Business embraces climate risks

In many ways, the Rio+20 sum­mit ear­li­er this year failed to advance the cause of sus­tain­abil­i­ty as it descend­ed into ran­cour and dead­lock.

As a KPMG report on the meet­ing says: “Where­as the first Rio con­fer­ence in 1992 pro­duced inter­na­tion­al treaties on cli­mate change and bio­di­ver­si­ty that were hailed as land­marks in human his­to­ry, this year’s sum­mit pro­duced a 53-page doc­u­ment which has been wide­ly derid­ed for being weak and mean­ing­less.

“But, and it is an impor­tant ‘but’,” the report adds, “it would be a mis­take to believe that noth­ing of impor­tance hap­pened at Rio+20.”

While glob­al pol­i­cy­mak­ers appear to have backed them­selves into a sit­u­a­tion of pol­i­cy paral­y­sis, com­pa­ny lead­ers have recog­nised that they need to take action. And they have start­ed to do so in recog­ni­tion of the fact that the chal­lenges that busi­ness­es face and the oppor­tu­ni­ties that they can exploit are chang­ing.

From the finan­cial cri­sis to the freak weath­er that is caus­ing food prices to soar, to nat­ur­al dis­as­ters that can have glob­al ram­i­fi­ca­tions, such as the Japan­ese tsuna­mi in 2011, recent events have proved that the busi­ness world is increas­ing­ly affect­ed by events all over the world, in areas that would appear to have no con­nec­tion to them.

In the past three decades, direct glob­al eco­nom­ic loss­es for all types of nat­ur­al cat­a­stro­phes have aver­aged $90 bil­lion a year, accord­ing to fig­ures from the Willis Research Net­work, with 78 per cent of those nat­ur­al cat­a­stro­phes being weath­er-relat­ed. The impact of extreme weath­er events and resilience to their impacts requires a sys­tem-wide reassess­ment of risk.

What is dif­fer­ent now is a new focus on how they can address the triple bot­tom line of peo­ple and plan­et along with prof­it

The dif­fi­cul­ty lies in artic­u­lat­ing the risk for a giv­en com­pa­ny as risks dif­fer between indus­tries, geo­gra­phies and even indi­vid­ual com­pa­nies. The tra­di­tion­al way to quan­ti­fy risk is to iden­ti­fy the haz­ard, the expo­sure to that haz­ard and then vul­ner­a­bil­i­ty to that haz­ard.

With such a lack of clar­i­ty about the impact of cli­mate change and the time­frame with­in which it may become an issue, it can be hard to iden­ti­fy mate­r­i­al risks and the best way of report­ing them.

Paul Simp­son, chief exec­u­tive of the Car­bon Dis­clo­sure Project (CDP), says the risks fall into three main cat­e­gories: increas­ing tax and reg­u­la­tions around green­house gas­es; extreme weath­er events and chang­ing weath­er pat­terns; and tech­nol­o­gy inno­va­tion.

Cli­mate change remains the risk mul­ti­pli­er. The Inter­na­tion­al Ener­gy Agency says time is run­ning out to avert cat­a­stroph­ic cli­mate change after glob­al emis­sions rose by 3.2 per cent in 2011, despite a huge leap in the amount of renew­able ener­gy capac­i­ty and slow­er growth caused by the finan­cial cri­sis.

Because investors are going to become increas­ing­ly wor­ried about the impact of cli­mate change on their invest­ments, com­pa­nies are like­ly to find them­selves under increas­ing scruti­ny con­cern­ing their cli­mate resilience. Con­sul­tan­cy Mer­cer sug­gests that investors should “kick the tires” of exist­ing invest­ments across all asset class­es to assess the sen­si­tiv­i­ty of each asset class to cli­mate change risk fac­tors and their cli­mate resilien­cy.

It also says investors should engage with com­pa­nies on cli­mate risk man­age­ment issues, so com­pa­nies need to be ready to explain their strat­e­gy.

One of the big dis­ap­point­ments of  Rio+20 was the water­ing down of a com­mit­ment to make com­pa­nies report on their sus­tain­abil­i­ty per­for­mance. But that so dis­mayed a num­ber of gov­ern­ments – South Africa, France, Den­mark and Brazil – that they pledged to make it oblig­a­tory for their com­pa­nies to report on sus­tain­abil­i­ty.

Sep­a­rate­ly, but also at Rio, deputy prime min­is­ter Nick Clegg announced that com­pa­nies list­ed on the Lon­don Stock Exchange, one of the world’s largest, would have to report on their car­bon emis­sions from next year.

Writ­ing in The Guardian before the announce­ment, which will affect about 1,600 cor­po­ra­tions, Mr Clegg said: “Using resources respon­si­bly is in business’s own inter­ests too. Pep­si depends on water; Unilever depends on fish stocks and agri­cul­tur­al land; and every firm relies on a sta­ble fuel sup­ply. But while nine out of ten [chief exec­u­tives] say sus­tain­abil­i­ty is fun­da­men­tal to their suc­cess, only two out of ten record the resources they con­sume.”

Car­bon report­ing is the first vital step for com­pa­nies to make reduc­tions in emis­sions, accord­ing to the Car­bon Trust. By mea­sur­ing and report­ing emis­sions, com­pa­nies can begin to set tar­gets and put in place car­bon man­age­ment ini­tia­tives to reduce emis­sions in the future. Defra, the Depart­ment of Envi­ron­ment, Food and Rur­al Affairs, esti­mates that report­ing will con­tribute to sav­ing four mil­lion tonnes of CO2 emis­sions by 2021.

