Is it really possible to make a business plan for zero carbon?
The Carbon Trust's managing director (advisory) Hugh Jones outlines four practical tools that corporates are using to create a sustainable roadmap to 2050.
It is becoming increasingly clear that without mobilising huge efforts from the private sector it will not be possible to contain global warming to no more than 2 degrees. It is also not going to surprise anyone to discover that most companies can’t or won’t make the required changes for purely altruistic motives. They need to see value of action – or the risk of inaction – before they alter a business-as-usual trajectory that has in the past delivered results.
When it comes to cutting carbon emissions there are some straightforward decisions to make, such as investing in energy efficiency, where there is often a compelling business case today. But there is a big difference between the incremental progress seen today and the complete transformation of a business so that it is zero carbon by 2050 (which is what most sectors will need to achieve to meet a 2 degree target).
2050 is 35 years away. Without wishing to be morbid, it is very likely that a number of the people currently making the big strategic decisions at large corporates will not be alive at that point to see the long term consequences of their decisions today. But they will be around at the next AGM, held to account for delivering immediate performance. And if they deliver results they may be around again the following year, and the year after that.
This is part of the reason that climate change is such an immense problem to address. It operates over generational timescales. Only the most capital intensive businesses tend to look out as far as 10 or 15 years into the future. The majority have a far shorter planning horizon.
Despite this, it feels like in Paris we are reaching a tipping point where many businesses are starting to wake up to the value-at-stake from climate change. There are a number of large coalitions of businesses and investors calling for clear commitments from governments, because a strong international agreement will give them the certainty they need to start putting in place plans for profitability a low carbon economy.
But changing course is easier said than done. Even if you know you need to reach the destination of being a zero carbon business by 2050, how do you find the roadmap that will take you there?
At the Carbon Trust we have worked with a number of large corporates to help them to answer this question, using tools we have developed to quantify value-at-stake under different scenarios. Through this work we have identified four practical initiatives that companies can implement today and are of real value in shaping plans through to 2050.
1. Supply chain sustainability strategy
Understanding and reporting environmental impacts in the supply / value chain can uncover areas of inefficiency outside an organisation’s direct operational control, as well as the hotspots that offer the greatest opportunity for cost saving and value creation. When companies have better visibility of their supply chain impacts they can search for innovative ways to reduce these, such as changing material inputs, working collaboratively with suppliers, or building more circular business models. The new Carbon Trust Supply Chain Standard – recently achieved by companies including Aviva, Deloitte and Willmott Dixon – creates a framework to help companies start taking action on this.
2. Internal carbon pricing
In September 2014, the World Bank and more than 1,000 companies joined calls for carbon pricing. This year the CDP reported that 437 companies say they use an internal carbon price, up from 150 in 2014. And a further 583 companies reported that they intend to use an internal carbon price in the next two years. Analysis by the UK government’s Department of Energy and Climate Change and the Carbon Trust estimated that in a 2 degree scenario that the global price of carbon is expected to converge at $140 per tonne of CO2 by 2030 and $400 by 2050. In anticipation of this an internal carbon price is becoming an increasingly popular tool to evaluate future investment decisions, though there is still uncertainty and inconsistency in how this is being applied between companies.
3. 100% renewable energy commitments
In the past year more than 40 large corporates have joined the RE100 campaign, committing to source 100% of their energy from renewables. Businesses taking part include BT Group, Mars, Unilever, Procter & Gamble, IKEA Group and Nike. This move has been strengthened by changes to corporate reporting under the Greenhouse Gas Protocol, allowing businesses to specifically recognise the purchase of clean energy in their carbon accounting. Not only does this give an incentive to energy companies to invest in renewables, as the costs of renewable energy continue to fall then businesses can invest themselves in meeting their own energy needs in this way.
4. Science-based targets
Climate science is used to inform what the world needs to do to limit warming to no more than 2 degrees, but it can also be used as a guide for what individual businesses need to achieve. If corporates have plans for their future market share and relative efficiency within their sector (which they do), they can similarly look at what their sector needs to achieve in terms of decarbonisation and make plans accordingly. Around 90 companies are now committed to setting science-based targets, including some that have already put them in place, such as Coca-Cola Enterprises, Sony, General Mills and Thalys.
Businesses that take these approaches will be more likely to thrive during the transition to a sustainable, low carbon economy. They will gain a competitive advantage from early action, some very useful reputational benefits and increase their ability to flourish under future regulatory action on climate change. It will also position them to manage their risks from the physical impacts of climate change as these impacts are revealed, and to embrace the opportunities inherent within a transformed business environment.
In some ways, 35 years is a very long time. Many of today’s largest businesses did not exist 35 years ago. It is reasonable to assume that a good number of them will not exist in the form they do today by 2050. But if the world takes strong action to address the challenge of climate change, those companies that are still successful by the middle of this century will owe a part of that success to having had a long term plan for being a zero carbon business.
This may involve some far-sighted thinking and even some tough decisions early on, but these businesses will taking the lower risk road to 2050.
Hugh Jones is Managing Director (Advisory) at the Carbon Trust.