When it comes to climate change, there are few moments that come close to December’s history-making Paris Agreement. Judging from the flurry of headlines, praise from business and civil society, and celebrations from environmental campaigners, you might assume that this was an accord plucked from the jaws of unrealised potential and catapulted, to everyone’s surprise, to become the most ambitious climate deal in history.
There may be some truth to this. However, the Paris Agreement does not represent a total departure from history, but is instead confirmation that the low-carbon approach to doing business—already taken by many—will soon be the onlyway of doing business.
The need for better transparency and accountability
Take the enhanced transparency and accountability regime confirmed in the new deal. The regular submissions of national climate action plans will enable companies to anticipate each country’s intentions around climate policy and provide clarity on the direction of travel. While this may be a relatively new transparency and accountability mechanism at the international level, many leading corporates will already be familiar with this disclosure regime.
From sustainability reports to annual disclosures to shareholders, over the years companies have got better at identifying climate-related risks and opportunities. With more and more investors considering how climate change impacts a company’s valuation and thereby their own portfolios, the most successful businesses are those that are able to show they have a sophisticated understanding of environmental considerations and are acting accordingly. This is why investment professionals consider companies such as Unilever and Apple to be among the best at identifying material sustainability issues confronting their business.
The newly established Task Force on Climate-related Financial Disclosures, launched at the Paris summit, only further confirms just how seriously the financial community is taking this issue. Mark Carney, governor of the Bank of England, noted at the announcement that the climate plans submitted by countries would have serious repercussions for business; moreover, companies would have to be ready to tell investors how they plan to help to meet these intended targets and goals.
If the Paris accord signals anything to the businesses taking a wait-and-see approach to managing climate change, it is that yesterday was not too soon to start disclosing climate risks and action plans.
The importance of goal-setting
This brings us to another element of the Paris deal that is critical for the private sector to understand: goal-setting. The long-term goal in the agreement of achieving net zero emissions during the second half of this century gives decision-makers a new north star. The recognition of the need to limit temperature rises to 1.5°C, and certainly well below 2°C, spells out the need to take action sooner, achieve those targets faster and to do this on a much bigger scale. Currently, too few companies are aligned with what the climate science tells us is necessary to prevent dangerous and catastrophic global warming. While 114 major corporations have kick-started the process by committing to setting science-based goals, more must join.
From here on in, every CEO and CFO should be considering how they grow their business while cutting their impacts in line with the new climate goals. The hundreds of investors and companies who have made climate-related commitments through the We Mean Business coalition have begun to act around this, seizing early-mover advantage. The Paris Agreement provides the clarity on climate policy that will enable more businesses to do so. Now is the moment for the private sector to capitalise on the potential contained within the deal to spur the development of the new, sustainable approach to business and create a thriving, clean economy.
To view the original article from the Economist Intelligence Unit, please click here.