Business leaders are rightly concerned about climate change. A 2019 PwC study showed that 65 per cent of CEOs in 2019 worried about global warming. We saw during the recent bushfire season how dangerous extreme weather can be. How, though, do we turn anxiety into action?
Like most countries, Australia has committed to keep global temperature rises below 20C and to strive for a 1.50C limit. That means eliminating greenhouse gas emissions from across the whole economy and global supply chains. Electricity, transport, buildings, industry and agriculture: all sectors must decarbonise.
To stay under 1.50C warming, the UN says the pace of progress on emissions reduction needs to accelerate five-fold. In short, total emissions must halve in this decade, halve again before 2040, and reach net zero by 2050.
The latest research shows that global targets can be achieved, but only if we hurry. The years between now and 2030 represent, in a corporate time scale, the terms served by two CEOs. It’s not long at all. So, how should businesses approach this challenge?
Setting a company-wide goal of reaching net zero emissions by 2050 is the most transformative step. Work backwards from there to develop sector-level plans and interim targets and share them across the business. Ambitious goals unleash more innovative thinking than smaller incremental ones. They encourage step-change imagination rather than path dependency from the status quo.
There is now plenty of research showing how economies can fully decarbonise. Broadly, the solutions are technology-based across four pillars.
- Increase energy efficiency through doubling energy productivity or halving energy waste.
- Source all electricity from zero-emissions sources. In Australia, renewable energy is winning this race ahead of carbon capture and storage or nuclear energy.
- Electrify — switch to electricity from other fossil fuels, including petrol, diesel and gas.
- Capture the remaining emissions through either natural sequestration in forests, soils and vegetation, or industrial capture from gas or manufacturing facilities.
Fortunately, many of the tools needed are already in operation (even if not yet at the scale required). Energy storage, renewable energy and electric vehicles systems have all advanced faster than expected, exceeding the hopes of even their most enthusiastic proponents. They’re cheaper and more feasible than seemed likely just a few years ago. A switch to zero-emission electricity generation is essential to decarbonise sectors such as transport, construction and industry. Digitisation and the use of more efficient equipment enables greatly improved energy productivity, and we can increasingly electrify processes currently reliant on fossil fuels.
The AICD is working on a resource for members focused on the governance of climate risk. We will keep you posted.
Hydrogen is emerging as a major solution for industries where electrification is not yet a viable option, such as shipping, aviation and freight, and for energy exports. Australia’s Chief Scientist Dr Alan Finkel AO recently developed a National Hydrogen Strategy, adopted by the Council of Australian Governments (COAG) Energy Council to help Australia take advantage of this huge potential he calls “shipping sunshine”.
For Australia to meet its commitments, and thrive in a zero-emissions economy, concerted effort and leadership will be required, not least by governments at all levels. Ultimately, the solutions for reducing emissions in every sector draw heavily on technologies that businesses control. It’s up to businesses — as buyers, suppliers and investors — to replace emitting technologies with clean ones throughout their activities. And to manage the rising risks from climate change.
This action requires a comprehensive effort across all sectors and supply chains — and everyone already has a day job. That’s why the issue can’t be approached as an add-on or afterthought.
Such thinking needs to be inverted, with responses to climate and planetary boundaries embedded into core thinking about products and services, across leadership portfolios and responsibilities.
A global framework
A helpful framework for doing this is provided by the Task Force on Climate-Related Financial Disclosures (TCFD) through which companies can assess the financial risks and opportunities posed by climate change. This detailed approach highlights why it’s important net zero emissions plans cover direct and indirect emissions — that is, emissions arising from the use of company products and services as well as from their own operations.
The TCFD recommends using forward-looking information through scenario analysis — a useful tool to understand how resilient company strategies are to climate-related risks.
This year, the Bank of England will be using three climate scenarios to measure the UK’s financial institutions against what the Financial Times has called “tough climate stress tests”.
It will insist that banks and insurers show how their businesses would be affected in a range of scenarios. These include in the event of a rapid transition to zero emissions to stay under 20C warming, a delayed transition to zero emissions with severe policy responses that cause economic shock, and a no-transition scenario of 40C warming. The bank suggests at 40C some regions may become uninsurable due to chronic changes in weather and significant physical risks.
