Climate Crisis: Will we ever get to the heart of the challenge?

The perfect storm is no longer somewhere, down the road. It’s here, now. We’re already experiencing increasingly severe and damaging climate events, with heatwaves, wildfires and floods, along with further signs of ecosystem collapse, resource scarcity, rising inequality, financial uncertainty, and growing geopolitical conflict, with democracy increasingly under threat. We’re in a new era of Polycrisis: it’s all kicking off, everywhere, all at once.

We only have a limited amount of time to act. Radical solutions are needed to deliver a transformative impact, if we are to retain any hope of keeping our world within an average of 1.5C global warming by 2050, as well as meeting all other challenges to our future survival and prosperity.

Yet, we are failing in our collective response to biggest challenge humanity has ever faced. And after 17 years in this space, I’m as mad as hell. We’ve known about the scale of the challenge for decades; we’ve received repeated warnings, yet we continually fail to stand up and take commensurate action. Will we ever get to the heart of the challenge?

Transform or die

We’ve now crossed six out of nine planetary boundaries and we’re well outside the safe operating space for humanity. While it’s hard to separate interconnected crises, let’s zone in on climate.

We’re aiming to stay within +1.5C average global temperature rise by 2050. Yet, we’re already at +1.2C, with very little wiggle room left at our disposal. On our current trajectory, we will hit somewhere between +2.4 and +4.8C.

The prognosis for humanity is not good; we face a -2% to -10% hit on GDP along with ecosystem collapse, and all that this entails. In short, we can’t afford not to invest in radical climate action, otherwise we’re firmly on track for an unliveable world. It barely needs saying, but there is no business on a dead planet.

According to UN Global Stocktake, there is now a huge chasm between the level of climate action being taken and the emissions cuts required. Nations will emit 22bn tonnes more carbon dioxide in 2030 than the climate can cope with, if we are to stay within the increasingly fading dream of 1.5C average warming. This excess of 22bn tonnes that must be eliminated is equivalent to the combined emissions of the top five polluters today: China, US, India, Russia and Japan. This a huge task, especially when we consider current rate of progress.

Reflecting on the latest study of planetary boundaries, Professor Simon Lewis at University College London highlights the level of response needed: “The planet is entering a new and much less stable state – it couldn’t be a more stark warning of the need for deep structural changes to how we treat the environment.”  We might wonder at what deep structural changes he has in mind.

The most recent IPCC report, published in March 2023, points towards an essential transformation: “Achieving net zero CO2 and greenhouse gas emissions requires systems transformations across all sectors and contexts, including scaling up renewable energy while phasing out all unabated fossil fuels, ending deforestation, reducing non-CO2 emissions and implementing both supply and demand side measures.”

This point is also recognised at national level within Ireland’s Climate Action Plan 2023: “For the citizen and business, it will involve a significant change in lifestyles and business models respectively over the period to 2030.” The implications of this statement are massive; we will all have to change how we live, work and make money.

Yet, how many citizens and business leaders are fully aware of the changes they will need to make in their lifestyles, behaviours and choices, going forwards, let alone reaching a happy state of acceptance and readiness to make such changes?

It feels like the prevailing public discourse in most territories is all about an easy transition: all we have to do to become ‘green’ is to switch from fossil fuels to renewable energies, and invest in some carbon credits to close the emissions reduction gap; job done, we can carry on living and working, more or less, as we are at present.

Yet, are we being truly honest with our businesses, our customers and citizens about what it really takes to make the collective impact we need to see – with lifestyles fully-aligned with sustainability transformations – rather than inadequate efforts towards nudging and incrementalism?

Time is almost up!

The March 2023 IPCC Report is also clear that we have very little time left for meaningful action, “There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all.” The essential systemic transformation of every aspect of society needs to start kicking in within just two years. Given the lead time between commitment ad real action, this means we need to make big decisions on how we live, work and operate – and these decisions are all needed yesterday.

Yet, there is still hope. Just. As Damian Carrington writes in The Guardian, “Planetary boundaries are not irreversible tipping points beyond which sudden and serious deterioration occurs.” While not irreversible, there are real concerns over dwindling signs of planetary resilience – our ability to bounce back is diminishing.

So, this could be our last call, as Johan Rockström warns: “If you want to have security, prosperity and equity for humanity on Earth, you have to come back into the safe space and we’re not seeing that progress currently in the world.”  A powerful call to action. And that last bit really does tend to echo in your mind: We’re not seeing that progress currently in the world!

What’s going on?

Well there’s lots of huffing and puffing, but Rockström is right: we’re not seeing enough actual progress on the ground.  At a national level, the G20 countries – responsible for around 75% of global greenhouse emissions – remain far off track from meeting our climate targets. None of the ten developed countries in the G20 are managing to reduce their emissions at a rate consistent with 2030 targets. Since the Covid-induced dip, global emissions have bounced back and continue to rise.

