Green smokestacks

 

Image Credit: Investment News

 

And now for something completely different

Today’s climate activists are shifting their focus to the world's largest emitters…businesses! And rightly so, corporations are disproportionately responsible for and have benefited from the systematic destruction of resources and populations. However, as the predominant global economic force, businesses will have an undeniable role to play in tackling climate change. In an era defined by political and public awareness of climate concerns, sustainability has also become a cornerstone of good business management. Despite businesses seizing the reigns on climate leadership, they themselves remain their greatest advocates.

Historically, environmental issues have been perceived as a “problem” that necessitated regulatory control with laws mandating business-side compliance. These regulations were criticized as a restraint on economic activity. Cases of corporations prioritizing reactive responses rather than proactive solutions continue to be justly criticized. However, things are changing - and fast. Today, we know that environmental regulations do not hamper economic growth; in fact, policies that aim at outcomes rather than methods can raise competitiveness and create long-term shared value. In light of this realization, today, over 600 companies have aligned set greenhouse gas emission reduction targets with climate science as a means of ‘future-proofing’ corporate growth.

Where oh where can my government be?

Climate change has and always will be too complex to be solved solely by governments, corporations, or people. Government approaches to environmental policy has provided marginal progress towards achieving our national and international climate targets while seemingly dividing industry and societal interests. Over-reliance on these regulatory mechanisms has fostered a broader complacency amongst environmental actors, displacing meaningful climate action in exchange for greenwashed practices focused on surface-level emissions reductions. These failings are magnified here in Canada, where the federal government, despite original promises of meaningful climate action, has failed to meet its international contributions while doubling down on fossil fuel investments. Despite any intention, regulation has seemed to stimulate tensions and impede constructive climate action.

With the right strategy, corporations could reduce global greenhouse gas emissions by up to 10 billion metric tonnes a year by 2030. And we see the commitments now. Unilever, the parent company to homename brands including Dove, Axe, Lipton, Ben & Jerry’s, Q-tips, and Vaseline has one of the most comprehensive and ambitious sustainability targets in line with the Paris target and the UN Sustainable Development Goals (SDGs). Competitor Proctor and Gamble this year partnered with Loop, to introduce reusable and refillable packaging for their largest global brands, including Pantene, Tide, Cascade, and Oral-B. Ikea aims that by August 2020, 100% of their plastic products will be renewable and recycled - and by 2030, this target will extend to all materials. 

We as consumers should embrace these unlikely allies, encourage reduction targets, celebrate their successes, and internalize their long-term climate commitments.

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Image Credit: Unilever

Adaptation: A question of litigation or reputation 

As the old saying goes, “necessity is the mother of invention”. In the wake of the new climate reality, corporations are beginning to embrace the business case for corporate sustainability as a means of spurring innovation and positioning themselves as market leaders. In fact, 90% of the world’s largest corporations already actively report on their sustainability performance. So why the push for sustainability? Let’s break it down to the two key drivers of business strategy: risk and opportunity.

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Image Credit: vasabii on Shuttershock

Crash and crawl while risking it all

The big challenge for corporations will be the ability to adapt to a business environment that now favours cleaner, healthier, and more sustainable products and services. Companies face risks that not only affect their bottom line, but their reputation as well. 

Climate change is not cheap! The cost of adaptation from an increased frequency of extreme weather events has tripled insurance payouts in the past 10 years. Trillions in assets face significant devaluation given their exposure to and dependence on fossil fuels. Now, more than ever, the  cumulative effects of the changing climate threaten the increasingly complex and interdependent global supply chains. 

Climate change is also a reputational risk. Evolving social norms such as the legitimization of grassroots campaigns, like fossil fuel divestment and Keep It In the Ground, have shown to measurably impact the asset values through social stigmatization of complacent industries. A growing and vocal subset of ‘social’ consumers are restructuring businesses through their personal lifestyle and consumption choices, as lifestyles that promote health and sustainability pervade the mainstream. Litigation cases holding complacent corporations accountable for climate damages magnifies the risks associated with a sustainable transition.

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Image Credit: GC Capital Ideas

“The opportunity of a lifetime needs to be seized during the lifetime of the opportunity”

  • Leonard Ravenhill

On the flip side,  going green is now seen as a driver of innovation, new market opportunity, and value creation by insulating businesses from climate change and a low carbon transition.

By integrating renewable energy sources, deploying low-carbon and highly efficient technologies, sustainably sourcing resources, and implementing equitable employee engagement programs, corporations are able to build resilience in their business operations. Businesses can thus minimize their contributions to climate change while adapting to climate-related events that reduce the availability of natural resources, impact infrastructure, disrupt transportation, along with other unpredictable impacts. 

By creating shared goals with public stakeholders, motivating employees, and building trust with customers, businesses are leveraging their position to catalyze positive societal change in new collaborative ways that foster financial and environmental opportunities for consumers while increasing the efficacy of natural resource use. Dow Chemical, for example, invested less than $2 billion USD since 1994 to improve on-site resource efficiency, which has since resulted in savings over $9.8 billion USD from reduced energy consumption and water waste. Moreover, Dow’s 20% reduction in absolute GHG emissions go well beyond the Kyoto Protocol targets.

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Image Credit: The Financial Express

The notable adoption of environmental, social, and governance considerations in investment decisions should be seen as a proxy for how markets and societies are changing, and in turn, how valuation metrics are adapting to climate-related changes. According to the Business and Sustainable Development Commission, by meeting the UN Sustainable Development Goals, business can generate approximately $12 trillion is cost savings and revenue generation, and create 380 million jobs by 2030. Cumulatively, this holds significant value capture potential and revenue generation opportunities through tailoring products and services to emerging sustainably-oriented markets.

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Image Credit: AGF

Corporations are beginning to tune in. By connecting short-term targets with long-term goals, companies can strengthen their own business case and increase financial performance. Inaction may result in missed opportunities costs, as a failure to adapt to changing markets may lead to missed low-carbon developments. Harnessing these opportunities requires recruitment of sustainability talent, who can direct long-term visions and thereby increase market participation, strengthen reputation, and entice new investments. 

Think-Plant-Act

To support a sustainable corporate transition is to support a culture of sustainability that will help us realize shared assumptions and beliefs about the importance of integrating economic development, social equity, and environmental accountability. We can no longer rely solely on prudent regulation, especially in such a volatile political climate. Businesses remain the largest global economic force and are uniquely positioned to overcome the politics of learning. Despite recent evidence pointing to the symbiotic nature of business and sustainability outcomes, we remain quick to dismiss the positive role businesses have and will play as change agents in a global sustainability transition. Operating under closed-door assumptions, there is a tendency to overlook the innate ability of business to harness multiple loci of agency, engage in experimental and creative programs and policies, and address the concerns of a wide array of stakeholders. The role businesses play in our transition to a sustainable society is undeniable and by making conscious decisions as consumers and using the power of voice to shed light on global laggards and leaders we can begin to reach our potential as enablers of true corporate sustainability. 

Nicholas is a PhD Student in Sustainability Management at the University of Waterloo. He works in the fields of corporate sustainability, organizational behaviour, and sustainability transitions. 

 

 

Truzaar is a PhD Candidate in Sustainability Management at the University of Waterloo. He is interested in the systemic consequences of decarbonization in asset pricing and portfolio allocation strategies.

 

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