Reg­u­la­tions on emis­sions report­ing will indi­rect­ly increase everyone’s atten­tion on the issue, which should lead to improved per­for­mance, Jonathan Grant, a part­ner in the Sus­tain­abil­i­ty and Cli­mate Change prac­tice at PwC, says. “Investors will also get more from the infor­ma­tion about the risks and lia­bil­i­ties of the busi­ness, and its effi­cien­cies,” he adds.

“We’re mov­ing into a dif­fer­ent era on envi­ron­men­tal report­ing, par­tic­u­lar­ly for the big brands. There is over­whelm­ing inter­est from stake­hold­ers for infor­ma­tion about car­bon and cli­mate change risks, oppor­tu­ni­ties and strate­gies, all of which might impact the finan­cial well­be­ing of a busi­ness. Investors in par­tic­u­lar want infor­ma­tion that gives them insight, not hind­sight, into a company’s long-term prospects.”

Mea­sur­ing and dis­clos­ing car­bon emis­sions and resource use is becom­ing a main­stream con­cern, says Ben Calde­cott, head of pol­i­cy at Cli­mate Change Cap­i­tal. “Leg­isla­tive dri­vers, the fact that investors see these met­rics as prox­ies for well-run com­pa­nies and the fact that resource prices are becom­ing ever more impor­tant to the bot­tom line, are all sec­u­lar, long-term trends that aren’t going any­where. This has impli­ca­tions for all boards and senior exec­u­tives,” he says.

Lead­ing busi­ness­es have recog­nised the world is chang­ing and that, if they are to be fit for the future, they need to change with it, says Yvo de Boer, KPMG’s spe­cial glob­al advis­er on cli­mate change and sus­tain­abil­i­ty, and for­mer head of the UN cli­mate talks process.

“For them, that debate is over,” he says. “What is dif­fer­ent now is a new focus on how they can address the triple bot­tom line of peo­ple and plan­et along with prof­it. There has been a shift from prob­lem-think­ing to solu­tion-think­ing.”

Mr de Boer says that, while pol­i­cy­mak­ers failed to make any sub­stan­tial progress at Rio: “Busi­ness­es did not sit back and wait. Many have recog­nised that sus­tain­abil­i­ty megaforces, such as cli­mate change, water scarci­ty, food secu­ri­ty and urban­i­sa­tion, are not wait­ing for the politi­cians to make up their minds. Instead, busi­ness­es have tak­en action on their own.”

TOP FIVE TIPS

Sustaining carbon cuts

ACT NOW: Don’t bury your head in the sand. Do the research and get start­ed, ensur­ing you make friends with peo­ple in those areas of the busi­ness that will sup­port you with data col­la­tion, from finance and your envi­ron­ment-sus­tain­abil­i­ty teams, through to facil­i­ties and human resources, says Frances Dar­ton, sus­tain­abil­i­ty sec­tor man­ag­er at Achilles.

SUSTAINABILITY IS HERE TO STAY: Long-term think­ing will set you in good stead when it comes to car­bon report­ing. Choose a struc­tured approach that will sup­port all your cur­rent and any future report­ing require­ments. It’s proven that gen­uine lead­ers in car­bon report­ing reap ben­e­fits across their organ­i­sa­tions, includ­ing oper­a­tional effi­cien­cy, ener­gy effi­cien­cy and cost sav­ings along­side enhanced rep­u­ta­tion, brand lead­er­ship and mar­ket­ing oppor­tu­ni­ties.

THE BUSINESS CASE: Organ­i­sa­tions should look beyond the report­ing require­ment to realise the busi­ness ben­e­fit, iden­ti­fy­ing oppor­tu­ni­ties in car­bon man­age­ment and reduc­tion. While mea­sure­ment is a great start­ing point, con­sid­er­ing a for­ward-look­ing pro­gramme or stan­dard which focus­es on achiev­ing future reduc­tions is rec­om­mend­ed. This will not only dri­ve quick wins, but sup­port a longer-term approach to green­house gas reduc­tion, future-proof­ing your car­bon strat­e­gy.

BE PROUD TO BE SUSTAINABLE: Shout about what you are doing and high­light your achieve­ments. It’s vital that your stake­hold­ers, both inter­nal and exter­nal, know about your com­mit­ment to sus­tain­abil­i­ty. Keep­ing staff updat­ed on progress will encour­age engage­ment and will be key in dri­ving the behav­iour­al change required to make in-roads into your reduc­tion strat­e­gy.

BUSINESS AS USUAL: To deliv­er long-term cul­tur­al change, sus­tain­abil­i­ty must be embed­ded as busi­ness as usu­al, top down and bot­tom up. Sus­tain­abil­i­ty works when, togeth­er with car­bon reduc­tion, it isn’t seen as some­thing which is man­aged by anoth­er team. The entire organ­i­sa­tion must be engaged and have a sense of own­er­ship.

In many ways, the Rio+20 summit earlier this year failed to advance the cause of sustainability as it descended into rancour and deadlock.

TOP FIVE TIPS

Sustaining carbon cuts