“Failure to act on climate change could shrink global GDP by one-sixth. It is not too late for governments and businesses to act on the risks they face and to drive an innovative, determined and inclusive transition that protects economies and people.”
Peter Giger, Group Chief Risk Officer, Zurich Insurance Group
According to the World Economic Forum, the climate crisis is the biggest long-term threat facing humanity with ‘climate action failure’ identified as the number one risk likely to have the most devastating impact over the next decade. But with a war in Ukraine catapulting food security and the energy crisis to the top of the global agenda, the risk of climate inertia is acute. Now more than ever, business must play its part in climate leadership. Unless we act fast, climate change will result in food and energy crises becoming the norm.
Davos 2022 saw a third of its sessions on the main stage focussing on climate change - a shift in the right direction since 2014, a year before the Paris Agreement , when sessions on the environment took place in tents well outside the main area.
"We need a new form of environmental capitalism wherein all companies commit to net-zero and start relying exclusively on renewable energy sources," says Mark Benioff, Co-CEO of Salesforce. Mark is a keen advocate of the First Movers Coalition, a group of companies who use their purchasing power to create early markets for innovative clean technologies across 8 in-scope sectors responsible for 30% of global emissions. The coalition exists to send a powerful market signal to commercialise zero-carbon technologies and is one of a number of groups calling on business to take urgent climate leadership.
According to the FT, there are now over $2.7 trillion in assets managed in more than 2,900 ESG Any CEO worth their salt knows that climate inertia is ‘not an option’; but climate action needs to come not just from climate activists but from business leaders themselves. At Davos, some calls for action were louder than others. "It isn't just about words anymore - it is about action. Climate action, now, is critical." The words of China’s Special Envoy for Climate Change, Xie Zhenhua are echoed by the US’s John Kerry "Emissions went up in 2021 by 6%, while coal usage expanded by 9%. This is unacceptable. We realize that countries are concerned over energy security, but we can't jeopardize the planet by investing in legacy fossil fuel projects that will cause irreparable damage…for at least the next 8 years, we must radically change our economic system and our reliance on fossil fuels if we're to stay aligned to Paris Agreement targets. This is the real battle of our time."
Humanitarian Crisis
But it’s the humanitarian and social impact of climate change that concerns those working on the environmental frontline. "The humanitarian crisis has only worsened since COP26. Over 3 million Kenyans and 20 million Africans are facing extreme hunger due to the effects of climate change. The war in Ukraine will only exacerbate these terrifyingly high levels of food insecurity," says Elizabeth Wathuti, Founder of the Green Generation Initiative. According to experts, the current global food system can feed 3 billion people whilst 3 billion more struggle to feed themselves and another 1 billion face significant undernourishment. Royal DSM NV’s Geraldine Matchett says “The reality is that this inadequate and unsustainable food system is worsening climate change, while climate change, in turn, will decimate our food system."
Business Climate Leaders
So what does authentic ecopreneurship look like and how can businesses take on a meaningful climate leadership role?
Here are 7 insights shared by business leaders for Davos 2022:
1. Work towards ‘globally consistent ESG standards’ , Punit Renjen, CEO, Deloitte Global.
Currently, companies use an array of voluntary sustainability reporting frameworks. However, without the adoption of consistent standards, it is difficult for stakeholders to make the “apples to apples” comparisons that are critical for capital investments and understanding companies’ impact. These voluntary frameworks can be a barrier to transparency, enabling selective reporting and potential greenwashing. Deloitte and the other Big 4 collaborated with the World Economic Forum’s International Business Council to identify 21 existing ESG metrics used by leading standard setters to give businesses a common framework for evaluating impact. This marks an important step toward the ultimate goal of globally consistent ESG standards. Companies that measure their progress against these ESG metrics can position themselves to create greater long-term value for stakeholders.
2. Elevate the S agenda and leverage social reporting’, John Schultz, Executive Vice President & COO, Hewlett Packard Enterprise When it comes to ESG, Environment and Governance issues are relatively easy to define in comparison to the Social dimension. When it comes to Social, there are questions around what’s best to measure and how to capture company performance with a lack of data. It’s time we elevate the “S” agenda and leverage social reporting to accelerate business transformation in ways that advance responsibility throughout our value chains. I recommend three urgent steps:
Shift ESG considerations from compliance to value-creation by explicitly understanding how your company’s core business can concurrently contribute to social outcomes.
Ensure a social impact lens is embedded throughout your value chain beyond your direct workforce and supply chain, from responsible product design to how products can be used for good.
Build trust with the right stakeholders by identifying the right goals and metrics and ensure engagement and governance all the way to the Board level.
