Setting science-based targets to combat climate changeMaria Mendiluce, CEO of We Mean Business Coalition
A version of this article first appeared on Harvard Business Review.
COP26 focused the attention of governments and businesses on a key target: limiting global temperature rise to 1.5C by halving global emissions by 2030. The Glasgow Climate Pact made clear that the days of coal and fossil fuels are numbered, that carbon markets are here to stay, and that deforestation must come to an end. And as we head into 2022, climate change must be a top priority for companies around the world.
Companies now face unprecedented scrutiny and pressure from investors, policymakers, customers, and suppliers to take rapid, far-reaching action to deliver on climate goals. Therefore 2022 must be the year when corporate climate action becomes mainstream.
But what actions should companies prioritize? What will prevent those critical fractions-of-a-degree-of-temperature-rise that will determine whether the climate crisis spirals out of control or the world gets on track for a sustainable future? Based on our seven years of experience working with companies and governments on climate change, we offer six recommendations to ensure your company’s climate ambition is aligned with science and that your actions are comprehensive enough to stand up to the growing public scrutiny.
Go All-In for 1.5C
As of November 2021, more than 1,000 companies spanning 53 sectors in 60 countries have set 1.5 degrees C-aligned science-based emission reduction targets.
At COP26, the Science Based Target initiative (SBTi) launched the Net-Zero Standard, the first credible and independent assessment of corporate net-zero target setting. As part of its pilot efforts, SBTi certified the net-zero targets of seven global firms: AstraZeneca (UK), CVS Health (U.S.), Dentsu International (UK), Holcim (Switzerland), JLL (US), Ørsted (Denmark), and Wipro (India).
To demonstrate that they’re taking meaningful climate action, companies should set and work towards science-based targets aligned with the net-zero standard. Publicly committing through the SBTi to reduce emissions sets a standard that will echo throughout the value chain.
Take Action Across the Value Chain
Decarbonizing value chains is, of course, more challenging than cutting emissions in a firm’s own operations. It’s also essential since a huge percentage of a company’s emissions sit within their value chains.
Collaboration is key. With supply-chain emissions on average 11.4 times higher than operational emissions, large corporations cannot reach their net zero goals without the action of their SME suppliers. With more and more of the world’s leading companies now committed to decarbonization, including through their supply chains, SMEs can expect even more pressure from their biggest corporate suppliers and customers to cut their emissions.
Fortunately, large companies are also increasingly keen to provide training, advice, and support. In some cases, multinationals will even be able to offer preferential contract terms and supply-chain finance to ensure that SME suppliers meet their sustainability requirements. Gucci, for example, has partnered with the Italian bank Intesa Sanpaolo to provide SMEs in their supply chain with access to loans at favorable terms and conditions if the supplier improves the sustainability of its operations.
Ensure Your Finance and Sustainability Teams Are Collaborating
The consolidation of various financial and sustainability reporting systems announced at COP26 will make it simpler for business to report on their climate impacts and easier for the outside world to track progress. The implications for business are that financial and sustainability reporting will become much more integrated.
As a starting point, companies should look at the current Climate-Related Disclosure Prototype from the International Sustainability Standards Board (ISSB) and compare it with their own current internal reporting regulations and practices. This will give forward-looking businesses a distinct advantage when it comes to reporting under the new system.
Companies should nurture deeper connections between financial and sustainability colleagues — departments that may not regularly work together, but should, if they want to make the most out of each other’s skills. Financial teams are good at establishing a strict reporting process with solid evidence on the data side, while sustainability teams will be key for validating the evidence.
Coal’s Out, So Get More Renewables In
Whether it was phase out or down, the message from COP26 was clear: We are moving ever closer to an expiration date on fossil fuels. In 2022, government policies to move away from coal power and fossil-fueled transport will proliferate. In the U.S., this trend accelerated in December with President Biden’s announcement to redirect government procurement to renewables and electric vehicles — which as the biggest purchaser of electricity in the U.S., will make a huge impact.
By switching to renewables and electric vehicle fleets, companies can benefit from these policies and help tip the market away from fossil fuels forever.
Invest In Nature
Nature was a focus at COP26 more than ever before since the climate and nature crises are deeply intertwined. Glasgow saw agreement on Article 6 finally reached, meaning that carbon markets are here to stay. Companies can invest in nature-based solutions through the voluntary carbon market, but until now there have been questions about whether these investments are genuinely reducing emissions, as well as uncertainty about whether they’re beneficial for biodiversity and people as well as climate. Once a regulated carbon market is established, we anticipate more and better investment in nature based solutions.
National announcements on deforestation mean there will be a strong push in that direction. For business, this means it’s time to eliminate commodity-driven deforestation from their supply chains and to support nature-based solutions beyond their supply chains. For example, you can team up with other companies to scale impact in activities like restoring of critical ecosystems like tropical forests or wetlands. Both will bring multiple social and ecosystem benefits as well as helping with the global goal of limiting global temperature rise to 1.5C.
Ensure Lobbying Efforts Support Climate Action
Membership of trade bodies whose position on climate is counter to a company’s own targets does not add up — and stakeholders are going to be looking out for this. It’s time for companies to align their sustainability objectives with their public affairs goals.
Stand up and be counted: At major international policy moments, a united business voice can wield incredible power. Ahead of the G20 Summit in October, more than 750 companies signed a letter loudly and clearly supporting the end of coal and fossil fuel subsidies — and we saw progress on both last year. Also, when the U.S. government announced its new target to halve emissions by 2030, the U.S. special presidential envoy for climate, John Kerry, referenced a letter from hundreds of companies including Apple, Coca-Cola, and Amazon that called for this action. Your company can add its voice to these impactful calls to action by ensuring your communications and public affairs teams are on the same page when it comes to climate advocacy.
In 2022, the world will be looking for business to deliver climate solutions. But innovation is not enough. Whole systems will need to change — transport, energy, finance, and heavy industry — to shift the global economy quickly enough to keep 1.5C within reach. Now is the time to get to work.