As customers demand greener products and services, investors seek out the next big climate solution, and governments legislate to cut emissions, companies know they need to decarbonize, and fast. Advice and tools on how to cut emissions abound, so many companies remain confused about how to prioritize their efforts and understand what “good” climate action looks like.
A new guide from the We Mean Business Coalition, “The 4 As of Climate Leadership” defines, in terms of ambition, action, advocacy and accountability, what companies must do to deliver on net-zero commitments and avoid accusations of greenwashing.
Ambition: Has the company set the right decarbonization targets?
To ensure we halve global emissions by 2030, companies need to set science-based targets, following the Net Zero Corporate Standard, including five to 10-year targets for deep, rapid emission cuts across their value chains. Small and medium-sized businesses (SMEs) can join the SME Climate Hub to commit to net zero with a tailored target-setting pathway. Some companies like PepsiCo, Scania and JLL, are aiming for net-zero by no later than 2040 — a decade ahead of the Paris Agreement goal – through the Climate Pledge.
We can’t halve global emissions without protecting and restoring nature. But this isn’t an either/or situation and it’s essential to understand the role that offsets have to play. Offsets in corporate climate strategies has garnered much controversy in recent years because they have often been used to delay or replace the important investments companies must make to reduce emissions within their value chain. This approach has significantly slowed companies’ progress because they’re not actually changing the way they are operating to cut emissions. In addition, cheap and low-quality offsets have been available on the market which has called into question the credibility of corporate net-zero commitments.
Fortunately, we are now seeing a new form of corporate leadership as companies have begun using high-quality offsets, such as investments in reducing deforestation or restoring wetlands and they are investing in these in addition to their science-aligned emission reduction efforts. Offsets must be used in this way as a tool to increase ambition rather than delay action.
Initiatives like the Voluntary Carbon Markets Initiative and the Integrity Council for Voluntary Carbon Markets are developing additional guardrails and guidance to ensure companies invest in carbon markets in the right way. As the Science Based Targets initiative has made clear, these investments are critical to meet our global climate goals, and every company should be expected to invest in high-quality offsets on their pathway to net-zero. Companies can scale up the impact of their investments by joining forces with companies like Amazon and Bayer through initiatives like the LEAF Coalition or get involved with NCS investment accelerator along with Bank of America and McKinsey & Co.
For companies in the food, land and agriculture sectors, changing the way they use land is a key part of cutting emissions. New guidance from the Science Based Targets initiative requires companies in these sectors, to eliminate tropical deforestation and other forms of land-use change and ecosystem degradation from supply chains by 2025. Recent research shows Nestlé, Unilever, Mars and Colgate-Palmolive are among those making the most progress in this area. Nestlé, for example, is using tools like supply chain mapping, certification and satellite monitoring to ensure that the key commodities they use — meat, palm oil, pulp & paper, soy and sugar — are not linked to deforestation. They’re working with smallholder farmers and large suppliers on this.
As high-carbon industries move away from fossil fuels, employers need to consider how to avoid disruptions to the communities and staff they rely on. This means planning how to support employees with new skills training or offer other opportunities.
For example, one of the UK’s largest electricity infrastructure companies, SSE, has developed a just transition strategy and outlined 1o recommendations for industry and 1o recommendations for government to support workers’ transition from high to low-carbon careers. Now, two thirds of the control room staff at SSE’s Beatrice Offshore Wind Farm, Scotland are former oil and gas workers. They are some of the 1,500+ SSE employees who had previously worked in high-carbon roles.
Action: Is your company prioritizing the most impactful climate actions?
With ever increasing urgency to act plus growing scrutiny of business progress towards their climate pledges, prioritizing the most impactful actions matters. Does your core business strategy include climate-related risks and opportunities? While many leading companies now have sustainability committees, some companies are going even further like Patagonia founder Yvon Chouinard’s decision to make Earth the company’s only shareholder with all profits in perpetuity going towards their mission to “save our home planet.”
