What is the capacity to execute the transition to a post carbon economy among the world’s business leaders?1 The answer to this question is that we simply don’t know. As revealed at the recent United Nations Science Business Policy Forum in Nairobi, there is an urgent need to create a new level of clarity on where there is leadership towards decarbonization in the most carbon intensive business models of the world.
Can We Decarbonize?
An Editorial by Tim Nixon, Chief Communications Officer and Global Head of Partnerships & Policy, Constellation Research & Technology.
Emissions are concentrated in a few hundred businesses, as documented in a recent report launched at the UN Forum Nairobi meeting and published on Reuters Sustainable Business. Where these businesses are going, we are all going. And most of them are not telling us where they and we are headed on decarbonization, with under 20% (see red circles below) indicating a public plan to decarbonize in line with the Paris Accord:
Roughly 1/3 of global anthropogenic emissions originate in these firms and their value chains. They, as a group, are currently not decarbonizing. Without their leadership, we will not successfully mitigate the worst effects of climate change.
What to do?
First, measure and reveal authentic leadership, both from those already decarbonizing, and perhaps most importantly, from the many more firms who are just beginning their journey. To measure and monitor the progress of this key group of businesses, we are proposing to work with the Forum to create a free of charge, real-time platform providing simple, graphical indicators of the progress from each of the world’s largest GHG non-state actor emitters. The platform will highlight firms demonstrating decarbonisation leadership and positive momentum. It will be maintained using the best available data from across an array of the top tier data providers.
It will also be careful to convey that just being on this list of “carbon-giants” is not a bad thing. In fact, being fully transparent about ghg emissions for a G250 company is typically the result of years of rigorous work on reporting, and for those committed to effectively managing down emissions among these giants, a mark of distinction.
Most importantly, it will provide clarity on who is actually demonstrating leadership or emerging leadership on transparency and decarbonization, and who is not. There are currently many mixed messages. It’s hard for almost anyone to quickly determine where a company actually is on its journey towards sustainability. Without more clarity, we have little chance of even understanding the problem we are trying to solve.
Second, make the business case for transformation. We’d like to create much more robust C-level community engagement and knowledge-sharing on the benefits of transparency and the sometimes very difficult journey towards decarbonization.
Surprisingly, there are examples of leadership in nearly all carbon-intensive sectors of the global economy.
Take Cummins, one of the largest manufacturers of internal combustion engines. Cummins products literally power the world, and Cummins is completely transparent on their reporting of emissions. And they have plans to decarbonize using innovation in propulsion to bend down the emissions curve of their products over time.
Similarly, in the energy sector, the Italian utility Enel is fully transparent on emissions, and has achieved a remarkable level of decarbonization of its energy mix, with over 40% of its energy output coming from renewable sources. This performance vastly outpaces the renewable energy mix in the oil and gas sector, and represents a standard of clean energy production that, as it continues towards 100%, provides compelling evidence for the possibility of business model transformation in and to the energy sector.
There are many benefits and business opportunities in the examples of leadership like these.
For investors, they include an increasing opportunity to identify superior financial returns from those firms who are transforming into low carbon leaders.
For consultants, they include the opportunity to use the accumulating evidence for transformation to help firms and their suppliers, at a sector-specific level, to begin their journey and reap the benefits while there are still benefits to be had.
For policymakers, the benefits are enabling a better understanding of the relationship between policy encouraging sustainability and specific examples of non-state actor performance where the policy goals are being achieved.
But most importantly, for the carbon-intensive businesses themselves, the benefits are to engage with each other and their stakeholder communities on the specific pathways and cost/benefits of leadership.
Together, these two programs on transparency and transformation will deliver needed insight and a new mechanism to accelerate purposeful change in the world’s largest businesses. A change, that if planned and executed, will provide measurable and immeasurable benefits to all involved.
And just to be a little more specific on benefits, consider the total shareholder return from the group of largest-emitting businesses who are transparent, and decarbonizing compared to those who are not as documented at the end of the recent Thomson Reuters report:
It’s a small group of hugely important companies, but the evidence of benefits and the lack of evidence of penalties is accumulating for leadership2.
The United Nations Science Business Policy Forum brings key decision-makers together to chart our pathway towards a more sustainable and prosperous world. Going forward, we see this vision being translated into fulsome action through clarity on the sources and benefits of leadership, and engagement to bring those benefits to all sectors of the global economy.
1 The factual conclusions in this article are drawn from the recent report: Transparency, The Pathway for Carbon Intensive Businesses. The report was produced through a collaboration between Constellation Research, Calvert, CDP, 3M, Refinitiv and Thomson Reuters.
2 The research report classified the level of transparency of each company in the G250 on a six stage model from ‘policy statements only’ to ‘complete emissions reporting’. Among the 91 companies for whom there was at least three years of complete emissions reporting,those actually showing meaningful levels of decarbonization (versus business as usual) delivered at 2x premium in total shareholder return (20.51% and 11.7% respectively). These effects may be related to quality of management, resource efficiency and / or increasing demand for low carbon solutions. In all they show a compelling case for being an early mover on transformation.