Business leaders need to set a course to prevent corporate titans from sinking like the Titanic
Imagine a ship going full steam ahead into dangerous waters. The captain stands on the deck with a telescope in hand, but is not looking through it to watch for dangers that could lie just over the horizon.
The captain agrees that there is probably a big iceberg out there somewhere and that hitting it could sink the ship. But the captain doesn’t slow down and maintains the course that has been set.
This is the current response from the vast majority businesses leaders to climate change. Despite strong words from a number of leading businesses this week in Paris, we are a long way from where we need to be in terms of action.
Since the industrial revolution private enterprise has built and shaped the world in which we live. Businesses have effectively and efficiently met the needs and wishes of a growing and increasingly affluent global population. But an unforeseen and terrible consequence of this is that society now faces environmental challenges so great that the ecosystem may be damaged beyond repair.
Today, our strongest response to these environmental challenges is to leverage the capability and capacity of business to shape and build a sustainable, low carbon future. Only businesses can bring together the productive and technical capacity, alongside access to financial capital, to transform the world at pace. And rapid transformation is exactly what is needed.
But change brings disruption. There will be winners and losers. Some corporate titans will capture the commercial opportunities in this transition, allowing them to survive and thrive in a changing climate. Other businesses, that may seem unsinkable today, will go the same way as the Titanic.
The Carbon Trust recently published the findings of an extensive study looking in depth at the response of businesses to climate change and resource scarcity, asking why it is so far from where it needs to be and the course we need to follow .
Our global survey of board-level executives of large businesses from across four continents found strong agreement that the challenges from climate change are real, creating a bottom-line impact today, big risks and significant opportunities.
They are also confident that more change is coming, with 70 percent believing that action taken by consumers, governments, and investors will force the transition to an environmentally sustainable future. And most see that shift happening within the next 15 years, before 2030. That’s not far away, but it is beyond the business planning horizon of all but the most capital-intensive businesses.
Rearranging the deckchairs
A picture emerged of unjustified confidence. Out of 229 interviews only one respondent said their company’s sustainability performance was below average when compared with competitors. And half saw themselves as leaders in their sector.
Half of the businesses surveyed also thought that a step change towards sustainability, driven by consumers, governments and investors, would require them to fundamentally change their products, services or business models. And they were remarkably positive about their ability to make those changes when the time was right.
Despite this, the response of many businesses today amounts to little more than rearranging the deckchairs. It became clear that businesses are living in two realities: although they recognise that risks and opportunities exist over the horizon, efforts and resources are focused on delivering today’s business plan.
But businesses are rational. They respond to market conditions and signals to maximise opportunities and mitigate risks. And the reality today is that in most cases, market conditions and signals aren’t strong enough to create the imperative, or offer the incentive, for businesses to take transformative action.
But there are likely to be significant physical impacts from climate change, alongside a stronger global response from governments and consumers in the next decade. If this is indeed the case then is there not a failure of governance to adequately assess the strategic implications of this and take action accordingly?
Our research found that a major issue for business leaders is the difficulty they face in relating sustainability to core business operations, or being able to quantify the risks and opportunities from climate change and resource scarcity. The Carbon Trust has developed a pragmatic response to this which we are putting into practice with businesses, governments and investors around the world.
On the actual Titanic there was a businessman. Thomas Andrews was the ship’s chief designer, having served as managing director of the Belfast shipbuilders, Harland and Wolff. After the ship sank the following cable was sent from the White Star Line’s offices in New York:
"After accident, Andrews ascertained damage, advised passengers put heavy clothing, prepare leave vessel. Many sceptical about seriousness damage, but impressed by Andrews' knowledge, personality, followed his advice, saved their lives. He assisted many women, children to lifeboats. When last seen, officers say was throwing overboard deck chairs, other objects, to people in water. His chief concern safety of everyone but himself."
He was heroic in the face of disaster. But if business leaders today look for the challenges ahead and adjust their course, they can avoid disaster and carry us all to a sustainable, low carbon future.
All the captains of industry need to do is pick up a telescope and take a good look beyond the horizon. A strong global agreement in Paris will help to put the issues related to climate change in sharper focus.
Tom Delay, chief executive, Carbon Trust
In this new blog series, experts from the Carbon Trust explore some of the areas of opportunity to accelerate action and increase ambitions, overcoming the barriers to creating a sustainable, low-carbon economy.Carbon Trust