Climate Change and Investing. A look at how certain companies should start thinking about climate change targets.

Managing Climate Change

By Shireen Muhiudeen 

IN NINE short years, the world will have to take stock of how far we have come in taking urgent action to combat the impact from climate change, as well as to ensure access to affordable, reliable, sustainable and modern energy for all.

These are among two of the Sustainable Development Goals set for 2030, which make a case for tackling climate change, alongside other social and economic deprivations.

But it is not just governments that are responsible for sustainable development – an equally powerful force is exerted by national and international corporations, which are increasingly investing in sustainable businesses. Despite the business and financial challenges presented by the Covid-19 pandemic, global corporate giants remain committed to incorporating environmental, social and governance (ESG) criteria into their business practices, and believe that this is the way forward in the long term.

Interestingly, many of these large companies would generally have used template ESG approaches. However, with the pandemic, sustainability targets are now included as part of the management’s key performance indicators, and some of these global players are now discussing setting remuneration policies based on these sustainability targets in the future.

One may wonder why companies should bother with climate change mitigation, or what monetary benefits are to be gained from including sustainability in their business model. These questions are slowly being answered, as many global companies are finding that they can restore their earnings model by focusing efforts within the sustainability space, which include reduction of carbon emission, single-use plastics and food waste, as well as employee engagement to resize operations and to improve operational efficiency.

Within these very broad objectives, different industries choose different ways and areas to focus on. With clear and present challenges as a backdrop, it has been a pleasant surprise to see that many of these global giants are committed to achieving net zero carbon emissions between 2040 and 2050, striving for carbon neutrality. For some of these companies, several initiatives are already in progress, including the use of more sustainable materials throughout the supply chain, as well as research and development into more sustainable energy efficiency.

Clearly, the single largest driver for these major companies to achieve the goal of net zero carbon emissions by 2050 will be the technological advancements that lead to the design of machinery and engines that could reduce carbon emissions. Another major issue that these large corporations have to take into consideration is how they aim to manage climate change risk as a corporate strategy.

For some groups, the climate change issue is parked under the care of the risk committee, with the board overseeing their reports. At the moment, few governments are likely to impose strict legislation or regulations on climate change in the near term. However, we can’t rule out the possibility of this happening in the future, as European countries are already moving towards this direction.

Looking at movements in companies that are leading the way in climate change management, it was interesting to read about one of the global conglomerates, which stated their intention to ask shareholders to vote on a climate transition plan, something that is not typically done by companies. However, this global player has gone one step further by asking for shareholders’ approval on emissions reduction targets and on the company’s plans to achieve them.

A huge tick of approval for this company. A closer look at their proposed climate strategy shows that it contains details of how the company plans to reduce its emissions. The strategy begins by targeting emissions reduction within its operations, and then goes wider to look at its ecosystem of suppliers, as well reassessing the risks while still meeting the ESG requirements of all stakeholders. This company is clearly taking its role in climate change management seriously. What stands out is its science-based, targeted approach. This is where many companies fail, when it comes to setting climate change targets, as they resort to hiring an external consultant to draw up a template plan. However, these consultants often don’t understand what kind of strategies and business activities are really required by their clients to achieve climate change management.

Boilerplate strategies will often contain lingo, like “net zero emissions target from source to point of-sale”, but there may be little information on how these reductions are to be achieved. However, what was refreshing about this particular company’s strategy was the attention to detail: how it intends to decarbonise the sources of its raw materials, move towards using 100 per cent of renewable energy, eliminate deforestation from its entire ecosystem, as well as how to innovate and reformulate their products. It is further cementing its leadership role in the global economy by encouraging as well as advocating for accelerated decarbonisation of the global energy grid.

While this level of commitment is not easy for smaller companies to achieve, this particular company is certainly setting an example for other global players to follow suit. We need more companies like these, which commit ambitious targets and timelines for climate change management. Having more companies share detailed plans with shareholders will be the way forward, as it will encourage others within the value chain to follow suit.

As we know that plans like these cannot be cast in stone, the companies will need to provide rolling updates, with timelines for shareholders to revisit the plans, annual progress reports and voting on a revised plan every three to five years.

Where will we be, come 2030?

Multinational corporations have shown that they can be responsive to global pressures, as well as innovate and adapt to change. Considering the activities and movements of global companies have a ripple effect across the value chain, we are looking to them to make the greatest impact in addressing the climate crisis.