This blogpost was originally published in Mint on 21 January.
Climate change is one of the top issues for the policymakers, investors and chief executives gathered in Davos at the 50th World Economic Forum annual event. Acting on climate is no longer just a political imperative but defines business leadership in today’s carbon-constrained world.
Climate Action: A Business Imperative
Studies have consistently found, ambitious climate action is an enabler of better financial performance and thus makes business sense. Bloated costs from resource intensive operations are unnecessary and make businesses vulnerable to economic shocks. Improving efficiencies and adopting best practices brings a significant competitive advantage while reducing emissions.
Extreme weather events and flooding poses physical and price risks on doing business. This may be from damages incurred on infrastructure, assets and factories, or from increased resource cost volatility and supply-chain disruptions. In fact, more than 90 percent of companies in the S&P Global 100 Index view extreme weather and climate impacts as risks. Assessing business vulnerabilities, strategic planning and timely action can enable businesses better manage climate-related physical, resource and supply chain risks.
Since the industrial revolution, emitting greenhouse gases came at no cost. However, governments across the world are increasingly implementing ambitious climate policies which will make emitting expensive. Businesses that proactively manage their climate impacts would be much better prepared to meet regulatory changes across regions of operation. Climate change also presents immense economic opportunities for companies willing to innovate. It has the potential to generate over 65 million new jobs in 2030, says a New Climate Economy Report. International Finance Corporation (IFC) finds that 21 emerging economies alone present $23 trillion in climate-related investment opportunities by 2030. These include investments in clean energy, smarter urban development, water management, energy efficiency, real estate and transport. Climate action also complements other aspects of human wellbeing such as improved air quality and health. Air pollution is now the third highest cause of death among health risks in India. Acting on climate will also help companies meet upcoming norms to limit pollutant emissions from industry.
Finally, boardrooms can no longer elude climate issues. Investors, insurers, shareholders and consumers increasingly expect companies to disclose their climate risks and vulnerabilities, and improve operational sustainability and products. Poor climate performance can have a deep impact on financing, revenues and reputation. Robust governance, inclusion of climate and sustainability in core business strategy, and transparent disclosure on climate risks and performance are key to meeting stakeholder expectations and upholding highest standards of corporate responsibility.
Transforming Business for Long Term Gains
Businesses are engines of economic growth, creating jobs and meeting society’s demand for goods and services. They can drive innovation in technologies and business models, efficiently scale-up transformative solutions and influence consumption choices. This places businesses in a unique position to meaningfully support national targets and complement government efforts. An ongoing WRI & CII study shows that voluntary initiatives from only 50 Indian companies are estimated to reduce India’s expected emissions in 2030 by almost 1.5%.
Today’s climate crisis presents an opportunity for the private sector to step up as leaders at the forefront of the climate movement. At Godrej, we are committed to innovating for good and green products. With goals across water, energy, waste as well as product innovation, we are constantly working with partners on newer ways to enable a sustainable, thriving business. While there is no one-size-fits-all approach to managing climate risks, companies must take concrete steps towards improved climate performance.
The first step for companies, both large and small, is to develop a solid understanding of their climate impacts by measuring emissions from business activities, which helps identify areas of intervention and associated costs. In addition, firms must also evaluate their vulnerability to climate and resource risks, including energy and water dependence, and supply chain exposures.
This understanding lends itself to the next step of developing climate strategies. These includes defining an overarching company policy, setting energy efficiency or clean energy targets, and identifying initiatives to achieve these targets. While short-term, low ambition targets allow incremental improvement and room to grow, ambitious Science Based Targets (SBTs), help businesses align themselves with the global goal of keeping temperature rise below 1.5 to 2 degrees. 769 businesses globally, and 38 Indian companies have already committed to setting SBTs. Putting a price on carbon is a key tool to achieving ambitious targets by internalizing the costs of regulatory or climate risks, improving decision making towards low-carbon investments while managing competitiveness concerns. At least 40 companies in India are pricing carbon or planning to do so in the next two years.
Value chains are critical to business operations and represent majority of a company’s risks. Effective climate strategies must also include meaningful and regular engagement with supply-chains to build capacity, mitigate such risks and improve procurement strategies. Companies should also set up systems to consistently track emission trends and progress on climate goals, and report these transparently to shareholders. Continued engagement on climate over time can help businesses go beyond operational improvements towards developing strategic portfolios, tap into newer opportunities and markets.
Business leadership in the new decade of post-2020 commitments demands effective, innovative, and bold action along with continued engagement with governments, civil society and each other. In this era of climate crisis, companies that strategically align their businesses towards climate-smart practices, products and portfolios are poised to be the market leaders and will drive societies to be liveable, prosperous and profitable.