The Risk and Reward of Climate Action

Now’s the Time for Companies to Show Courage and Ambition

October 20, 2019

By Lynn Scarlett, Former Chief External Affairs Officer

Increasingly, businesses are recognizing the risks associated with climate change. More severe weather patterns are already impacting the economy and making parts of the world more volatile. Such changes cause damage to infrastructure, interrupt supply chains, hurt agricultural productivity, and impact human health. The United Nations estimated the economic cost of climate-related disasters alone hit $2.245 trillion over the last two decades, an increase of more than 150 percent compared to the previous two decades.

Companies are also addressing risk from a variety of voices applying pressure. The public, customers, investors, and employees are calling on companies to do more—and scrutinizing companies to make sure they follow through on commitments.

More and more, companies are realizing that they are at risk if they don’t step up on climate change. They are also missing the potential rewards of helping to shape a changing economy and regulatory landscape before it changes without them.

Regardless of the company or industry, the market signals are there, and we already have solutions. For climate action, as for any other business endeavor, companies must do what they have always done: improve, invest, and innovate.

Improve.

The constant search for ways to do more with less is an intrinsic part of how businesses compete by cutting costs and adding value to customers. Creating more efficiency and resiliency is not just table-stakes. It is an ongoing process for companies to constantly reevaluate their business strategies. This includes what companies can do in their operations and across the value chain.

For example, companies that set science-based targets and net zero carbon goals are committing to realize the ambition of the Paris climate agreement—and energy efficiency is a primary way to unlock new ways to grow their business while reducing emissions.

Waste reduction is another area where companies continue to make progress. The principles of a circular economy and ecosystem services are leading to reductions in areas including energy consumption, water use, food waste, and excess packaging, among other things. Meanwhile, companies are tapping into the value of materials that would have otherwise been sent to landfill.

To respond to expectations for businesses to meet high environmental, social, and corporate governance standards, companies are improving their methods for measurement and reporting in order to communicate progress to their constituencies and ensure transparent results.

Invest.

Investment in nature is a proven method for sustaining business. Natural climate solutions, for example, are both a mitigation and adaptation strategy. We need to reduce emissions through natural climate solutions, alongside efforts on energy, industrial processes and transport.

Natural climate solutions—based on the conservation, restoration and management of forests, grasslands and wetlands—can deliver up to a third of the emission reductions needed by 2030.

At the same time, they spur economic development, preserve biodiversity, improve agricultural resilience, and are crucial to achieving the ambitions of the Sustainable Development Goals and the Paris climate agreement.

Financing and insurance mechanisms are an under-explored area of opportunity, yet we are seeing private capital being applied to protect coral reefs, savannas, and mountain ranges.

Innovate.

Meeting the challenges of emission reductions requires dramatic innovation across sectors—including agriculture, energy, transportation, buildings, IT, and more. From startups to Fortune 500s, climate action cannot exist at the margins of business. Innovation can and should take many forms:

Technological Innovation: Climate considerations are now central to innovation that will meet supply-side constraints and demand-side pressures. Companies are developing smart solutions to tackle pressing challenges, like making fisheries more sustainable, quantifying the economic benefits of nature, creating better software to support battery storage for renewable energy, and improving water quality and quantity.
Institutional Innovation: Often overlooked, institutional innovation is an important aspect of entrepreneurship, economic dynamism, and environmental progress. For environmental entrepreneurship, new institutional arrangements that improve environmental and energy performance fall into several categories, including new contracting, supply-chain, and service relationships between manufacturers and suppliers, employers and employees, brands and customers. Culture change at this level is a key lever for putting sustainability into practice.
Policy Innovation: Public policies can remove barriers to action, enhance incentives for clean energy, and tackle pollution, including greenhouse gas emissions. Creating low-carbon economies may be one of the most difficult tasks humanity has ever tackled—but the benefits of success can be profound. As a society, how do we effectively incentivize and reward companies that are taking the right steps, while actively setting public policies that encourage other companies to follow suit?

Coral underneath waves — **Wave Action** Documenting wave action along a coral reef. Healthy coral reefs help to absorb wave impact along shores which in turn helps to prevent beach erosion. © Jennifer Alder

Fearless in the Face of Climate Change

Despite the abundance of opportunity, the real challenge for conservation is not how individual companies can take action—it’s how do we go faster, together. One significant hurdle is how we approach private sector action through the lens of risk. But we need to also focus on the opportunity. How can we work with companies to beat the risks and reap the rewards of climate action?

No one can do this alone, yet we often single out companies that are either leading or lagging. This does not encourage the private sector to be fearless in the face of climate change, yet that’s exactly what we need. The risk lens deflects companies’ attention away from taking bold action and embracing collective action.

One effort to bring business into the conversation is the CEO Climate Dialogue, a joint initiative between companies and NGOs to focus on policy solutions. Partnering with companies to both drive change and push the envelope of ambitions will be an important catalyst to moving beyond tweaks and regulatory compliance to fundamental innovation and change.

The Industrial Ecology Revolution

By pure necessity, we are on the frontier of a revolution around how our society—and business—operates. Our management of resources cannot continue on its current trajectory. That’s why we must embrace the industrial ecology revolution.

As an economic model, industrial ecology refers to the incorporation of environmental values into process and product-design decisions. It involves a systematic search for opportunities to reduce environmental impacts as a way to cut costs or increase customer benefits.

As a practical business strategy, industrial ecology can generate new organizational structures within firms, new relationships between firms and their customers, and new relationships among firms. Industrial ecology provides a focus for companies seeking opportunities to enhance resource productivity and add customer value.

The revolution to industrial ecology is already underway. It’s happening with government, society, and business—and the pace and scale of the revolution will only accelerate. The task ahead is to embrace this revolution, not just among individual businesses, but on a global scale with the public and private sectors moving in the same direction. It’s a key pathway for collective action that includes businesses as partners in tackling climate change and other conservation challenges while realizing new business opportunities.

A version of this blog also ran on Ethical Corporation
October 28, 2019
View this piece on Ethical Corporation’s website