Along with governance, companies also need to align their innovation, capital investment, procurement and recruitment policies with their climate goals. One of the key actions to take now is to task manufacturing, logistics, operations and R&D teams with identifying and deploying climate solutions and to increase efficiency. Collaboration is key. Major car makers Volvo, Daimler and Traton have teamed up on a 500 million Euro joint venture to install and operate more than 1,700 green energy charge points on and close to highways.
Since most emissions sit in company supply chains, working with suppliers in a company’s top value chain (scope 3) emissions hot spots is critical. Global biopharma company, GSK, for example, is now working with 160 of its suppliers that it has identified as most crucial to achieving its climate goals and is supporting them to cut emissions from power, heat and transport and look at deforestation-free sourcing of materials.
Rethinking the design of products and their lifecycles helps too. IKEA has created a circular design guide to enable furniture, textile and other product designers to assess whether what they are producing is made to be circular. For example, are they made using recyclable materials? Is the product easily repairable and reuseable?
Advocacy: Is your company’s lobbying in line with your climate goals?
We need regulation to make climate action mandatory for business. What businesses say publicly about climate change can therefore have a huge influence, especially when they talk about the benefits of action and the disadvantages of the status quo.
Shortly after the We Mean Business Coalition mobilized 400 American businesses, including Apple, Levi Strauss & Co and Salesforce, to sign a letter in support of President Biden’s 50% emission reduction target by 2030, Climate Envoy John Kerry spoke on CNN about the importance of business backing, and the more ambitious target was duly announced.
Sometimes however, in large, complex organizations the transformation that climate action requires, isn’t adopted across the whole business. Sustainability teams might have science-based emissions reduction targets, but their public affairs teams may still be members of trade groups lobbying for lighter climate regulations. Swedish car maker, Volvo demonstrated this by committing to leave the European Automobile Manufacturers Association (ACEA) by the end of this year due to a lack of alignment on climate.
Responsible policy engagement means ensuring all company activities and advocacy are aligned. We have been seeing companies team up, led by the most committed executives, to push for change in business groups’ positions and call for greater ambition on climate.
Accountability: Is your company’s sustainability reporting clear and transparent?
Climate leadership requires consistently disclosing your company’s plans, progress, risks and opportunities. This informs strategy and builds trust among stakeholders like investors, customers, shareholders and employees.
Disclosing environmental impact helps companies get ahead of regulation while responding to the growing market demand. 680+ investors with over U.S.$130 trillion in assets and 200+ large purchasers with over U.S.$5.5 trillion in procurement spend are now requesting thousands of companies to disclose their environmental data through CDP.
One of these is the California Public Employees’ Retirement System (CalPERS), which manages over $300 billion in assets, the largest public pension fund in the U.S. CalPERS has been using CDP data to analyze the carbon risk of its own portfolio. In 2015, CalPERS took the carbon footprint of its Global Public Equities Portfolio and discovered that of the 10,000 companies in the portfolio, just 340 are responsible for 75% of the emissions. They are now engaging closely with those companies on how they are going to reduce their carbon footprint.
Effective ESG reporting is critical to increasing the flow of investment to low-carbon products and services. As climate-related risks grow, investors want to understand how companies are progressing against their emission reduction targets and the climate-related risk of their investments. The reporting standards currently being finalized in the UK, EU and U.S., will define how easy it will be for investors to get this information and play a key role in our progress towards global climate goals. Right now, we recommend that along with building a solid climate transition action plan through following the 4As, that companies can prepare by measuring emissions at least annually and reporting them through CDP. The new financial regulatory developments in the U.S., EU and UK are asking companies of all sizes to report their emissions within the next five years. Other countries will follow.
Climate is everyone’s responsibility. The transformation is a huge business opportunity for those at the forefront. The 4As provide a guide for companies to start and excel in their journey to net-zero.