Stress testing seeks to understand exposure to physical risks from climate change, and “transition risks” — the threat of significant losses caused by new policies, technological innovations or changing social attitudes. This can include companies or their products being stranded or disrupted by change or simply depleted of young staff and avoided by consumers supportive of climate action.
A recent survey by the Australian Renewable Energy Agency found that 76 per cent of Australians would choose a product or service made by renewable energy over one that wasn’t. That’s a massive opportunity for businesses prepared to act — and a corresponding risk to those that are not paying attention.
There are also so-called “liability risks” that might arise when businesses or directors fail to act on climate change. In some circumstances, these might give rise to litigation or penalties.
Climate change also creates business opportunities, particularly for decisive and far-sighted leaders. Repositioning to serve the future demand for climate-friendly, safe, sustainable products, businesses enhance their agility and integrated innovation skills, which are already needed for a modern economy increasingly disrupted by digital technologies and sustainable development imperatives.
Anna Skarbek GAICD is CEO of Australian independent climate advisory ClimateWorks.
What’s your plan?
Global alliances targeted at net zero emissions now exist for buildings, banks, investors, and heavy industries including steel, cement, chemicals, aluminium, cars, shipping, freight and aviation. All Australian state and territory governments have committed to net zero by 2050, and cities and local governments are forming alliances to support implementation. So does your organisation have a plan?
- Amazon In February, Jeff Bezos announced the US$10b Bezos Earth Fund to fight climate change on top of committing to use 100 per cent renewable energy by 2030 and achieve carbon neutrality by 2040.
- Atlassian Committed to using 100 per cent renewable energy by 2025 and to setting science-based targets to limit warming to 1.5°C and achieve net zero emissions by no later than 2050.
- Australian Meat and Livestock Corporation Says red meat industry could be carbon neutral by 2030.
- Banks Nine of the 20 biggest banks in Australia now have targets of net zero emissions for operations before 2050. Two of the big four have also committed to extend this requirement to their lending portfolios.
- BHP Pledged to keep emissions at or below 2017 levels by 2022 and to reach net zero emissions by 2050 — and extend from scope 1 and 2 emissions to include scope 3. In July, it announced a US$400m climate investment fund.
- Microsoft Plans to be carbon “negative” by 2030; and by 2050 to make up for carbon the company has emitted (directly or by electrical consumption) since it began in 1975. Also launching a US$1b climate innovation fund.
- Nestlé Committed to net zero emissions by 2050. Will produce more environmentally friendly products and use 100 per cent renewable electricity in its operations. For example, recycling coffee grounds to supplement fuel in 22 factories and warehouses.
- Property sector About 25 per cent of Australia’s ASX 200-listed property companies now have a net zero target for their owned and managed assets.
- Qantas Will cap net emissions at 2020 levels and achieve net zero emissions by 2050. Qantas, Jetstar, QantasLink and Qantas Freight will offset growth in emissions from domestic and international operations from 2020. Is investing $50m in sustainable aviation fuel development over the next decade. Committed to reducing waste to landfill by 75 per cent by the end of 2021.
- Toyota Plans for zero CO2 emissions in its manufacturing by 2050, while cutting emissions from its vehicles by 90 per cent compared to 2010 levels in the same period.
- Unilever Pledged to become carbon-positive by 2030. It will source 100 per cent of its energy from renewable sources, and eliminate coal from the company’s energy mix by 2020.
- Wesfarmers Introduced a new climate change policy in 2019. By 30 June 2020, each division must adopt a climate change policy including scope 1 and 2 emissions reduction targets for the year ending 30 June 2025. By 30 June 2021, each division must expand their reporting of scope 3 emissions based on 2018 emissions levels.
- Climate Action 100+ Initiative to assess performance of 160 companies accounting for more than 80 per cent of corporate GHG emissions, including BHP and Rio Tinto. Backed by 450 investors with more than US$41 trillion in assets under management.
- Science Based Targets (SBI) More than 805 global companies have committed to reduce their scope 3 emissions across operations and value chains. SBI is project of the Carbon Disclosure Project, UN Global Compact, World Resources Institute and WWF.