Promoting accountability and competitive advantage during the climate crisis

Consumers, investors, and regulators are actively seeking effective ways to hold companies accountable for their greenhouse gas emissions. This increased interest is being driven by the alarming disconnect between current emissions reduction efforts and ambitious net-zero targets set in recent years.

A recent follow-up study from Morningstar Sustainalytics revealed an alarming truth. Without swift and decisive collective action by businesses, temperatures are set to rise by his 2.9 degrees by 2050, almost double his 1.5 degrees goal set by the Paris Agreement. However, amidst these challenges, there is still significant potential to decarbonize the economy by fostering partnerships, making strategic investments and sharing innovative best practice solutions across companies to effectively implement net zero commitments. Opportunities exist.

The business case for participating in the low carbon transition should be familiar. Decarbonizing business not only aligns with the need to tackle climate change, it also offers clear benefits for business leaders. One big advantage is the potential for first-mover advantage. As the effects of climate change become increasingly clear, businesses will inevitably begin to face regulation, with costs expected to increase the longer the transition to a low-carbon global economy is delayed. By taking proactive steps to decarbonize now, with a time-bound transition plan, companies can stay ahead of the curve, gain a competitive edge, and protect themselves from the potential economic impacts of climate change. You can reduce your burden. As I've written previously, recent research suggests a link between financial performance and emissions reduction efforts. Encouraged by this, thousands of companies have set widely publicized climate targets in recent years.

But the challenge does not lie in companies setting goals. Rather, it lies in the speed of progress from goal setting to actual realization, or from idea to impact. No one will deny that the transition to a low-carbon future will be difficult for many industries, but in some cases implementation simply falls short. Additionally, there is currently no standardized form of transition plan that effectively guides from goals to implementation, making it difficult to determine whether the actions some companies are taking are justified and consistent with their stated goals. It is often difficult to verify. Catherine McKenna, former Canadian Minister of Environment and Climate Change, emphasized this point during a panel discussion at Global Citizen NOW, saying, “The science on climate change is clear…buy cheap credits instead of doing the work yourself.'' I can’t…I need you.” So that we can clearly see who is doing the right thing… There are great companies doing that work, but everyone is saying, 'I'm a climate leader,' so it's important to differentiate. I can't. ”

Highlighting the gap between commitment and action, Morningstar Sustainalytics' new Low Carbon Transition Assessment assessed nearly 4,000 large publicly traded companies on their greenhouse gas emissions management. Shockingly, the tool revealed that only 17% of these companies have the necessary policies and strategies in place to meet their emissions targets. This means that the majority are conveniently ignoring the facts or inadequately addressing carbon emissions and transition risks across the value chain. Surprisingly, only 8% of companies analyzed have strong greenhouse gas performance incentive plans, with significant progress being made in the utilities and real estate sectors.

The corporate sector's failure to address climate change has led regulators to step up measures to hold companies accountable, while promoting transparency and sustainability in corporate practices. The global consensus on corporate accountability is clear, as regulators around the world adopt enhanced climate change disclosures, sustainability reporting, and climate-related financial risk assessments. In particular, upcoming reporting standards by the European Commission, alongside sustainable disclosure requirements and investment labels being developed by the UK regulator, represent a major step forward in efforts to drive better accountability and enforcement. I am.

Regulators now appear to be taking a multi-pronged approach, cracking down on greenwashing, ensuring accurate measurement and capture of emissions, and enforcing emissions reduction claims. For example, the SEC's proposed rule aims to require full disclosure of Scope 3 emissions, including all indirect emissions within a company's value chain, regardless of a company's climate change efforts. These joint efforts demonstrate a determined drive to establish a new era of corporate responsibility in tackling climate change. The global trend is clear. Despite pushback from certain jurisdictions, we are moving towards a low-carbon economy.

Sustainalytics’ new tracker shows that strong regulatory push is actually driving climate change action and reporting among companies. Better scores are seen in countries with more stringent regulations regarding climate risks and mitigation policies. It is therefore not surprising that companies in France, the UK and the EU generally perform better than other regions lacking similar regulatory progress.

But despite regulatory pressures, some companies are taking bold steps and publishing transparent transition plans with measurable goals. These plans may provide valuable lessons for others and should be shared widely to standardize best practices.

According to Sustainalytics, Novartis stands out as a company that is aligned with the 1.5 degree goal. Its success is due to its low emissions and limited exposure, given that the company operates in the pharmaceutical sector and the fact that it started the transition to a low-carbon future early. Then it is considered. The company has demonstrated strong commitment through effective integration of emissions targets, greenhouse gas performance incentive plans and carbon pricing. Additionally, Novartis excels in reporting its supply chain emissions, demonstrating strong leadership expertise in the transition to a more sustainable future. In particular, the company actively engages with policymakers on climate-related issues and sets a commendable example of climate responsibility that should be widely emulated.

Ultimately, companies with net-zero targets will proactively publish and execute time-bound transition plans that meticulously outline transformations to their assets, operations, business models, governance, and policy commitments, and benefit from early adoption. You will be forced to choose to enjoy it. , or wait until the inevitable regulatory action catches up and costs become higher. In this vein, the New Financial Agreements Summit, to be convened by President Macron in June, will be an important initiative to recognize companies implementing such actionable changes and closing the investment gap towards inclusive participation in the clean energy transition. functions as a platform. By collaborating and sharing best practices, early adopters hope to inspire others to help shape a just energy transition.