Companies need to do more on emission reductions
The Paris Agreement officially comes into force in less than two weeks, signaling the start of a process that will significantly affect business practices the world over. The tangible target to keep global temperature rises under 2°C sets companies on a clear path toward a low-carbon economy.
But a new report released this week from the Carbon Disclosure Project (CDP) and We Mean Businessfinds that although positive first steps have been taken, the private sector is not being ambitious enough to meet the goals set in Paris.
The good news is that 85 percent of more than a thousand major companies analyzed in the report have emission-reduction targets in place, and many are taking meaningful action to reduce their overall impact. Perhaps most encouragingly, many companies worldwide are already demonstrating that reducing emissions brings in more money: 62 companies in the report have cut their emissions by an average of 26 percent while increasing revenue by an average of 29 percent over five years.
The remaining companies have seen average revenues plummet by 6 percent and emissions increase by 6 percent. This is proof that decoupling emissions from revenue growth is not only possible but it is also very good for business. Despite these constructive results, the bigger message from the report is that companies need to go much further on emission reductions.
Corporate plans fall short
While the large majority of companies have an emissions-reduction target in place, many of those are short term or lack ambition. If every company achieved its climate targets as currently set, it would still take the group only a quarter of the way to a 2°C pathway.
Evidently, there is a discrepancy between corporate intention and the action needed, but the momentum behind sufficiently ambitious target-setting is building: of the 1,089 companies analyzed by CDP, 9 percenthave committed to the Science Based Targets initiative, aligning them with the latest climate science.
A stepping-up of ambition is required, this much is clear, and those taking the lead are well placed to capitalize in the new green economy. With this in mind, investors are increasingly willing to put their money where their mouth is: the CDP report is backed by more than 800 institutional investors, collectively representing more than $100 tn in assets, asking companies to disclose how they plan to manage the risks posed by climate change. CDP has seen a 20-fold increase in investor interest in climate change disclosure over the last 14 years.
As the targets set out in Paris enter into force, disclosure will become essential: smart investors will want to identify which companies are best positioned for the low-carbon transition. Those that are not will increasingly lose out because they are viewed as a risky investment. The will is there on the investor side; it is now up to companies to deliver, and that is a powerful message IR professionals can deliver to their CEOs.
Thus, while many positive steps have been taken, the private sector still needs to raise the bar on climate action. IR professionals need to wise up to what kind of action is needed and determine the numbers their shareholders will increasingly expect to see.
The low-carbon transition is already happening: those that aim high will remain competitive as carbon pricing and other emissions-regulating policies are introduced, and IR professionals are in a unique position to drive corporate ambition and communicate it to investors.
By embracing science-based emission targets, companies can reduce their carbon footprint, drive better returns and ensure they are well placed in the new green economy.
The full report – Out of the starting blocks: Tracking progress on corporate climate action – is available here.
Paul Simpson is CEO at CDP