Paris pathway paved with risk and opportunity for business, says CDP chief

Speaking to edie ahead of the release of a CDP report which tracks corporate progress on climate action, Paul Simpson noted that the “significant progress” that certain companies have made by reducing emissions while simultaneously increasing revenue should serve as an example of how businesses can reap the benefits of aligning their operations to the ambitious climate targets established through the Paris Agreement.

“Paris sends a clear sense of direction for the global economy to deliver a well-below-2C world, and with it coming into force on 4 November that becomes even more clear,” Simpson said. “Our report shows that, even before Paris, some companies are preparing themselves for that world, but there is a big variation in regards to how prepared they are to deliver against the Paris Agreement.

“The gap this creates also creates a risk profile. If governments deliver on the Paris Agreement, then companies will face the risk of failing to transition. Should governments and businesses fail to deliver, then some of that risk will be taken by society. But what we see in the global low-carbon transition is a very significant economic opportunity for the leading businesses and those that act fast.”

The CDP report, titled ‘Out of the starting blocks: Tracking progress on corporate climate action’, highlights that, while 85% of the 1,089 businesses that disclosed data to CDP have emissions reduction targets in place, these targets would only take the companies a quarter of the way to being operationally in line with the crucial 2C threshold. Another key finding from the report, which is released tomorrow (25 October), is that only 9% of the companies have aligned their climate goals to the science-based targets initiative.

Decoupling opportunity

Simpson did point out that an increasing number of companies are beginning to mitigate climate issues internally. Almost half (48%) of the corporations cited in the report have disclosed intentions to adopt an internal carbon price next year, while 62 companies – including the likes of UK supermarket group Sainsbury’s and Indian IT company Wipro –are already realising significant economic returns from transitioning to low-carbon, resource-efficient processes. 

The report, produced in partnership with We Mean Business, goes on to reveal that, over a five-year period, the 62 aforementioned companies effectively succeeded in reducing emissions by at least 10% while increasing revenues by the same margin. In total, this ‘decoupling’ effect saw revenue jump by an average of 29% and emissions fall by an average of 26% across the group of companies. In comparison, the rest of the companies sampled saw average revenue decreases and emissions increases of 6% and 6% respectively.

For Simpson, companies that are successfully decoupling revenue and emissions are actually now creating a greater sense of ‘risk’ for those that are yet to account for climate change within their operations and portfolios.

“The more companies that prove that decoupling is possible, the greater the risk for those who are yet to act,” Simpson said. “It’s a story of risk and opportunity: for those who are not prepared for a changing world and future regulations tailored to a well-below 2C pathway, then ultimately they are building up risk in the business.

“Leading companies know the business case for acting on sustainability, and it’s a massive business case that is growing all the time. The key thing about the Paris Agreement is that it is a signal to governments to bring in more regulation to deliver on targets – this increases the business case further.”

The CDP report does have some notable absentees amongst the corporate world. Both Amazon and Facebook – which have previously been criticised for a lack of transparency on their climate action – failed to disclose information and data at the request of 827 institutional investors with assets topping $100trn.

For Simpson, the reasons as to why these companies choose not to disclose vary from “a lack of preparation” to “feeling that climate change isn’t a core business issue”. He noted that it will soon fall on the shoulders of investors to either agree with these companies on those points or to strive to uncover potential “hidden risks” in the relative lack of transparency.

Climate A List

The report is being published alongside CDP’s Climate A List, which identifies which companies are performing well in efforts to mitigate climate change. In total, 193 companies including Apple, Sky, Sony and Colgate made the A List.

With regards to sector-by-sector performance on the A List, Simpson highlighted an increasing willingness of the industrial sector – which accounts for 21% of the listed companies – while the utilities sector is “taking the transition very seriously” and has increased its representation on the A List by 10% as a result.

Last year’s A List saw Apple, Google, SABMiller and Unilever ranked as some of the best-performing companies in promoting and delivering low-carbon ways of doing business.

Matt Mace