A Major Challenge for Tomorrow’s Global Company
Climate change presents a crucial test of companies’ ability to use their power and influence to help create a more sustainable future. Global warming not only represents one of the greatest challenges for 21st century society, but also threatens to exacerbate many other issues, such as poverty, fresh water shortages, conflict, resource depletion and disease.The poorest countries will be among the hardest hit and the least able to respond. For example the Intergovernmental Panel on Climate Change (IPCC) has projected that by 2020, crop yields from some African countries could have halved.61 Rising sea levels could displace millions in Asia this century.
The challenge is urgent. The latest report from the IPCC says that global warming is ‘unequivocal’. Eleven out of the last twelve years have been the warmest on record.62
There is now a wide scientific consensus that the changes in the climate are linked to rising greenhouse gas (GHG) emissions, chiefly carbon dioxide, from the use of fossil fuels. Pressure is growing for greater international action in the shape of a successor to the Kyoto Treaty. This would set long-term targets for emissions reduction and oblige governments to create policies to achieve them.
At the same time, concern over the security of future energy supplies is leading governments to seek out sources of fuel and power that are reliable and if possible local, as well as low in carbon emissions. Many countries and regions, such as the EU, are already setting tough targets for the coming decades both to limit GHG emissions and increase the use of biofuels and renewable power.63
Amid the risks, climate change creates an unprecedented opportunity for companies if they direct their businesses towards providing the plant, products and services that will be needed for the future low-carbon economy. The successful early movers will be companies with the vision to build the likelihood of dramatic constraints on carbon emissions into their strategy, recognising that there will be increasing rewards for sustainable solutions and penalties for unsustainable ones.
Global companies can assist the effort to combat climate change in two main areas: _ working with governments, NGOs and others to help create the right frameworks for the future; _ and taking significant voluntary action now, such as the development of low-carbon technologies.
Creating frameworks
Companies should support global action to address climate change, along with a governance system to ensure that action is effective and that organisations do not avoid their responsibilities. Global companies have a vested interest in such global machinery working well and should invest time and effort in helping governments and the UN to design it.
Companies should also work with governments to help them set emissions reduction targets and create strong frameworks that provide a stable regulatory context for investment in sustainable solutions. We recognise that these are likely to involve a mix of taxes, regulation and market mechanisms such as emissions trading systems.
Calls from the business community for co-ordinated action of this kind have already begun. They include the advocacy of the US Climate Action Partnership, which includes Alcan, Alcoa, BP America, DuPont, GE and Lehman Brothers, along with several NGOs. It is asking the federal government to “recommend the prompt enactment of national legislation in the US to slow, stop and reverse the growth of greenhouse gas emissions.” 64 In the UK the Corporate Leaders Group on Climate Change (CLG) brings together business leaders from major UK and international companies who have argued that investing in a low-carbon future should be a strategic business objective for the UK as a whole.65
Taking voluntary action
While a global agreement is being negotiated, there are many actions that global businesses can take to address climate change, and which many are taking already:
_ They can develop low-carbon technologies such as renewable power, sustainable biofuels, carbon capture and storage, and products that drive energy efficiency, such as advanced motors and combined heat and power systems.
_ They can support research to make breakthroughs in low-carbon technology, recognising that effective and economical solutions have potentially huge markets. They can initiate public-private partnerships and work with academia to carry out research in these areas, as many leading companies already do.
_ They can provide low-carbon solutions where policy-makers have already created a supportive and viable market for them. Examples include the support now being given to renewable energy in many markets. Total global wind power capacity, for example, has been increasing at an average of around 25% a year for the past five years.66
_ They can support and participate in emissions trading markets, such as the EU’s Emissions Trading Scheme, supporting the legislation needed to make them effective and robust.
_ They can practice eco-efficiency in their own operations, reducing costs as well as greenhouse gas emissions by minimizing energy use.
_ They can make a strategic priority of responding to the environmental concerns of customers, investors, employees, NGOs and policy-makers. For example, some retailers are planning to mark food products with ‘carbon footprint’ details alongside calorie counts and salt content.
_ They can help low-income countries and communities reduce emissions and adapt to climate change, for example by installing renewable energy infrastructure in rural areas or advising on areas such as water management, risk assessment and insurance.
An indication of investors’ growing engagement with the issue is shown by the growth of the Carbon Disclosure Project whereby companies disclose their CO2 emissions to a named list of investor organisations. In 2003, the project involved 35 investors with over $4.5 trillion under management By 2006, this had grown to 225 investors with $31.5 trillion under management.67
In summary, we believe that the voice of business must be heard in the debate over climate change, clearly acknowledging the need for global, regional and national agreements. These messages need to be backed up by actions which show that businesses have the commitment and the capacity to deliver the sustainable solutions needed to protect the planet for future generations.