Beyond carbon confusion: strategies for real business impact
Carbon dioxide emissions appear to be stalling - have we reached the holy grail of economic decoupling? Caution is needed to avoid complacency and to find strategies that deliver a real impact.
At last, good news. For two years running, the International Energy Agency (IEA) has reported that total global carbon dioxide gas emissions from the energy sector have stalled, levelling off at around 32 billion tonnes per year. Meanwhile, the global economy has grown by just over 3% in each of the past two years – suggesting that the holy grail of economic decoupling is within our grasp.
Key factors behind this emerging success story include the shift away from burning coal towards more renewable energies in many countries – most notably China – along with major improvements in energy efficiency. These are very exciting times; the clean energy revolution appears to be making a real impact.
For the first time in 40 years, we appear to be witnessing carbon dioxide emissions decoupling from economic growth. When emissions have stalled in the past, it has always coincided with an economic downturn. This shift generates a real sense of hope: that the transition to a low carbon world is realistic and achievable; and we can now look forward to growing our economies, while reducing adverse impacts on our climate. Time to break out the Champagne?
If only life were that easy. Dig beneath the headlines and we find the picture is much more nuanced – urging caution on the true scale of the task in hand. There are several clear challenges.
Firstly, we need to be mindful that the good news relates only to energy-based emissions; we are not yet experiencing a comprehensive reduction in all greenhouse gas emissions arising from all economic activity. Getting a sense of proportion; in reality, we are only celebrating an apparent stalling in around 26% of the global carbon emissions pie, drawing on IPCC data.
We still need to deal with the emissions arising from industry, agriculture, forestry (including deforestation), transport (key challenges in global aviation and shipping), from our buildings, and so on – all of which combine to generate 74% of our total global greenhouse gas emissions. In truth, we need to transform the whole of the economy.
Mind the stats
Mindful of the big picture, our real-world experience is also becoming increasingly harsh. Total atmospheric carbon dioxide levels are still rising – growing more in the past 12 months than at any time in the previous 56 years, according to latest measurements.
During January and February of this year, carbon dioxide levels exceeded the symbolic 400ppm threshold. This leaves very little room for manoeuvre, if we are to keep within 450ppm – which, in theory, should enable us to manage average global warming within the 2°C consensus.
With the increasing concentration of greenhouse gases, average global temperatures are, of course, continuing to rise – with 2016 headed to be the hottest year on record, again.
As our climate changes, extreme weather events now account for more than 90% of natural disasters. One in five extreme rainfall events are now a direct result of the current 0.85°C global rise in temperature.
Sea levels are also rising, but perhaps faster than we thought. New studies on the rapidity of glacial melting share new insights on the processes and feedback systems involved – enabling more sophisticated models and predictions – suggesting that sea-levels could rise by one full metre, by the year 2100.
We get the picture – climate change is happening, and is arguably getting worse.
We also need to be cautious on the true causality behind the apparent stalling of energy sector emissions. While we are certainly deploying more renewable energies than ever, this is not the only factor at play. The recent economic slowdown in China could also be another key driver behind any flat-lining of global energy-related emissions.
China is a big player, responsible for more than 25% of global greenhouse gas emissions. As the Chinese economy slows down, this can have a marked effect on total energy-related emissions. Furthermore, if significant growth returns to China, and indeed the rest of the world – and that is a big IF, given other economic factors – we could see further rises in total energy-related emissions, once again.
There is also a growing concern that China could be under-reporting on greenhouse gas emissions, which may actually have risen in 2015, contrary to previous reports. The problem is that data sources are contradictory and reports are often revised, upwards.
We will need to watch this space, carefully.
The case for pace
Overall, our response on climate change is still dangerously slow. According to analysis by PWC, we need to reduce the rate of greenhouse gas emissions in line with 6% per year, in real terms – way beyond the rather modest 1% average we have managed, thus far.
The case for acceleration is further underlined by Bill McKibben, who argues that, even if we had stayed as we were in 2012, without adding any new emissions, we would already be dangerously close to reaching our 2°C limit – as previously released emissions will continue to overheat the atmosphere. Mindful of this lag-effect, global temperatures will continue to rise – unless we get more radical.
It is also useful to reflect on the cost of inadequate action. A new study by the London School of Economics has modelled global asset value losses, arising from climate change impacts. Losses result from the direct destruction of assets, and also the reduction in earnings for those affected, and could range from $2.5trn to $24 trn – completely wrecking the global economy, in the worst-case scenario
Translate this into business impacts: if we experience a reduction in our business revenue, with up to 30% losses, all of our profits will be wiped out. Most likely, our businesses will be gone, too. The reality of the science, coupled with our own real-world observations, along with the economic case, demonstrates a clear and compelling need to accelerate on the current pace of change.
