Corporate leadership in the decade of delivery – Our last best chance for 1.5ºC
By Jen Austin, Policy Director at The We Mean Business coalition
We find ourselves at the beginning of a critical decade, one in which the impacts of climate change are clearly evident, and growing worse, every day. It’s a time when, despite all our efforts to date, emissions are still rising and we are running out of time to turn the tide.
At the same time, we are at the point of major breakthroughs in many solution areas, and see the beginnings of exponential growth in others. Peaking emissions and getting to net-zero in time to limit warming to 1.5ºC is still within our reach – but not for long, and only if we move quickly, courageously and collectively to get there.
Corporate leadership on climate change must continue to go from strength to strength. To truly drive progress, the next urgent step is to spring into action – implement those commitments and advocate strongly and consistently for the policies needed to move the entire market. Clear support for ambitious policy is critical to ensure the growing action in the private sector is reflected in the policy decisions being made around the world this year.
Climate action is not optional
Myriad analyses and evidence shows there is a pathway to net-zero emissions in every sector, including the traditionally high-emitting sectors such as steel and cement. Bold action by a growing group of leading companies and a handful of countries proves it is possible and economically feasible to reach net-zero emissions, while the escalating cost of inaction makes it clear that the zero-carbon transition is the only viable option.
The fallacy of thinking we can have long-term, sustainable economic growth without tackling climate change is dead. Businesses and the global economy face growing material risks from climate impacts which are already hitting bottom lines.
The Economist Intelligence Unit estimates that climate change could directly cost the world economy $7.9 trillion by mid-century, particularly in developing countries. And the World Bank found that without urgent action, climate impacts could push an additional 100 million people into poverty by 2030. The rising costs of the recent Australian wildfires is estimated to have surpassed AUS$100 billion, not to mention the devastating loss of human life, impact on wildlife and property.
Investors are waking up to this reality. In his influential annual letter to investors, BlackRock CEO Larry Fink highlighted how climate change is creating a “fundamental reshaping of finance.” A £30 billion ($39 billion) UK pension fund – Brunel Pension Partnership – has threatened to fire investment managers that do not take action on the climate crisis. While US bank State Street’s $3.1 trillion investment arm is planning to vote against company boards that lag behind on environmental, social and governance standards. Last year the European Investment Bank agreed to phase out its multibillion-euro financing for fossil fuels. And more than 370 investors with over $35 trillion in assets under management have signed on to Climate Action 100+ to help drive corporate action on climate change.
The increasingly apparent risks are waking up investors, while at the same time, companies that have assessed their own risk and set emissions reduction targets are outperforming their peers. Data from STOXX shows that the CDP A List – of companies that scored highest on climate action – has outperformed its global benchmark by an average of 5.5% per annum over a seven-year period. Plus a recent study shows that companies committing to 100% renewable electricity with RE100 are achieving above-average financial performance.
Signs of progress
Along with the awareness of climate change and its impacts, the signs of progress are also growing.
Renewable power is now cheaper than polluting fossil fuels without subsidies in most countries, electric vehicle (EV) sales are growing exponentially and set to reach cost parity in the next few years, meaning the end of the internal combustion engine this decade is well within reach. EV deployment continues to outpace many forecasts and automakers are investing heavily in the EV future. In 2019, the EV market share reached 4.7% in China and 3.8% in Europe, while fossil fuel vehicle sales dropped 4.7% globally.
Analysis from the Energy Transitions Commission details viable pathways to decarbonize even heavy industry by mid-century, and companies have begun to experiment with solutions from synthetic biofuels to zero-carbon steel and carbon-negative cement.
With the right policy support, these solutions offer businesses opportunities as well as delivering significant benefits to human health and well-being. With a concerted effort to shift demand and financing away from polluting activities and into zero-carbon technologies, products and services, we can build a prosperous zero-carbon society.
To get on track this decade, business and government leaders both have a critical role to play, and an obligation to act.
Action and advocacy
Serious corporate leadership on climate in 2020 requires action and advocacy. Lofty ambition is not enough, and going it alone will not get the job done. It requires companies to both develop and implement robust strategies to reduce emissions in line with 1.5ºC and advocate strongly and consistently for policies to shift the market.
The number and scale of companies committed to taking action on climate change is growing every week, with more than 1,180 companies now committed to one or more of the We Mean Business coalition partners’ initiatives. A growing number of these companies – now over 180 – are committed to cutting emissions in line with the goal of limiting global warming to a maximum of 1.5ºC and to being net-zero emissions by 2050 at the latest.
