Align Your Company with the Paris Agreement

The science has never been clearer. The 2018 IPCC special report on the impacts of global warming of 1.5°C highlights the importance of aligning emission reductions with the goals of the Paris Agreement, and striving for net-zero emissions by 2050—at the latest.²

Science-based greenhouse gas emission reduction targets are the gold standard for companies setting emissions reduction goals, both in their direct operations and across their value chains. It is now possible for organizations to set targets that are in line with the level of decarbonization required to limit global warming to 1.5°C. These targets, as ambitious as they are, are vital to reaching net-zero emissions by 2050, and they should be the ultimate goal for all companies.

If you’re hesitant, consider the risks of not acting: The world’s largest sovereign wealth fund—Norway’s $1 trillion Government Pension Fund—confirmed it will divest some $13 billion of fossil fuel–related investments. This is one of many signals that there will continue to be a global move away from fossil fuels, indicating the need for companies to incorporate the emissions impact of their assets into their investment plans or be left with assets that will rapidly lose value. Science-based targets will provide you with a way to future-proof your business plans by ensuring that all strategic decisions incorporate climate risk and opportunity analysis. This will simultaneously drive zero-carbon innovation and help you guard against stranded assets.

To date, the majority of the 560+ companies that have jumped on board report improvements to brand reputation and investor confidence. Consumers and investors are increasingly aware of the effects their choices have on the environment. Companies who commit to these targets, then, are gaining a competitive advantage in multiple areas of their business.

Join a Transformative Initiative

Committing to achieving net-zero emissions by 2050 is no doubt an ambitious goal. There are several initiatives companies can turn to for support.

The Climate Group’s global EP100 initiative is a good place to start. It brings together a growing group of energy-smart companies committed to using energy more productively with the goal of lowering greenhouse gas emissions and accelerating a clean economy. As part of the EP100 initiative, companies can commit to doubling energy productivity and to net-zero carbon buildings through the Net Zero Carbon Buildings Commitment.

Companies engaged in this initiative report cost savings as well as emissions reductions. For example, energy productivity improvements at Wisconsin-based Johnson Controls contributed to a 41% reduction in the company’s greenhouse gas emissions intensity and over $100 million in annual energy savings.

In addition, collaborative initiatives, like the Low Carbon Technology Partnerships initiative (LCTPi), led by the World Business Council for Sustainable Development, bring companies together to generate shared natural climate solutions across the value chains in specific business sectors. LCTPi focuses primarily on the agricultural, energy, and transport industries. These kinds of initiatives provide businesses with greater access to resources and innovations that can help them develop new markets.

Commit to 100%

Committing to doing something completely—to doing it 100%—leaves no room for excuses and will send a powerful signal to your stakeholders. If you commit to switch 100% of your electricity consumption to renewable sources, as opposed to 20% or even 50%, your objective will be clear to everyone inside and outside of your organization.

Over 175 of the world’s most influential companies have already made this commitment through the global corporate leadership initiative, RE100. When they have made the full switch to 100% renewable electricity, these RE100 companies will be generating demand for over 184 terawatt-hours (TWh) of renewable electricity annually, more than enough to power Argentina and Portugal. This is driving up demand for renewable electricity and creating a shift in demand patterns away from fossil fuels across the global power system.

Google, Autodesk, Elopak, and Interface are just a few of the companies that have already achieved their goal and are now powered by 100% renewable energy. Not only are these organizations creating change, they are saving money as the price of wind and solar continues to drop, and they are demonstrating to their stakeholders—including investors, customers, and policy makers—that they see a future in which businesses are powered by renewables.

The same efforts are being made in the transportation sector. With air-quality legislation expected to increasingly restrict polluting vehicles in cities around the world, companies are realizing that it pays to get ahead and make the transition to electric vehicles (EVs). More and more businesses are committing to transition their auto fleets through the global initiative, EV100. LeasePlan, a car leasing company with 1.8 million vehicles on the road, is aiming to transition its employee fleet to 100% EVs by 2021—one step toward their larger goal of reaching net-zero emissions by 2030. In addition to the environmental benefits, their EV integration could dramatically reduce the costs of fleets, as charging an electric vehicle is cheaper than buying gas, and maintenance costs are also lower. Deutsche Post DHL is already seeing 60–70% savings on fuel costs and 60–80% savings on maintenance from its StreetScooter EVs.

Review Your Industry Groups

Industry groups look out for companies’ strategic interests and are based on common lines of business. If the groups that your company is a member of are not taking serious action to address the climate crisis, whole industries are at risk of getting left behind once we do reach net-zero emissions. Don’t let outdated lobbying positions hold your company back.

The time has come for businesses to review their membership of trade groups and make sure that their climate action goals are aligned. If they aren’t, use your company’s influence to help change the group’s position, or leave the group to show policy makers where you stand. You won’t be alone in doing so.

Volkswagen put VDA, the German car maker lobby group, on notice that it will leave unless it adjusts its position on the auto-sector transition and starts supporting EVs. In addition, Shell is walking away from the American Fuel and Petrochemical Manufacturers association over its lack of support for the Paris Agreement. Finally, Unilever CEO Alan Jope has requested that all trade bodies the company is associated with confirm that their lobbying positions on climate are consistent with Unilever’s own goals.

