The all-important issues of resource security, environmental stewardship and geopolitical stability will feature centre-stage in December, when world leaders convene at the long-awaited UN Climate Change Conference (COP21). According to the event’s organisers, COP21 will, “for the first time in over 20 years of UN negotiations, aim to achieve a legally binding and universal agreement on climate change, with the aim of keeping global warming below 2C”. In short, the conference will see the international community thrash out a new deal on climate change and, in doing so, speed the transition to a low carbon economy.
In the build-up to the conference, much of the talk has centred on the intended nationally determined contributions (INDCs) and what these nation-specific commitments might mean for the future. Each of these proposals contains the specifics of what each country hopes to achieve, and a quick look at the pledges offers an insight into where and when important changes might occur, if only on a very basic level.
Representing more than 90 percent of global economic activity, the national commitments should “slow [emissions] to a relative crawl” by 2030, according to the IEA. And, while the particulars vary greatly from country to country, “these plans represent significant commitments to decarbonisation, including scaling up of renewable energies, carbon pricing schemes, and sectoral approaches covering energy, transport, and land use”, said Farid Baddache, BSR’s managing director for the MENA region. “The EU is committed to 40 percent emissions reductions over 1990 levels by 2030, and China expects to develop renewable energy output the equivalent of total electricity generation in the US.”
Proactive companies who look for opportunities to serve the needs of society on a resource-constrained planet will gain an advantage
As far as reducing emissions is concerned, the pressure is by no means limited to governments, and the distinctly national focus of COP21 should in no way detract from the fact that responsibility rests not only with politicians but also with businesses. Unsurprisingly, enterprising names have eyed the occasion as an opportunity to make sure their culture is aligned with that of the conference as a whole.
“Companies understand first-hand the disruption that climate change, unabated, will cause to their supply chains, markets and operations”, said Kevin Moss, global director of WRI’s business centre. “It is very important that company executives don’t just pay close attention to COP21, but get involved to voice support for a strong agreement with ambitious goals and a combination of long and short-term milestones. A strong agreement will drive consistent national actions and much-needed signals to give companies the predictability and consistency they need to plan for sustainable growth in global and national markets.”
Private parts
To give one example, the Bank of England’s Mark Carney made clear the dangers of inaction on climate change when speaking to leading insurers gathered at Lloyd’s of London earlier this year. On the implications for the industry, he said: “The challenges currently posed by climate change pale in significance compared with what might come. The far-sighted among you are anticipating broader global impacts on property, migration and political stability, as well as food and water security. Climate change is the tragedy on the horizon. We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix.”
The warning was made to appear all the more serious in light of growing public pressure on policymakers to reduce their emissions in the lead-up to Paris. And this, together with the fear that any legally binding agreement on climate change could have serious ramifications for the global economy, again serves to underline the importance of COP21 for businesses.
Of the industries worst affected by this clampdown, surely none has taken more criticism than the fossil fuel industry. Major names in the field from across the globe, not least in Europe, have come under fire for their contributions to the issue of climate change. The news in May, therefore, that Europe’s six largest oil and gas companies had called on the UN to assist them in devising a global carbon pricing system was unsurprising. And, while the plea was largely unsuccessful in arriving at a solution, the act in and of itself is proof enough that companies are beginning to take heed of the key issues this year more than any other.
This awareness has spread throughout market sectors, and companies from across the globe have made clear their commitment to a low carbon future. Going back to May, 25 business networks representing over 6.5 million companies from more than 130 countries pledged to work towards this same end, urging action on carbon pricing and low-carbon investment, among other things. “When faced with the challenges of climate change, businesses should be part of the solution”, said Paul Polman, CEO of Unilever and one of the more notable signatories. “Companies that have seized low-carbon opportunities are increasingly seeing rewards. To go further, we need a strong international climate agreement that sends a clear and credible signal to businesses that low-carbon policies will endure.”
Culture change
The sentiment was again on show in mid 2015, when 13 leading US companies – Apple, GM and Google among them – agreed to invest in excess of $140bn in climate change efforts, again underlining the importance of private participation. However, more important than the influence of the conference on investment decisions is its influence on corporate culture, and it’s in this department more than any other that its legacy will be felt most keenly.
PwC’s CEO Pulse on Climate Change report showed that 61 percent of CEOs were concerned about the impact of climate change on energy prices, and went on to consider the ways in which COP21 could increase both the risks and opportunities. Again, according to the survey, “an emerging group of leading CEOs are proactive about integrating climate change strategies into their business” by partnering with consumers, developing smarter products and adopting long-term strategies. “CEOs must state a vision enabling the transformational changes needed for their company to mitigate risks, capture opportunities and demonstrate leadership, creating value for the long term”, said Baddache. “CEOs must have a crystal-clear understanding of the business implications for their company.”
COP21 has been labelled the mother of all climate negotiations, and companies with a finger on the pulse will recognise the event for what it is: a catalyst for deconstructing the air of short-termism that has characterised the corporate world for so many years. While much of the focus so far has fallen on the world’s governments and how it is they intend to combat the major issues, COP21 is equally significant for companies.
“Risks abound for companies who chose to be bystanders or to defend business-as-usual instead of proactively shaping the future”, said Moss. “They’ll find that the proactive and innovative competitors who look for market opportunities to serve the needs of society [on] a resource-constrained planet will be the ones to gain an advantage.”