Welcome to Our New Climate Reality: To Save the Planet, Businesses and Investors Must Be a Part of the Solution

Achieving climate and development goals without the full backing of business and investors is not possible. Fortunately, evidence shows that more and more businesses and investors are taking a lead—and saving costs and making money in the process. While the private sector is hugely diverse and different sectors have different contributions to climate change and opportunities to take action, a growing number of businesses have shown that reducing greenhouse gas (GHG) emissions can be linked to significant cost savings and benefits without adverse impact on overall profits or performance.

Indeed, there is evidence that such actions can lead to overall improvements in corporate profitability. At the same time, the emergence of new technologies and the growth of climate policy around the world have created a global market in low-carbon goods and services with a value of around $5.5 trillion—larger than the global pharmaceutical industry. Thus, although many businesses remain powerful opponents of climate-related policies, it is unsurprising that many others are now leading the charge for climate action.

Similarly shareholders and other investor stakeholders are increasingly aware that they need to take responsibility for the emissions associated with financial services provided to clients (called “financed emissions”). Analysis by the Carbon Tracker Initiative has played a key role in highlighting that using more than 20 percent of the currently listed coal, oil and gas reserves over the next 40 years would push global warming over the 2°C warming target. This indicates that if we are to meet our climate goals, then a significant portion of such reserves would become stranded assets. Financial investors must end ways to avoid exposure to stranded assets and to take advantage of the growing market in low-carbon goods and services.

The scale and influence of major global businesses and investors means that any effort to decarbonize the economy, whether at the global, national or sub-national level, requires their engagement. Public policy plays a key role in requiring or incentivizing businesses to reduce their emissions and in stimulating innovation, but business and investor leadership is also crucial.

Such leadership was highlighted in the chair’s conclusions to the United Nations Secretary General’s Climate Summit 2014 and by the Governments of Peru and France, who organized high-level events during recent climate negotiations showcasing business climate action. The Government of France also signaled the importance of business action by mandating the business community to hold a high-level summit dedicated to this topic in May 2015, with nearly 2,000 attendees, which was turned into an annual event with a successor in London in June 2016.

The private sector was active in the run-up to and during the 2015 climate negotiations in Paris—most notably through vehicles such as the United Nations Framework Convention on Climate Change (UNFCCC) Non-State Actor Zone for Climate Action (NAZCA) Portal, which included commitments of action by 2,090 companies and 448 investors as of April 2016, and the Paris Pledge for Action, signed by over 688 companies and 176 investors with over $11 trillion in assets under management, that committed to help implement and exceed commitments made by governments in Paris.

Other initiatives co-led by business that aim to catalyze action around the low-carbon transition include the Low-Carbon Technology Partnerships initiative (LCTPi). It is not just in the climate arena that business leaders have been playing a significant role; in January 2016 the Business and Sustainable Development Commission (BSDC) was launched with the aim of articulating and quantifying the economic case for achieving the Sustainable Development Goals agreed by governments in September 2015, with global CEOs at the heart of project.

The commitments discussed in such fora are almost all the output of international cooperative initiatives. These initiatives bring business and investors together, often with other actors, to deliver activities like target setting and implementation of action such as increasing the use of renewable energy, reducing drivers for deforestation, developing roadmaps for new low-carbon technologies like carbon capture and storage, or agreeing on common reporting and monitoring standards. These initiatives have the potential to shift corporate behavior and scale up impact in significant ways.

Increasing numbers of major companies are taking part in such initiatives, but their coverage is far from universal and the level of their ambition is not yet consistent with a 2°C pathway to stabilize climate change, let alone the aspirational goal of 1.5°C in the Paris Agreement.

Our new paper, Driving Low-Carbon Growth Through Business and Investor Action, argues that by collaborating with other private sector partners and with public sector bodies, including national and local governments and international institutions, businesses can significantly increase the impact they are able to have. By working together to set and achieve commitments, businesses can share best practice, prompt positive competition, and improve their confidence that ambitious targets are credible and achievable. By pooling resources to engage with policy-makers, businesses can develop stronger arguments and more efficient engagement strategies. They make their voice more credible by demonstrating greater backing.

Finally, to address systemic challenges such as deforestation, or rapid technology substitution, which requires simultaneous action from multiple fronts, businesses are increasingly realizing they need to be part of broad public-private partnerships that can change the terms of a whole market.

Read/download the full paper here.


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