Corporate emissions are also continuing to rise, despite the growing number of pledges, commitments and targets. While nearly 50 percent of listed companies have now set decarbonisation targets, only 17 percent of companies’ climate targets are aligned with the 1.5C Paris goal. Looking ahead, listed companies are on track to burn through their allocated carbon budgets – consistent with capping global temperature increases at 1.5C – by October 2026.

Meanwhile, there’s lots of noise on disclosure and reporting, plenty of new regulations, and an increasing focus on compliance. As Joel Makower describes so well, “It’s a dizzying and confusing array of initiatives, not to mention the acronyms that go with each.”  We now have CSDDD, CSRD, ESRS, in addition to TCFD, CDP, GRI and others, along with the new ISSB – aiming to harmonise sustainability reporting, reduce complexity and confusion, and spur greater uptake. Although, this might be a case of adding yet another layer in our increasingly complex regulatory landscape, and there are further accusations of a potential race to the bottom.

Makower has it right, though; it is dizzying. Now, just imagine all the resources each of our organisations will need to secure and deploy, just to navigate our way through this alphabet soup of regulations and to ensure we tick all the right boxes?

We seem to be experiencing a climate action paradox – where we see more disclosure than ever, more data, more technology, yet we experience less real impact. Despite all the rhetoric, reports and great PR, we’re still on a pathway towards warming the planet by a devastating 2.7C this century.

Of course, we do need meaningful standards to ensure we’re all doing enough of the right things, and steering away from any temptations for greenwashing. Disclosure, reporting and compliance are still important activities, but only represent part of a more complex picture for authentic climate action.

We need to make sure all this activity and resource is driving the right impact – pushing us far enough and fast enough towards meeting the ultimate test: Can our business work within the safe operating space for humanity, generating sustainable economic opportunity and shared prosperity within planetary and societal boundaries?  

To achieve this, we will need to experiment and innovate, like never before.

We’ve become great managers, over the last few decades, turning the handle on business-as-usual and incremental change, but we now need to find the ability to reimagine and develop radical innovations and transformational change. On current terms, we cannot simply hope to comply our way out of the climate crisis.

Each and every company should address this simple question: What is our ratio of spend on reporting, compliance and PR versus our level of spend on genuine innovation and transformation? By this late stage of the game – in the midst of an existential crisis, with such limited time to act – we should all be placing a much greater emphasis on the latter.

Yet, are we really prepared to do what it takes?

Big Apple?

Apple has been a great player for product innovation, over many years, and they seem to be picking up the climate and wider sustainability challenge with ‘great gusto’. Their latest report – widely publicised with an inspiring video — introduces the great idea of Mother Nature checking out their environmental credentials. While highly enjoyable, and effective from a PR perspective, we might wonder if this is more a triumph of style over substance.

Clearly, Team Apple has achieved some good things; the early wins we might expect to see and at such scale, yet our guardian of nature appears to let them off rather lightly on a few important fronts: including the level and efficacy of their offsetting; their approach to circular economy, or more accurately, recycling; and their consumption-oriented business model.

Projecting from their current trajectory for emissions reduction, we might also wonder how long will it really take to achieve a complete (yes, including all emissions, Apple) net-zero transition? Looking beyond the quick wins and assumptions, have they really developed a realistic pathway? Still, Mother Nature will be back next year to hold them further to account.

In the meantime, Julia Vol nails it: ‘Apple have failed to adequately address the consumption and resources challenge: How cool would it be if Apple came out and announced: “Hey, you, buy less. We will make sure you can have your phone for a decade; we will build it to last, ensure you can easily repair and upgrade it, help you maintain it, and, at the end of its use, just send it to us, and we will refurbish it and sell it forward, so the materials in it will never get lost. At Apple, we have the smartest people on Earth working for us; we will figure out how to do it and still make a profit. We are the kind of company that thinks in systems and long-term sustainable business models; we are not in the business of just selling more.”

Now, that’s the level of radical innovation we need to see! And, presently, I’m not sure Apple has really got to the heart of this challenge, set out for them, some seven years ago.

The question is, why are so many businesses stopping short of the necessary transformational changes we need to see?

Getting to the heart of the challenge

Ultimately, meeting the transformation challenge all comes down to a fundamental issue that we just don’t discuss enough – money: how much money we are making, and wish to continue making; and how much we need to invest in making transformation happen.

Embracing radical climate action and sustainability, we need to disrupt our thinking on money at both levels. And we need a more open dialogue looking at the financial challenge/opportunity through a new lens.

Business models are at the very heart of the circular, net-zero challenge. How we make money is, quite simply, the problem to the answer: on the one hand a barrier to change, as we tend to resist something that we perceive could be a potential threat to our conventional thinking on what constitutes commercial success; and on the other hand, rethinking the business model can provide the fundamental key to unlock new solutions that work both sustainably and commercially.

We have to completely reinvent our blueprint for how we make money. And so, the business model becomes the engine room for circular economy innovation and, ultimately, the route towards sustainable business success – as we strive to generate circular business models that are sustainable and profitable, yet also attractive for customers and suppliers.