Get Smart on Climate Governance

Your plans to tackle climate change will only work if your company has the right governance in place to support them. This includes equipping board and management teams with knowledge and skills that will help them recognize the risks and opportunities posed by the climate crisis.

If you are running a global food company, for example, ask: Is my organization up to date with the findings of the EAT Lancet report? Do we have board expertise on the societal shift away from meat, and is our corporate venturing aligned with this shift? Can we explain to staff and customers how our business model is evolving to protect nature rather than harm it?

To help in this effort, Ceres and The B Team have published a primer on climate competent boards, which also focuses on the adaptability and relevance of the Task Force on Climate-related Financial Disclosure (TCFD) recommendations. These guidelines emphasize the financial risks associated with climate as well as how this informs all business strategy.

Speak Up in Support of Climate Policy

Your company can inspire legislators to create more drastic and ambitious climate policies through face-to-face dialogue. This was highly effective during the negotiations of the Paris Agreement in 2015, when representatives from leading organizations were able to sit down with policy makers and talk openly about the challenges and opportunities different policies would bring to their businesses. The conversation needs to continue.

Many businesses are well positioned to help inform ongoing policy discussions based on their experience with emissions reduction plans. Those that have acted to help improve the state of the climate emergency have the unique ability to point to the progress made through their efforts, demonstrating that climate action is feasible and that inaction is costly.

In Japan, 93 businesses—representing sales of approximately $670 billion and electricity consumption of 36 TWh—called upon the Japanese government to include a goal of net-zero emissions domestically by 2050. Since then, Japan’s cabinet has outlined its emissions reduction strategy, which aims to transition the economy to being “carbon neutral” close to that time frame. Hundreds of businesses also called upon the EU to commit to net-zero greenhouse gas emissions by 2050, at the latest. The U.K. government has already announced it is legislating for net-zero emissions by 2050, and pressure is mounting on the EU to follow suit.

Communicate Your Purpose

The more businesses that share the efforts they are making through their reporting and external communications, the more visible they will be to policy makers, customers, and employees. Setting this example can help give those people the confidence they need to increase their own climate ambition and help drive the market shift required to spark competition and innovation.

Perhaps the largest benefit of this is that it has the potential to help put into action long-term climate policies that provide businesses with the clarity they need to decarbonize products and services in faster and smarter ways.

Making your efforts visible to the public will also help your company attract and retain new generations of talent. Some 75% of millennials expect employers to address the climate crisis, and recent research suggests that Generation Z takes an equally strong stance on climate issues.³

Companies looking to harness the benefits of climate action need to step up and commit to taking these crucial steps—and don’t forget to shout about it when you do. Inspiring others to work toward a zero-carbon future is the best way to drive innovation and ensure that you succeed while others fall by the wayside. We all have a responsibility to tackle the climate crisis and to help drive toward a solution that works for our economies and our planet.

TAKEAWAYS

There is an increasing public demand for a zero-carbon economy, and if businesses don’t take steps toward folding carbon reduction into their strategies, they could face financial losses and other risks. Follow these steps:

• Align your company with the Paris Agreement. Strive for net-zero emissions by 2050. Use science-based targets and ensure that all strategic decisions incorporate climate risk and opportunity analysis.
• Join a transformative initiative. Find support through projects like the Climate Group’s global EP100 initiative, the Net Zero Carbon Buildings Commitment, or the World Business Council for Sustainable Development’s Low Carbon Technology Partnerships.
• Make a goal of 100%. Send a powerful signal to your stakeholders by committing to 100% in your environmental initiatives—for instance, by switching all of your electricity consumption to renewable sources, as opposed to only 20% or 50%.
• Review your industry groups. Assess your membership in trade groups and make sure their climate action goals are aligned. If they’re not, help change the group’s position or leave the group entirely.
• Get smart on climate governance. Equip boards and management teams with knowledge and skills that will help them recognize the risks and opportunities posed by the climate crisis. Read recent environmental reports and regulations, and ask if your company is up to date.
• Speak up in support of climate policy. Inspire legislators to create more drastic and ambitious climate policies through face-to-face dialogue.
• Communicate your purpose. Make your reporting and external communications visible to policy makers, customers, and employees.

NOTES

1. 1. Coral Davenport, “Climate Change Poses Major Risks to Financial Markets, Regulator Warns,” New York Times, June 11, 2019, https://www.nytimes.com/2019/06/11/climate/climate-financial-market-risk.html.

2. 2. Intergovernmental Panel on Climate Change, “Special Report: Global Warming of 1.5°C,” 2019, https://www.ipcc.ch/sr15/.

3. 3. Glassdoor Team, “New Survey Reveals 75% of Millennials Expect Employers to Take a Stand on Social Issues,” Glassdoor, September 25, 2017, https://www.glassdoor.com/blog/corporate-social-responsibility/; Kim Parker, Nikki Graf, and Ruth Igielnik, “Generation Z Looks a Lot Like Millennials on Key Social and Political Issues,” Pew Research Center, January 17, 2019, https://www.pewsocialtrends.org/2019/01/17/generation-z-looks-a-lot-like-millennials-on-key-social-and-political-issues/.

Adapted from content posted on hbr.org, June 21, 2019 (product #H050QH).