Given the urgency and economic imperative, it’s time for all companies to assess their risk, and update their corporate strategies to account for climate change by committing to climate action in line with the 1.5ºC trajectory.
For companies starting out on this journey, the first step is to measure, assess and disclose emissions and climate risk through CDP reporting and by aligning with the recommendations of the Task Force for Climate Related Financial Disclosures.
Companies looking to take action should set a science-based target that’s aligned with the goal of limiting global warming to a maximum of 1.5ºC. To help achieve that target, companies are urged to commit to 100% renewable electricity, to switching to smart energy use and to accelerating the transition to EVs through The Climate Group’s initiatives of RE100, EP100 and EV100.
Companies must then build on their climate ambition and action by advocating for ambitious climate policies – ensuring all their direct policy advocacy and the policy advocacy of any of their trade groups is aligned with their overall climate strategy, and that they are not working against themselves.
The 2020 policy landscape
The success of the Paris Agreement and of society’s ability to address climate lies in our ability to come together and move quickly. This requires a clear and consistent policy framework that gives companies and investors the clarity and confidence to invest decisively in zero-carbon solutions.
Public support for climate action has never been louder, highlighted by the millions of young people that took to the streets in the recent waves of school strikes and protests. 2020 offers several key moments in which companies can make their voices heard to help embolden policy makers to take decisive climate action. Leading companies have a vital role to play in empowering governments to step up their climate ambition and action.
2020 is the year in which all the signatory countries of the Paris Agreement are invited to formally communicate updated nationally determined contributions (NDCs). In order to achieve as smooth and rapid a transition as possible, countries must chart a clear plan for decarbonization, and the NDCs are a prime opportunity to do so. Strengthening NDCs and 2030 targets in line with a 1.5ºC trajectory – as well as committing to achieve a just transition to economy-wide net-zero emissions by 2050 at the latest – gives companies and investors the information they need to invest in solutions. In doing so, they can help to create new jobs and economic benefits alongside the health and environmental benefits of reducing emissions.
While it is important for all countries to increase their climate ambition and action in 2020, a few of the largest economies responsible for the vast majority of global emissions will be most closely watched for increases in ambition and clear plans to achieve those targets. Companies are looking for ambitious policies that give them the clarity and confidence to invest in these markets.
When world leaders meet, no matter the formal agenda, climate is now a hot topic of discussion. For example, at the World Economic Forum in January, the five most likely economic threats identified for discussion can be summarized in word – ‘climate.’
The G7 summit in June, hosted by the US, will be a clear moment when citizens and businesses look to governments for leadership on climate change. It will also highlight the growing disconnect between the Trump administration and the rest of the world on climate, against a backdrop of growing support for climate action among American voters and continued action by cities, states, businesses and investors.
At the G20 in November, host Saudi Arabia has an opportunity to help chart a path for the oil and gas sector and guide a managed transition toward diversification of the economy and a managed transition for the sector, rather than risk further inaction and eventual sharp collapse.
Even the Olympics in June are likely to be a platform for the global debate on climate – an international stage that Japan could use to up its game on climate ambition, if it so chooses.
The UK as host of COP26 has an opportunity to make climate a leading issue as it establishes itself post-Brexit, exercising its diplomatic skill to help countries find effective ways to collaborate across sectors to drive change. Businesses on both sides of those bilateral meetings have an interest in a positive outcome and should make their support known.
Europe is continuing to show leadership by agreeing a net-zero 2050 goal at the end of last year. They now need to embed that ambition into ongoing near-term legislation including the Green New Deal and the EU Industrial policy. They also have an opportunity to lead the world by coming out early with a strong updated NDC to set the standard for the 2020 ratchet. Businesses are calling for an emissions reduction target of at least 55% by 2030.
China and India are both well ahead of pace to achieve the NDCs they put forward in 2015, putting them in a strong position to strengthen their national targets. Clarifying and codifying their plans to pick up the pace and build on the progress they have made will help attract investment and continue to pursue their clean growth goals. Not updating their plans would be a huge missed opportunity as it leaves investors and businesses guessing.
Business advocacy in support of courage and ambition at every one of these moments will be crucial to help make 2020 the year that we turned the tide on climate change and its impacts.