But, to enable this positive shift, we need to mobilise investment in clean energy, like never before – with at least $1trn per year, according to the 2015 New Climate Economy Report.
Thankfully, the investor world is waking, but we need to get out of bed and start running fast. We are currently investing around $330bn – more than ever, but about one-third of where we need to be.
We know the business world is coming around to the idea of a low-carbon economy, yet despite some encouraging progress by a few leading lights, many organisations are still struggling to translate awareness into meaningful action. So, what’s the problem?
In many cases, there is still too little discussion in the boardroom on whether climate change is a serious business risk.
Of course, most major companies do report on climate risks: 91% of companies in the S&P Global 100 Index see extreme weather and climate change impacts as current or future risks to their business.
But there is a big difference between having an appreciation and taking real action. The big issue is that many companies struggle to translate long-term, global climate data into short-term, local risks and business impacts. They need actionable science – with concrete steps to deliver tangible improvements, backed-up with no-regrets investment cases.
This response is understandable. Looking at the high-level recommendations of most major reports – and, there are some great materials available from the likes of WWF, Greenpeace, New Climate Economy, and many others – they tend to provide good direction on the big policy levers, which often require joined-up actions between a complex network of global and local actors.
But, for any single business – and most are small-to-medium-sized enterprises – looking at these big policy strategies, they can appear quite remote from our normal sphere of activity and influence. Given this sense of detachment, we can tend to wait on others for action.
Taking ownership: 7 steps
Truth is, while timely action is needed across the board, we can be much more proactive, and not just wait for signals from the great and the good. Quite simply, weighing up the balance of business risks and opportunities, the low-carbon transition just makes good business sense. But, we need to take the opportunity to synthesise, translate and extend some of the great works mentioned into practical, actionable strategies – for businesses at all levels: -
1) Reduce demand, aggressively
The most sustainable unit of energy is the one we don’t use. Major efficiencies are already possible – with up to 40% savings in energy and carbon emissions delivered through integrating a range of eco-efficiency initiatives. Reducing demand also reduces pressure on our renewable energy targets.
2) Rapid transition to renewable energies
Many of the world’s most influential companies – including IKEA, Swiss Re, BT Group, H&M, Unilever, and Mars – are committed to 100% renewable power. Worldwide, renewable energies already constitute 60% of new power generation, each year – and costs are falling: the renewable energy transition is becoming a no-brainer.
3) Get radical – go circular
More radical efficiencies are possible, beyond our initial eco-efficiency initiatives. All new and virgin materials require energy for extraction, manufacturing, and distribution. By adopting circular economy thinking, the more we maximise resources in-use, the more energy we save – as well as reducing availability and price risks. Going circular, Renault's plant near Paris uses 80% less energy than comparable production sites – and also delivers higher operating margins.
4) Engage the value chain
Around 80% of our total footprint lies outside of our core operations. Increasingly, we will need to look outward, to collaborate with our supply chains and our customers. Unilever is enabling consumers to make a difference by re-designing products to reduce emissions while concurrently providing greater user benefits. We should all seek ways for our customers and suppliers to make an affordable low carbon transition.
5) Innovate and disrupt
The low-carbon transition is not just about finding ways to emit lower amounts of greenhouse gases within our current framing; it also provides a major strategic opportunity for new markets, products and services. We should seek to disrupt ourselves, before our competitors do. Tesla is leading the charge in the car industry, and now also deploying its battery technologies to enable local storage of excess solar electricity generated. It is time to get this creative in all our businesses.
6) Adapt, adapt, adapt
Climate and extreme weather events will still impact us, to varying degrees, across our business operations. Now we have taken mitigation activities as far as we can, we also need to prepare for these remaining impacts. Be ready; protect assets, build resilience - manage risks and opportunities.
7) Capture the complete business case
Systems thinking applies – there will be a greater range of benefits than we might realise, many of which can be quantified in financial terms. We should build holistic models to capture all benefits and savings arising.
We’re definitely on the way to a low-carbon economy. Although, we would do well to exercise caution, being mindful of all sources of emissions, along with the full range of dynamics that affect emission levels.
We should certainly celebrate our successes in the energy sector – but we need to pick up the pace, to emulate and accelerate on this great work in all sectors of the economy.
The solutions are all there: we can deploy practical, business-focused strategies to preserve the future wealth of nature, along with our shared financial prosperity.
But, with one final caveat: When we explore decoupling, we also need to think about more than just carbon – we need to consider all resources and all impacts. How do we manage our businesses within all our planetary boundaries?
Mike Townsend is founder and CEO of business consultancy/thinktank Earthshine, and author of The Quiet Revolution (forthcoming)