3. We need a ‘science-based target approach’ to Social reporting, too, Ruth Harper, Chief Sustainability Officer, ManpowerGroup
We are inching closer to shared measurement around “Environment,” but when it comes to “Social” reporting, we are still at the beginning of this journey. Metrics like the IBC’s Stakeholder Capitalism Metrics could be seen as another ingredient in the alphabet soup of reporting, but more optimistically interpreted as a significant nudge forward, helping to drive harmonization of standards, metrics and reporting and, ultimately, scale our collective impact.
We need a similar science-based target approach to the “Social” reporting as we have the “Environment” reporting – just without taking as many decades to do it!
The more CEOs, CFOs, CSOs and other business leaders leverage data that demonstrates target setting, milestone monitoring and progress reporting, the better. And importantly, the more our ambitions and achievements can be correlated with attracting and retaining the best talent while demonstrating business effectiveness and results, the better for ESG.
4. ‘Effective ESG strategies require top-down driven change’, Laura M. Cha, Chair, Hong Kong Exchanges and Clearing Limited (HKEX)
Investors are mobilizing around ESG. At the end of 2021, Morningstar estimated that global sustainable funds’ AUM reached US$2.74 trillion. But a lack of credible and comparable data, and the risk of greenwashing, remains a barrier to both progress and investing that capital in companies driving the low-carbon transition.
Effective ESG strategies require top-down-driven change to oversee and assess an organization’s environmental and social impact. As HKEX Chair, I see this as my responsibility, and that of the Board, to develop a clear ESG, sustainability and climate vision. Leaders must understand the impact of ESG on an organization’s operating model, align themselves with stakeholders’ expectations and enforce a materiality assessment and reporting process.
5. ‘What gets measured gets done’, Bill Thomas, CEO, KPMG
Consistent and transparent financial reporting standards have helped investors measure business success for decades, but we need to expand their scope to mobilize the power of capital markets to help build a more sustainable future. What gets measured gets done, and with the launch of the ISSB and the publication of its first proposed standards, we’re that much closer to achieving transparency of sustainability performance.
KPMG just released its first update to Our Impact Plan , a catalogue of our organization’s ESG commitments and a roadmap of how we’ll meet them. By using the World Economic Forum’s stakeholder metrics as a guide, we now have a much clearer understanding of our business and are having detailed conversations about where we need to go. And ultimately, we are making better decisions that I am sure will help to strengthen our global organization over the long term for the benefit of all our stakeholders.
6. ‘Link compensation to specific, numerical targets’, Michael Froman, Vice Chairman and President Strategic Growth, Mastercard
There has been significant progress in standardizing reporting on ESG issues, but there is still a lot of work to be done if we are to use the tools of disclosure, metrics and ratings to encourage the kind and scope of action needed by the private sector. And while there has been much discussion about the role of the corporation in society, the standards for measuring a company’s impact on society — the “S” of ESG —lag behind other metrics.
If we want to incentivize corporations to include the goal of progressing positive social impact in their business strategy, we need to develop metrics that reflect that. That’s hard. It’s difficult to compare what one company does to broaden financial inclusion to what another might do to further education. Yet, that is precisely the type of commitment we want to encourage. It is going to take collective effort among companies, accounting firms, investors and regulators to get this right.
Even as we work toward that goal, one step we can each take is to embed sustainability goals into the core of our business and culture – that includes how we operate, what we measure and how we reward employees. With shared accountability, we can better connect the “why” of our purpose to the “what” of our fundamental business strategy to ensure we deliver long-term growth for our shareholders, build trust with stakeholders and contribute to a more equitable and prosperous world.
7. ‘Document the financial impact of non-financial indicators’, Daniel Schmid, Chief Sustainability Officer, SAP SE
For business leaders to make appropriate decisions for a company’s long-term success, they need access to comprehensive data and performance metrics that go beyond only financial measurements. This non-financial data enables holistic steering and reporting, providing the visibility required to mitigate negative ESG impact and increase positive ESG impact. Double materiality assessments enable leaders to regain focus by identifying a company’s key social and environmental impacts to be addressed. Additionally, applying an impact measurement methodology like that from the Value Balancing Alliance allows the calculation of ESG impacts in monetary terms which can be integrated into business decision-making.
Being a Business Climate Leader Means Taking Action
Despite the IPCC’s latest report warning that the world is set to reach the 1.5ºC level within two decades, drastic and collective action can divert the worst impacts of climate change. Business has both an opportunity and a responsibility to act urgently, enabling a low carbon, climate positive economy that helps society thrive. Now more than ever, business must play its part in climate leadership.
Futuretivity delivers climate positivity with vibrant, socially impactful commercial power. We recognise that the how-to of sustainability can be overwhelming, so we empower businesses with actionable roadmaps, skills for the future and meaningful connections to succeed. Being a conscious business needn’t cost the earth nor cost your business.
For more inspiration and insights on sustainability for business go to futuretivity.com/resources If you are a company that needs help with sustainability in your business book a call with Futuretivity now and get sustainability delivered.