Preloved fashion: profit from non-consumption?

The fast fashion business model has to be completely transformed. H&M is far from perfect, but has been dipping its toes in the waters of circularity for some time: a tentative pioneer in the early days, exploring recycled and alternative resources, and developing entrepreneurial approaches like Treadler.

More recently, H&M has been exploring how to expand re-use and circular business models – recognising that keeping products in long-term use enables major savings in embodied carbon emissions, coupled with a significant business opportunity to generate long-term value: reselling ‘preloved’ products enables multiple transactions from one product.

H&M is now trialling a range of different circular business model formats across the Group, so they can see what works and what doesn’t, and establish how they can most readily meet customers’ needs and scale-up services that will also work commercially, and grow into being part of their core business.

One of the most interesting of the new business model options is Sellpy, an online platform where customers can purchase second-hand clothing in twenty-four markets – more than eight million second-hand items were traded on the platform in 2022. This model is being developed further, to help normalise second-hand shopping, and provide customers with the opportunity to sell their used items back into the system.  Imagine that, a time when buying pre-loved is redefined as part of the good life?

Sellpy appears to be doing well: its business results were consolidated into H&M Group’s balance sheet for the first time during Q1 2023 – making a significant contribution to Group profitability, and demonstrating the very real potential in capturing value from selling preloved items of clothing for reuse: making money through non-consumption.

It feels like H&M is getting closer to the heart of the circular fashion business model challenge. Continued and rapid progress will be vital — as it’s not clear how anyone in this market can get anywhere near net-zero, without maximising circular economy and genuine reuse and avoiding over-production — harnessing the opportunity to drive radical commercial innovation for radical climate action, low consumption lifestyles and new, more regenerative business models.

Follow the money

The second part of the financial equation is all about investment. Toby Heaps shares a great insight, writing for Corporate Knights: “The best way to tell the future of a company is to follow the money by looking at the investments it’s making today.”

There are naturally concerns over investment, or rather, the lack of it. We’re nowhere near investing at the pace we need to. According to the IPCC Working Group 3 Report, investment in the shift towards a low-carbon world needs to increase by 600%.

According to a 2022 survey by the Cap Gemini Research Institute, the biggest companies – with annual revenues greater than $20bn – are investing less than 0.5% of annual revenue equivalent into sustainability. This appears to be way short of then mark for delivering a real impact.

If we extrapolate from a recent report by McKinsey, we can estimate that every business should be reinvesting around 25% of their profits, each year, on climate action alone.

This level of investment is clearly a significant undertaking, yet the rewards are there for serious players, not just in terms of carbon reduction; far from being a burden, investing in integrated sustainability enables superior long-term business performance – delivering, on average, double the amount of shareholder value, over the long-term.

A further study by EY found that companies leading on climate action are 2.4 more times more likely to report significantly higher financial results than expected.

This is all about creating a new sweet-spot for business, where sustainability drives innovation, generating business opportunity, while enabling superior performance.

We need all companies to invest, and deploy sufficient funds, supported with robust business cases – capturing the benefits, as well as monitoring the costs. Without adequate investment, as we know, nothing happens.

One of the roadblocks appears to be the investment appraisal process. According to Climate Action 100+, an investor-led initiative focused on ensuring the world’s largest corporations deliver on climate action, only 5% of companies have plans in place that align their capex strategies with emissions targets.

How can the necessary projects come to fruition, if our investment and budgeting processes hinder financial capital from flowing into meaningful climate actions?

We need to change the conversation.

We need to change the conversation: We simply cannot carry on as we have been. This is the world’s greatest crisis and our response needs to be commensurate with the scale of this challenge.

The clock is ticking, we now have to switch tracks, and fast; not just for the sake of civilisation, although this should provide sufficient motivation in itself, but also for the future prosperity of our enterprises and economies. It’s time to get back on track by developing more transformational strategies for radical climate action and sustainable enterprise.

This involves being honest on what is needed. Yes, we need a clear focus on radical innovation and authentic transformation, but we also need to talk about money; we need to disrupt our business models – finding new ways of making money through non-consumption – and we need to invest like never before, albeit with a strong focus on the business case.

Have we got the balance right, or are we in danger of getting distracted by the ever-burgeoning and complex landscape of regulation, standards and compliance? It’s clearly time to rekindle our innovation mojo and create a radically different future through authentic transformation. We need to rethink money.

Money, like power, can be used for great good, but money can also be used for great harm. There is a huge responsibility that goes with the stewardship of money and our financial capital is only as smart as the person holding it. It’s time for all of us to get smarter in how we generate, allocate and deploy our financial capital – from great to even greater expectations.

This article is based on a selection of the insights from the forthcoming Earthshine Group white paper, Delivering Net-zero Transformations.

Mike Townsend is founder and chief executive of Earthshine Group and the author of The Quiet Revolution.