We Mean Business

Set a transformative climate goal — or risk being transformed

Shutterstockiunewind

Call me Ishmael! Imagine yourself the owner of a fine whaling fleet and a beautiful mansion in Nantucket in the summer of 1865. Your boats scour the world for one of the most valuable of all commodities — whale oil, the illuminant of choice in middle-class homes around the world.

Meanwhile, a certain John D. Rockefeller is building his first oil refinery in Cleveland, Ohio. You hear about this at a dinner party and dismiss it as mere folly — a dirty, fledgling industry that has nothing to do with your global empire. Within years it is becoming apparent that kerosene, distilled from crude oil by Rockefeller and his peers, is consigning your product to oblivion. You press on, but soon will sink without a trace.

We all know that climate change is a disruptive force, driving radical changes in policy, consumer expectations and the weather, but are companies really paying attention to the disruption?

Economists call the disruptive force of innovation "creative destruction," after the phrase coined by Joseph Schumpeter. As with all disruption, there are winners and losers, and those who fail to see the change coming and plan accordingly risk being pushed into uncompetitive oblivion.

Investors and regulators are onto this. Beyond the divestment movement focused on fossil-fuel stocks, investors are increasingly engaging across all sectors to ensure the companies they hold are not jeopardizing their investments.

Many investor-focused groups are leading the charge to add consistency and transparency to reporting climate exposure, such as the Investor Network on Climate Risk. Meanwhile, organizations such as the Portfolio Decarbonization Coalition and the Fourth Swedish National Pension Fund (AP4), are proving that decarbonizing portfolios can go hand in hand with generating positive returns for investors.

Heavy emitting sectors are also showing up at the debate, as witnessed by the Aiming for a Coalition, an investor coalition focused on the extractive and utility sectors, while certain resource majors such as BHP Billiton are actively engaging with the 2 degree Celsius pathway.

Systemic disruption

Concerns about such risks among investors, regulators and emitters prompted the G20's Financial Stability Board to appoint the Task Force on Climate-related Financial Disclosures — TFCD for short — looking at climate risks in the markets, including some of the world's biggest companies and investors, such as Blackrock, AXA, JPMorgan and BHP Billiton.

Earlier this year, TCFD released a set of recommendations for voluntary, climate-related disclosures to be made as part of mainstream financial filings

Regulators see the risk of disruption at the systemic level, hence the need for the FSB and TFCD. But the most important recommendation is that all companies should stress-test their plans against the changes inherent in the successful delivery of the global commitment to stay below 2 C — with all that means in terms of policy change, consumer taste shifts, energy system flips and worsening weather events.

For certain sectors, the disruption is radical. Some electric utilities are transitioning from burning coal to harvesting energy from the sun and wind, while running sophisticated software tools to manage digital grids. Oil and gas companies, such as Statoil and Shell, are investing in major solar projects and wind turbines, while vehicle manufacturers are faced with the triple whammy of electrification, automation and digitization — not to mention the sharing economy.

The first step for companies, which is rapidly becoming a business norm, is to set clear, long-term emissions-reduction targets in line with the global policy objectives and the best available science — a science-based target, or SBT.

Well over 200 of the world’s largest companies have set such targets through the Science Based Targets initiative (SBTi), including Walmart, General Mills, Diageo and the recently joined United Technologies Corp.

Setting a SBT has huge implications for a company in terms of innovation, competitiveness, cost reduction and reputation, with the reputational benefits being seen among staff, suppliers, customers, policy makers and, most important, investors.

If you haven't already done so, now is the perfect time to commit. If you set a science-based target and submit it for an official validation by April 15 to the SBTi, the results of the approval process will be captured in the CDP Climate Change Questionnaire for the 2017 scoring cycle.

So, as you think about how your company might respond to the disruptive force of climate change, don't make Captain Ahab’s mistake of driving strategy with nostalgia, obsessing about a future you wish would happen. Take a clear-headed look at the signals from science, policy and technology, set a science-based path to the future — and let that guide your voyage across the disruptive seas ahead.

Topics: