Leading a New Era of Climate Action

Leading a New Era of Climate Action

Climate change is a global emergency. It’s threatening crops, water supplies, infrastructure, and livelihoods. It’s damaging the broader economy and company bottom lines today, not in some distant future. In recent years AT&T has spent $874 million on repairs after natural disasters that the company ties to climate change. The reinsurance leader Swiss Re has seen large increases in payouts for damage caused by extreme weather events — $2.5 billion more in 2017 than it had predicted — a trend that CEO Christian Mumenthaler attributes to rising global temperatures. If we don’t move quickly toward action on climate, says Mark Carney, the Bank of England governor, we’ll see company bankruptcies and raise the odds of systemic economic collapse.

Corporate leaders are at last absorbing this; nearly every large company has significant plans to cut carbon emissions and is acting. But given the scale of the crisis and the pace at which it’s developing, these efforts are woefully inadequate. Critical UN reports in 2018 and 2019 make two things clear: (1) To avoid some of the worst outcomes of climate change, the world must cut carbon emissions by 45% by 2030 and eliminate them entirely by midcentury. (2) Current government plans and commitments are not remotely close to putting us on that path. Emissions are still rising.

Current Climate Policies Are Grossly Inadequate To hold global warming to one and a half degrees Celsius above preindustrial levels and prevent the worst impacts of climate change, the world must cut carbon emissions to zero by midcentury. Yet emissions are still rising, and under existing policies reductions won’t begin to approach what’s needed. If we stay on the current path, temperatures will probably increase by about three degrees Celsius, with catastrophic effects. The line chart plots data from Climate Action Tracker and shows historical and projected global carbon emissions in gigatons per year from 1990 through 2070. Since 1990 emissions have steadily increased from 36 gigatons per year to about 50 gigatons per year now. Under existing policies, emissions are projected to continue rising until about 2050, with a high projection of 63 gigatons annually. In the scenario required to limit warming to one and a half degrees Celsius, emissions would have to be cut in half over the next ten years and then halved again in each of the following decades.

Countries, cities, and businesses need to move simultaneously along two paths: reducing emissions dramatically (mitigation) and investing in resilience while planning for vast change (adaptation). My focus here is on mitigation, because adaptation alone — building ever-higher walls to keep out the sea and simply turning up the air-conditioning as the outdoors becomes uninhabitable — won’t save us. If we allow climate change to destroy the plant and animal ecosystems we rely on, there will be no replacements. The good news is that business has enormous potential to profitably cut emissions faster and even more.

If the main question for business were still “Which actions will both cut emissions and create short-term value?” we know the answer: slash carbon in energy-intensive industries and in operations, transportation, and buildings; buy lots of renewable energy, which is strategically smart because it has been competitive with fossil fuels for years; reduce waste, particularly in critical sectors such as food and agriculture; expand the use of circular business models that minimize resource use; embed climate change metrics in corporate systems and key performance indicators, and more. Again, most companies have begun to take advantage of these “basic” opportunities and will accelerate adoption as they see the payoff grow. So let’s assume that they will continue down this path. Then what?

Given the urgency, we must ask a different, and harder, question: “What are all the things business can possibly do with its vast resources?” What capital — financial, human, brand, and political — can companies bring to bear?

Drawing on 20 years of consulting to global corporations and working on climate change issues, I see three actions that companies must now focus on to drive deeper change:

  • using political influence to demand aggressive climate policies around the world
  • empowering suppliers, customers, and employees to drive change
  • rethinking investments and business models to eliminate waste and carbon throughout the economy

These actions may feel unnatural to some executives if they appear to put larger interests ahead of immediate shareholder profits. But the tide is turning on the very idea of shareholder primacy. The roughly 200 largest multinationals based in the United States recently declared, through the Business Roundtable, that they will no longer focus solely on shareholders or on the short run. We are at a pivotal moment as the climate crisis propels companies’ growing sense of social purpose. The result, I believe, is the will needed to finally achieve this deeper change.

What’s in It for Us?

Before I dig into the three areas of change, it’s fair to ask why a company would commit to such challenging and possibly risky initiatives. One argument is macro/societal and the other is microeconomic. The former is straightforward: Companies need healthy people and a viable planet; with expensive runaway climate change on the horizon, they have an economic imperative and a moral responsibility to do everything they can to ensure a thriving world. As Unilever’s former CEO Paul Polman says, “Business simply can’t be a bystander in a system that gives it life in the first place.” And let’s not forget that even as they pursue their own self-interest, executives sometimes just do what they believe is the right thing, which may or may not pay off — from ceasing to sell assault weapons at Dick’s Sporting Goods and Walmart to funding by Apple and Microsoft of programs to reduce homelessness in their neighborhoods.

The microeconomic argument, however, is often overlooked. Stakeholders, particularly customers and employees, have increasingly high standards for the companies they buy from and work for. Business customers are demanding more sustainability performance from suppliers every year. Consumers are seeking out sustainable brands (50% of consumer packaged goods growth from 2013 to 2018 came from sustainability-marketed products), and Deloitte’s global surveys show that up to 87% of the under-40 crowd — the Millennials who will make up 75% of the global workforce in five years — believes that a company’s success should be measured in more than just financial terms. And nine in 10 members of Gen Z agree that companies have a responsibility to engage with environmental and social issues.

Employees are now directly pressuring their companies to do more on climate, particularly in the tech sector. In direct and public appeals, Google employees have asked their executives to cut ties to climate deniers, and Microsoft’s employees staged a walkout in protest of the company’s “complicity in the climate crisis.” At Amazon more than 8,700 workers have signed an open letter to CEO Jeff Bezos with a list of demands, including developing a plan to get to zero emissions and eliminating donations to climate-denying legislators. Their efforts clearly played a part in pushing Bezos to announce large ambitions to be carbon neutral by 2040 and to buy 100,000 electric vehicles.

Because of pressure like this, along with increasingly dire warnings from climate scientists and global bodies including the UN, corporate efforts to reduce emissions have become table stakes — something any company must do to earn respect from employees and customers. And what is common and accepted practice, regardless of the short-term ROI, can sometimes shift very quickly. Consider that nobody could prove the value of diversity and inclusion when companies first dove into that issue. Now we have good data — but the norms changed first.

I’ve seen firsthand how this can play out on sustainability issues. Nearly six years ago, in my book The Big Pivot, I advocated setting science-based emissions-reduction goals. Virtually no companies were doing that then, and I argued with many who wondered why a company would set a goal not required by law. Now, owing to peer pressure — and because it’s rational — those goals are all but standard for big companies, with about 750 signed up and more than 200 committing to 100% renewable energy. They moved from “Why would we?” to “You’re a laggard if you don’t.”

The first companies to try the most innovative sustainability strategies are generally B Corps or purpose-driven, privately held businesses like Patagonia and IKEA, which have more leeway to experiment. The story is similar for many of the next-gen climate ideas I lay out below: Big public companies are just dipping their toes in the water, while smaller, nimbler, sustainability-focused companies take the lead. Their examples matter, because over the past decade the largest firms started emulating the midsize leaders — or just buying them. To mitigate the worst effects of climate change, more companies need to follow, and fast.

Leading a New Era of Climate Action

Let’s return now to the three broad activities that every company, big or small, must undertake.

1. Use Political Influence for Climate Good

Given the scale of the climate crisis, business alone can’t solve it. But business does have a powerful tool beyond its own practices and products: extensive and deep tendrils in the halls of political power. All over the world, but especially in market economies, companies have enormous influence over governments and politicians. Through large campaign donations and — in the United States after the Supreme Court case Citizens United — nearly unlimited spending on political ads, the corporate agenda gets an outsize voice in society. How can and should companies use that power?

FLOODING CITIES The chart shows how the risk of flooded cities increases with rising global temperatures. According to the World Resources Institute, an increase of three and a half degrees Celsius could lead to a rise in sea levels of more than a meter by 2080. An increase of two degrees could cause $11.7 trillion in flood-damage losses per year from rising sea levels. Even an increase of one and a half degrees could cause $10.2 trillion in flood-damage losses per year.

Business’s government relations have traditionally been aimed at reshaping or fighting regulations. But over the past few years many companies have, at least on the surface, been supporting some climate policy. Hundreds of multinationals with operations in the U.S. have signed statements such as “We Are Still In” and the recent “United For The Paris Agreement” to let the world know that they will cut emissions in keeping with the Paris Climate Accords and that they want the U.S. government to stay aboard, despite announcements that it would not. Another group of large companies called for the world to hold warming to just 1.5 degrees Celsius. Signatories came from every corner of the planet: Sweden (Electrolux), Japan (ASICS), India (Mahindra Group), Switzerland (Nestlé), Germany (SAP), and many other places and sectors.

But statements alone are inadequate. Companies must lobby for the policies that will lead to a low-carbon future, and senior executives need to show up in person. Without collective government action, we have little chance of avoiding the direst outcomes of climate change. One industry — fossil fuels — has had a dominant, decades-long influence on climate policies in world capitals, and for good reason: Policies aimed at reducing emissions pose an existential threat to the business. Companies in every other sector must grasp that climate change, which may spin out of control without enlightened policies, is an existential threat to their businesses.

For the most part, non–fossil fuel companies engage only in occasional special lobbying days organized by the likes of Ceres, the American Sustainable Business Council, and Business Climate Leaders. Those events are important, of course, but even the groups themselves acknowledge that the number of big companies with a consistent climate-action focus is small. As Joe Britton, a former chief of staff for U.S. Senator Martin Heinrich, told me, these temporary “fly-ins” are better than nothing, but they are overshadowed by the daily swarm of fossil fuel lobbyists. In response, Britton left his position to create a new lobbying organization, with the help of other Capitol Hill insiders, to deploy a fuller and more constant political message to Congress on climate.

There’s also a major disconnect between what companies say about their commitments to fight climate change and what those who represent them — the trade associations or even their own government relations people — actually push for. As transparency increases, companies should worry about any gap between their sustainability commitments and their lobbying. An NGO, Australia’s LobbyWatch, is calling out the mining giant BHP and others for such disconnects. And the UK-based influencemap.org is tracking corporate lobbying activity on climate at hundreds of companies and publicly highlighting hypocrisy.

For leaders, aggressive climate lobbying is not just about appearances; it can create advantage. If 100% of your energy comes from renewables, a price on carbon won’t affect your own cost structure much. And if you make products or provide services that help reduce emissions, you benefit from tighter carbon controls. That’s surely one reason that Germany’s Siemens, with a portfolio of products that improve energy efficiency, states that its top political engagement goal is “combating Climate Change.”

Hugh Welsh, the president for North America at DSM, a large Dutch company that offers nutrition, health, and sustainable-living products and solutions, can attest to this. He has worked for years to bring a business voice on climate to the halls of political power. Welsh says he does this for two reasons: principles and pragmatism. About the former, he says, “Over 10 years as president, I’ve developed political capital. I can use that just for strategic things for the business, but I can also use that to improve the world.” About the latter, he notes that DSM serves several sustainability-focused product markets, so a proactive role on sustainability and climate policy fits its strategy.

When Welsh makes the case to skeptical executives, leaders, and trade groups — such as the recalcitrant U.S. Chamber of Commerce, with which he worked for two years to flip its position on climate — he says, “If you don’t evolve your position, you’ll be on the wrong side of history…your partners and customers will leave in droves.”

So what policies should companies advocate? To move the world to a low-carbon future, we need bold plans in a few key areas: pricing carbon and mobilizing capital to shift to low-carbon systems; rapidly raising performance standards and phasing out old technologies for big energy users like cars and buildings; and enabling transparency and efforts to reduce human suffering.

FOOD SHORTAGES The chart shows how the risk of worldwide food shortages increases with rising global temperatures. According to the World Resources Institute, an increase of three and a half degrees Celsius could lead to global food-supply disruptions. An increase of three degrees could result in more than 400 million people being exposed and vulnerable to crop-yield losses. An increase of two degrees could result in a 7% to 10% loss of rangeland livestock globally. An increase of one and a half degrees could cause a 6% decline in the global average maize crop yield.

Leading a New Era of Climate Action

HEAT WAVES The chart shows how the risk of heat waves increases with rising global temperatures. According to the World Resources Institute, an increase of three degrees Celsius could cause 74% of the global population to be exposed to 20 or more days a year of deadly heat by 2100. According to research published in the journal Nature Climate Change, “deadly heat” is the threshold beyond which air temperatures, humidity, and other factors can be lethal. An increase of two degrees could cause 54% of the global population to be exposed to 20 or more days a year of deadly heat by 2100. An increase of one and a half degrees could expose 48% of the global population to 20 or more days a year of deadly heat by 2100.

WATER UNCERTAINTY The chart shows how the risk of water uncertainty increases with rising global temperatures. According to the World Resources Institute, an increase of three degrees Celsius could cause 10-month droughts, on average. An increase of two degrees could result in a 36% increase in frequency of rainfall extremes over land. According to the NOAA, “extreme rainfall” can be loosely defined as a month’s worth of rain for a given region falling in a single day. An increase of one and a half degrees could expose 271 million people to water scarcity.

The Next Level of Action

There’s no doubt that companies are doing a lot on climate, including cutting emissions and setting aggressive carbon goals for operations, supply chains, and their innovation agendas. But it’s not enough. The science is getting away from us, and we’re losing the relatively stable planetary temperature range that allowed us to build our society over the past 10,000 years. Companies have many levers to pull to truly change business as usual, but most remain stuck in old thinking. Climate action is usually focused on incremental change. And even when they’re setting a big goal like going to all-renewable energy, companies have waited until every project makes money quickly. Now they need to mobilize all corporate assets, hard and soft, to tackle this shared, unprecedented problem at the scale it requires.

Next-gen climate actions, as they become an expected part of business, will create significant long-term value. They will help companies build closer, lasting connections with key stakeholders; create clear and consistent regulatory environments that enable more sustainable practices that lower costs; and drive deeper, more-disruptive (or what I call heretical) innovation. Throw in the substantial intangible value — employee attraction and loyalty, lowered risk in supply chain, resilience, license to operate, societal relevance, and preparation for a very different future — and you have a powerful business case.

But it’s also well past time to recognize that aggressive climate action is necessary if humanity is to survive and thrive. Business and society won’t succeed unless and until we do all we can to tackle climate change.The Big Idea


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