Climate change is becoming more regulated on a national and global level, carbon-pricing initiatives are gaining traction, and decarbonization is now a commonly used industry buzzword. Because of the magnitude of the crisis, governments, states, cities, and corporations must accelerate their mitigation and adaptation efforts. Specifically, the role that the private sector must play in reducing global greenhouse gas (GHG) emissions is important to understand. The 2017 Carbon Majors Report[1] found that just 100 companies are the source of over 70% of all emissions.
Emissions disclosure is now a reality for many major corporations
The private sector has voiced ambitious climate pledges, setting decarbonization targets, including net-zero commitments, and clean energy goals. According to CDP, 50 % of the world’s 500 largest corporations are already integrating carbon accounting. This is not only a demand from customers and employees, but also financial markets. Some investors have taken matters into their own hands by creating initiatives, such as the Climate Action 100+ Net Zero Company Benchmark[2] which provides an assessment framework to evaluate selected companies on their disclosed climate change data. Shareholder activism is keeping the pressure up, the environmental part of ESG is a key assessment filter.
Companies are spending effort, time and money to address these demands. It also drives their branding, for example in the consumer segment with buyers increasingly aware about sustainability and environment. Green credentials are vital for brand attachment and trust and it is key for companies to deliver their promises.
In many cases, entire corporate departments are dedicated to cutting emissions, requiring analysis and solid information. This is a complex undertaking, specifically considering companies with subsidiaries across the globe, multiple locations, and complex supply chains. Specifically, reporting Scope 3[3] of the GHG protocol is an elaborate matter. Understanding which aspects of the supply chain (transport and logistics, product manufacture, and acquisition of intangible services) are the most carbon intensive needs specialized expertise and primary data, which many organizations lack or must estimate if they cannot collect this data with their suppliers.
A zero-carbon future provides a massive and profitable market
There’s an entire startup industry dedicated to offering GHG accounting services and assisting businesses in determining the optimum decarbonization strategy. A zero-carbon future provides a massive and profitable market with cutting-edge business strategies and technology solutions. As shown in a study by PwC, $60 billion has been invested into climate tech globally in the first semester of 2021 alone, almost triple the previous high reached in the last six months of 2020.[4] The implementation of carbon markets is a further opportunity for green growth, given their still unlocked potential. Estimates show that in 2030, the carbon credit market might be valued well over $50 billion.[5]
Decarbonization is also driven by legal obligation and litigation
Noncompliance with global warming mitigation responsibilities will also be costly, as lawsuits target governments and the private sector on climate action.[6] In a case against the Dutch government, in which the court determined the government should cut emissions by at least 25% by the end of 2020 compared to 1990, has prompted legal battles in other European countries. Moreover, carbon pricing mechanisms[7], such as carbon taxes or emission trading systems are being implemented globally. Companies adapting to these realities early will have a competitive edge in the future.
Other mechanisms target reporting rules where corporations have to comply with carbon disclosure obligations. In the United Kingdom, the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 have obliged all UK quoted companies to report on their greenhouse gas emissions as part of their annual Directors’ Report since 1 October 2013. Furthermore, starting in 2019, the 2018 Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations[8] have required quoted companies to disclose their global energy use, and large businesses to reveal their annual energy use and GHG emissions in the UK. More recently, the U.S. Securities and Exchange Commission (SEC) released a plan[9] that, if passed, would require publicly traded corporations to disclose climate-relevant data and information, such as direct and indirect emissions, physical impact, and climate risks and their influence on business model and strategy. The scope of the disclosure rules will be mostly limited to Scope 1 and Scope 2 emissions.
The clock is ticking
The question remains if all these efforts are enough to slow down the devastating effects of global warming. The 3rd report of the Sixth Assessment (AR6) of the UN Intergovernmental Panel on Climate Change (IPCC) will be launched on April 4th and focuses on mitigation strategies against climate change. The report’s conclusion will also be summarized and discussed in the IPCC Synthesis Report to be released in September 2022, which will set the tone for the 27th session of the Conference of the Parties (COP 27) in Egypt. Climate diplomacy will be about bringing all the actors to the table to prioritize long-term actions to stop the climate catastrophe over short-term capital gains. Governments and businesses will have to detail as quickly as possible how they will actually reach their net-zero commitments and balance the energy transition to renewables in an increasingly volatile geopolitical environment. As UN Secretary-General Antonio Guterres said: “You cannot claim to be green while your plans and projects undermine the 2050 net-zero target and ignore the major emissions cuts that must occur this decade.”[10]
[1] https://cdn.cdp.net/cdp-production/cms/reports/documents/000/002/327/original/Carbon-Majors-Report-2017.pdf?1501833772
[2] https://www.climateaction100.org/wp-content/uploads/2021/03/Climate-Action-100-Benchmark-Indicators-FINAL-3.12.pdf
[3] https://ghgprotocol.org/standards/scope-3-standard
[4] https://www.pwc.com/gx/en/services/sustainability/publications/state-of-climate-tech.html
[5] https://www.mckinsey.com/business-functions/sustainability/our-insights/a-blueprint-for-scaling-voluntary-carbon-markets-to-meet-the-climate-challenge
[6] http://climatecasechart.com/climate-change-litigation/non-us-climate-change-litigation/
[7] https://carbonpricingdashboard.worldbank.org/
[8] https://www.legislation.gov.uk/uksi/2018/1155/contents/made
