Climate change is opportunity for growth & innovation

The phenomenal reality of climate change is ringing alarm bells, not merely in the halls of science, but also in the boardroom. And while world governments scramble to get their act together for the COP21 meeting, business leaders too are requesting that incentives be considered that improve the business case for low greenhouse gas emitting operations. Of some of the world’s largest companies surveyed by Accenture, 91% agree that it is time for decisive action, yet many businesses cannot act to change due to market limitations – even if their leadership sees the long term value of change. Governments, according to the report, need to create clear policies that incentivise change, including legislative and fiscal mechanisms to increase investment in climate solutions.

That climate change is the result of human activity is supported by the majority of recent scientific findings. The risks posed by climate change on humanity, socially and economically, as well as the wider biodiversity of the planet’s various ecosystems, is now well established. Climate change is expected to have its greatest impact in the long term. But to address it, and avoid dangerous temperature increases, change is needed now.

Governments, in response to assessments of the wide and deep impact that high levels of climate change are projected to have on the current form of human civilisation – have been spurred into an almost universally accepted global accord to limit warming to a 2 C level. A level seen by many as the upper bound of inhibiting the more severe negative climate effects on the world’s people and biodiversity. Governments have however, according to many displayed weak leadership in the development of targets that are likely to limit warming to 2C. A recent study from Ecofys for instance shows that the US needs to put more effort into meeting the target, with many other economic powerhouses too showing lacklustre commitment.

Besides government targets and regional initiatives (such as the C40 Cities Climate Leadership Group for instance), business too across the board have started to wake up to the dangers posed by climate on their interests, ranging from banking (sustainable banking) to asset management (sustainable investments) and manufacturing (green supply chains). To gain more insight in the private sector dynamics, prepared to spur action at the COP21 conference in Paris, Accenture and United Nations Global Compact partnered to assess the role business can play in adapting their practices to the realities of climate change, as well as examine policies that can help shift focus from the still dominant profit imperative. The research, titled  ‘A Call to Climate Action’, involved two surveys, the first of CEOs, and another involved 750 Global Compact participants, drawn from 152 countries across 41 industry sectors.

Global impetus
The importance of climate change, for long time denied by interested parties, has now become a legitimate business issue – in part because the impact to business is becoming clearer. The research highlights that 48% of businesses strongly agree that climate challenge is significant and that action is an urgent priority for business. A further 43% agree that it is a significant challenge, 7% are neutral to the question while 1% disagrees and another 1% strongly disagrees.

While the issue is now being recognised, many of the industries – even where there is unanimous agreement that there is an issue – have their hands tied in terms of making sufficient efforts to restrict global warming to less than 2C because of structural market conditions. In mining for instance, 100% of CEOs surveyed see the issue, but only 35% feel sufficient efforts are being made in the industry. Utilities comes out somewhat better, with 44% believing enough is being done. Industrial Engineering is the most optimistic about sufficient efforts at 53%. Support Services has the lowest felt efforts at 12% of respondents from the sector, Financial Services – the industry financing many of the world’s largest projects – comes in at 25%, while Energy comes a notch higher at 26%.

Business as usual
While companies feel that they aren’t doing enough, there is wide spread agreement among companies that there is a clear business case for action on climate change. This is particularly pronounced in the Utilities industry, where 38% strongly agree that there is a business case for action on climate change within their industry, while 41% agree to the proposition. Chemicals comes in second overall, with 13% strongly agreeing while 52% agree. In third is the Mining & Metals industry, with 50% agreeing and 10% strongly agreeing. The industries with the least agreement that there is a case are Support Services, Electronics and Tech, and Health and Pharma, with 38%, 35% and 34% respectively.

Innovating change
Many industries also see climate change as a stepping stone for growth and innovation opportunities. Again the Utilities industry leads the pack, where 85% agree or strongly agree that climate change will create opportunities in the next 3-5 years. Chemicals comes in at 84%, while Communications comes in third at 78%. The least enthusiastic about the innovation opportunities opened by the need for action on climate are support services, at 45% agreeing, Consumer Goods and Services, with 3% strongly agreeing and 29% agreeing, and Healthcare and Pharma, where 3% strongly agree and 26% agree.

The impact on innovation stemming from climate change is regarded as potentially disruptive by the surveyed managers – more than one-third of companies in the Utilities (46%), Communications (36%) and Infrastructure (33%) sectors believe that climate change will fundamentally disrupt their business within five years.

“It is clear from our research that business leaders increasingly see climate change through the lens of fundamental disruption in their industries, and that leading companies are approaching climate change as an opportunity for growth, innovation and competitive advantage,” says Peter Lacy, Managing Director at Accenture Strategy.

Strategy execution?
As is often the case with bold ambitions, the research uncovers a gap between ambition and execution on climate action, with notable “performance gaps” between those leadership behaviours that CEOs believe are most important, and those actions that their own companies have already taken. For example, while 43% of business leaders believe companies should set emissions targets in line with science, just 27% report they have already done so. And while 44% believe companies should scale up their interests in low-carbon solutions, only 29% are already allocating significant investment. “These gaps demonstrate the challenge that many business leaders face in advancing transformative action on climate change,” write the authors.

The CEOs surveyed selected commitment to responsible corporate engagement in climate policies as the highest priority ambition, at 55%, with 56% of the CEOs saying leadership behaviour reflects company the ambition. The least important initiatives considered by CEOs are removing commodity driven deforestation, at 21% considering the measure critical and 18% enacting the measure, and committing to become climate neutral by 2050.

Public private cooperation on the agenda
The Accenture and United Nations Global Compact study also considers ways in which government action may be able to improve and speed up business efforts to reduce the global greenhouse gas footprint. Looking specifically at the climate challenge, CEOs see five critical policy measures. The most promising policy initiative, according to 70% of respondents, is to create incentives through fiscal mechanisms that increase investment in climate solutions, the report highlights instruments such as rebates, tax credits, feed-in tariffs and subsidies, which can be used to stimulate new markets for innovative technologies and overcome entry barriers.

Another way forward to improve the business case (supported by 50%) is the creation of innovative climate financing mechanisms that can unlock private-sector investment. “R&D is needed not only to develop new technologies but also to make existing ones more affordable; government support can help bring forward innovation and technology breakthroughs, reducing the costs and the risks associated with investment,” write the authors.

The third most supported initiative (47%) that governments can make are clear emissions standards and regulations that are designed to mandate companies to invest in low-carbon improvements and incentivise demand for low-carbon products while also being simple for companies to understand and respond to. The forth initiative is the development of a clear price on carbon as an effective way to incentivise low-carbon growth and lower greenhouse gas emissions, 42% cited a robust and predictable carbon pricing mechanism as critical to unlocking investment. The final way to improve incentives for company business cases is to remove the negative incentive of fossil fuel subsidies, 41% cited fossil fuel subsidy reform as critical to furthering investment in climate solutions, with the $548 billion in 2013, more than four times the value of subsidies to renewable energy and more than four times the amount invested globally in improving energy efficiency.

Lise Kingo, Executive Director of the United Nations Global Compact, concludes: “We believe that business can play a central role in galvanizing momentum to meet the first test of our collective ability to deliver collaborative action on the Sustainable Development Goals.”