Faced with threats to business continuity from Covid-19, we have seen companies think critically about how to respond to risks from the natural world and prevent exposure to them in the future. During this challenging moment, there is opportunity. With businesses primed to think critically about their interaction with the environment, forward-thinking companies are well positioned to double down on sustainable practices such as supply chain transparency, transitioning to clean energy, and implementing circular economy principles.
Integration of these sustainability fundamentals can help reduce risk and ensure resilience in a future defined by yet another major global crisis: climate change, which is poised to create shock waves that catapult the world into yet another “new normal.” Sustainably informed business models, demanded by investors and required for long-term success will define this “new normal.” The pace and scale at which most companies are currently committing to action will not be enough.
Like Covid-19, climate change will have dramatic impacts on global markets, supply chains, and human welfare. Its impacts can already be felt across the globe. Companies that use this moment of reflection to pursue sustainable change can help ensure business continuity and growth in the face of climate-caused global shifts and market disruptions.
Anticipating the “New Normal”
Corporate sustainability commitments to address climate change are increasingly common and ambitious. In 2019, approximately 25% of Fortune Global 500 companies had a public commitment that by 2030 or sooner they will be carbon neutral, purchasing 100 percent renewable power, or meeting a science-based emissions reduction target. This represents a fourfold increase in commitments since the Paris Agreement was signed in 2015.
Corporate buyers have dramatically driven demand for renewable energy, catalyzing 9.33 GW of new generation in the United States in 2019. In 2020, 63% of Fortune 100 companies had some level of commitment to renewable energy. An emerging group of companies are even committing to invest in, deploy, and otherwise support carbon-negative technologies that actively remove carbon from the atmosphere (e.g. Microsoft, Amazon, Stripe, Delta).
Despite this growth in corporate climate action, sustainability practices need to go both further and faster to limit warming to 1.5 or 2°C in the coming decades. The level of commitment most companies exhibit is not enough to ensure resilience, capitalize on future market opportunities, or curb the climate crisis.
Slow and Steady is a Risky Strategy
Adopting sustainable best practices and business models is becoming a non-negotiable prerequisite for companies to maintain a social license to operate among the common consumer. The World Economic Forum’s most recent Global Shapers Survey found that “climate change” and “destruction of nature” remained the top concerns for people under 30 years old (who represent approximately 50% of the world’s population) for the third year in a row.
Investors concerned about climate risk are also increasingly considering the sustainability of their investments. Earlier this year, the CEO of the world’s largest asset manager, BlackRock, warned “climate risk is compelling investors to reassess core assumptions about modern finance.” In the European Union, asset managers will soon be required to disclose the sustainability of their holdings, including metrics such as carbon emissions and deforestation.
A recent study from HSBC bank found that as the pandemic wreaked havoc on global markets, “shares of companies focused on climate change or ESG issues…outperformed as the virus spread.” Even without a global crisis, there is increasing evidence that sustainability funds outperform the market. According to Morningstar, the number of assets flowing into sustainable funds in 2019 set a record four times higher than 2018 levels.
Companies that move quickly to capitalize on these global shifts will be better positioned to succeed. Those that cannot adapt may find themselves poorly equipped to deal with the world’s “new normal.”
Getting Started
As companies explore the potential for risk mitigation and growth through sustainability and climate action, three core areas of focus can act as helpful guideposts: 1) gaining transparency into the supply chain, 2) transitioning to clean energy, and 3) implementing circular economy principles.
Transparency in the supply chain: Emissions associated with the supply chain are often significantly larger than emissions from owned and operated assets. Gaining greater transparency into the supply chain can help identify sustainability “hot spots” (areas that need improvement), and low-hanging fruit (areas ripe for action). Collaboration with supply chain partners is also often essential to reducing Scope 3 emissions, a requirement for many companies committing to reduction targets through the Science Based Targets Initiative (SBTi). Industry-specific coalitions and tools, such as the Sustainable Apparel Coalition in the fashion sector, can be incredibly valuable for engaging supply chain partners.
Transitioning to clean energy: Reducing fossil fuel consumption is a great way to communicate values to stakeholders, reduce emissions, and, in many cases, save money. Many companies procuring low-carbon energy are working towards a public commitment goal (e.g. RE100, SBTi), however, there are multiple pathways for procuring clean energy and the best fit will be unique for every company. Despite the recent economic down-turn, the renewable energy industry expects continued activity through 2020 due to long-term commercial and industrial demand. Companies like Google are even embracing next-generation procurement commitments, striving to achieve 24/7 consumption of zero-carbon electricity.
Implementing circular economy principles: A circular economy decouples economic growth from the consumption of finite natural resources. In practice, this means reducing waste, increasing efficiency, ensuring long-lived products, and imagining business models around closed-looped systems (e.g. refurbishment, re-commence, recycling, etc.). In addition to being good for the planet and brand image, implementing circular economy principles can help reduce emissions, costs, and climate risks. As part of its recently announced goal to be carbon negative by 2030, Spin, a scooter rental company, predicted extending the life of its scooters to 24 months could reduce the company’s carbon footprint by 40%.
The Covid-19 crisis should be a wakeup call for any company not actively prioritizing resilience and sustainability. The pandemic has been a humbling reminder that markets are fundamentally tied to and limited by natural boundaries. It has shattered the comfortable business-as-usual paradigm. As we pick up the pieces, lets capitalize on this moment to ensure a brighter, healthier, and more sustainable future.
Written by Kacey Katzenmeyer, Senior Manager at Green Strategies and DC 2020 Fellow at the Clean Energy Leadership Institute.
