Aiming with your eyes open
Long-term planning may be difficult in the fast-moving world of business, but it’s at the core of what all companies must do well to thrive. This is no different when it comes to setting ambitious emissions reduction goals.
By Pedro Faria
Climate scientists have long been telling us that we need to limit global temperatures from rising above 2°C from pre-industrial levels if we are to avoid catastrophic climate change. To achieve this, the world will have to contain its CO2 emissions to around 1000 GtCO2 from now to up to 2050, and then net-zero after that. This implies a stabilization of current emissions, ideally up to 2020, and then deep reductions in the emissions rates up to 2050. Despite these targets having been a focal point in global climate policy for over a decade, the concept of taking a scientific approach to setting greenhouse gas emissions reduction targets is still relatively new.
As numerous companies reporting to CDP over the years have demonstrated, corporate target setting is becoming the norm for successful businesses. But few are setting truly long-term, ambitious targets that match their goals with what is required by climate science. It is only in the past few years that a very small handful of companies, including Autodesk, BT, and Mars, have begun to try and incorporate climate science into their business-goal setting strategies.
We know that companies are realizing the business case for tackling climate change. Companies highlighted this year for their climate leadership invested US$23 billion in emissions reduction activities. But the majority of targets reported to CDP tend not to extend beyond 2016/17, suggesting a lack of long-term strategy to stay within the global carbon budget.
Fear of the unknown
While it varies from sector to sector, most corporate sustainability measures are decided by factors such as cost-savings, compliance with regulation and company reputation.
Another key factor that has prevented companies from truly embracing science-based sustainability goals is the lack of understanding of what is clearly a complex issue. Information or guidance on how business can account for its share of GHG emissions reductions has been lacking. As Guy Rickard from the Carbon Trust rightly points out, while sustainability has become mainstream in the business world, businesses still have little experience or understanding of how to get environmental targets right.
And for the businesses that have already invested in efficiency measures and other low-cost and easily achievable emissions reductions activities, some may be shying away from setting more ambitious goals for fear that they may not be as rewarding. While the financial returns of becoming a more efficient company are proven, the benefits of setting these more ambitious targets are not always as clear.
So what are the benefits for companies of taking a science based approach? Businesses with a more ambitious climate change strategy arguably perform better. CDP’s index of A List companies for example outperformed the Bloomberg World Index by nearly 10% between 2010 and 2014. And forward-thinking companies that are already setting targets aligned with climate science are achieving better financial return on low carbon investment relative to their peers, reporting an average internal rate of return of 27%.
Some in the business world may still consider sustainability as separate to revenue-driven business goals, but as the above examples illustrate, this can and should change. Climate change is increasingly being understood in the boardroom as much as an economic challenge as an environmental one. Leading companies are recognizing and embracing this, including for example the 30 businesses that have already signed up to set science-based targets, including L’Oréal , Sodexo and Unilever, through CDP’s Road to Paris initiative. Despite this shift in business thinking, companies still need to be equipped with tools to help them fully engage in ambitious target setting. This is where the Science Based Targets initiative comes in.
Together with the World Resources Institute, the UN Global Compact and WWF, CDP has developed a science-based target setting methodology that will enable businesses around the world to set long-term 2°C climate goals up to the year 2050. It complements existing science-based methodologies such as the 3% Solution as well as those developed by Center for Sustainable Organizations, BT, Autodesk, and Mars.
As negotiators meet at COP 20 in Lima to make progress on establishing a global climate deal in Paris this time next year, adopting a science-based approach is an opportunity for companies to truly revolutionize the current pace of change and become leaders in their field. To find out more about how your business can do this, join us at the Caring for Climate Business Forum on December 8 in Lima.
About Pedro Faria
Pedro Faria is Technical Director at CDP. He oversees the development of CDP’s disclosure platform, scoring systems and data. Pedro previously worked as a consultant in the areas of energy and carbon, as well as on the implementation of the European Emissions Trading Scheme. He is a Civil and Environmental Engineer and holds an MSc in Engineering and Management of Technology from the Technical University of Lisbon.
CDP is an international, not-for-profit organization providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information. CDP works with market forces, including 767 institutional investors with assets of US$92 trillion, to motivate companies to disclose their impacts on the environment and natural resources and take action to reduce them. CDP now holds the largest collection globally of primary climate change, water and forest risk commodities information and puts these insights at the heart of strategic business, investment and policy decisions. Please visit www.cdp.net or follow us @CDP to find out more.