISL’s ClimateWise insurance industry initiative, announced that it would invest £2.5 billion over five years into low carbon infrastructure.
In fact, companies in the CDP Climate Leadership Index outperformed the Bloomberg World Index of top companies by over 9 per cent for the past four years. And more than half of the Fortune 100 companies are together saving around US$1.1 billion per year from energy efficiency, renewable energy, and other emissions reduction initiatives.
It’s these economic benefits that can be realised from tackling climate change that have prompted innovations, collaborations and new ways of doing business. Sustainable development is increasingly recognised by company boards as a driver of value creation and is subject to increasingly ambitious targets and tougher measurement. This value goes beyond cost efficiencies to transform existing markets, enter new markets, get ahead of regulation, and ensure continued competitiveness.
At CISL we believe those companies that have the greatest power and influence, mainly those at the pinnacle of the value chain, are best placed to foster positive change. For example, Unilever, alongside a number of other trailblazers, has decoupled its environmental footprint from its underlying sales growth, by taking a transformational approach across its value chain, in order to secure long-term growth.
But we need to see more businesses setting bold ambitions on sustainability, and collaborating with each other as peers. For example, Walmart is a major source of global palm oil demand but, despite its size, by itself has relatively modest influence over complex palm supply chains in Asia. However, with other large companies in the Consumer Goods Forum, as well as government and finance partners, it is achieving greater leverage over palm production systems to combat deforestation.
However, it’s disturbing just how little trust society holds in business leaders. According to Edelman’s 2014 Trust Barometer just one in five of us trust business leaders to solve social or societal issues, and even less trust is placed in our politicians.
So what’s the role for government if we don’t trust them either? It is clear that the change required is systemic and significant – we are talking about a fundamental transformation of our economies. This cannot be achieved by business leadership on its own. Governments need to provide business and civil society with a strong, transparent and accountable policy framework to help deliver a strong low carbon economy, as well as collaborate with business to secure positive action.
With this in mind, we need a clear signal for COP21 in December that the world is committed to a low carbon transition. This must include a clear direction of travel that is a long-term goal, indicating the required transition, accompanied by political buy-in from all countries that provides clarity and a level playing field. Finally, we need to be able to have confidence that this will be a transformation of our economies, with clear commitments from governments to regularly set new targets and increase ambition. It is therefore more imperative than ever that the global agreement on climate change from Paris sets the tone for short-, medium- and long-term action post Paris.
This post is in the #100DaysToParis series from CISL.