Climate change is increasingly regulated at national and global levels, carbon pricing initiatives are gaining momentum, and decarbonization is now a commonly used industry buzzword. Due to the scale of the crisis, governments, states, cities and businesses need to accelerate their mitigation and adaptation efforts. Specifically, it is important to understand the role that the private sector must play in reducing global greenhouse gas (GHG) emissions. The 2017 Carbon Majors Report found that just 100 companies are responsible for more than 70% of all emissions.
Emissions disclosure is now a reality for many large companies
The private sector has expressed ambitious climate pledges, setting decarbonization targets, including net zero commitments, and clean energy targets. According to the CDP, 50% of the world’s 500 largest companies already integrate carbon accounting. This is not only a demand from customers and employees, but also from the financial markets. Some investors have taken matters into their own hands by creating initiatives, such as the Climate Action 100+ Net Zero Company Benchmark which provides an assessment framework to assess selected companies on their disclosed climate change data. Shareholder activism keeps the pressure on, the environmental part of ESG is a key assessment filter.
Businesses spend effort, time and money to meet these demands. It also boosts their brand image, for example in the consumer segment with buyers becoming more and more aware of sustainability and the environment. Green credentials are essential for brand loyalty and trust and it is essential for companies to deliver on their promises.
In many cases, entire departments of the company are dedicated to reducing emissions, which requires analysis and solid information. This is a complex undertaking, especially considering companies with subsidiaries across the world, multiple locations and complex supply chains. More specifically, reporting scope 3 of the GHG protocol is a complex issue. Understanding which aspects of the supply chain (transportation and logistics, product manufacturing, and acquisition of intangible services) are the most carbon-intensive requires specialized expertise and primary data, which many organizations lack or need to estimate if they don’t. cannot collect this data with their suppliers.
A zero-carbon future offers a massive and profitable market
There is an entire startup industry dedicated to offering GHG accounting services and helping companies determine the optimal decarbonization strategy. A zero-carbon future offers a massive and profitable market with cutting-edge business strategies and technological solutions. As a study by PwC shows, $60 billion was invested in climate technologies globally in the first half of 2021 alone, nearly triple the previous record set in the last six months of 2020. The establishment of carbon markets is an additional opportunity for green growth, given their still unexplored potential. Estimates show that in 2030, the carbon credit market could be valued at over $50 billion.
Decarbonization is also driven by legal obligations and litigation
Failing to meet global warming mitigation responsibilities will also be costly, as lawsuits target governments and the private sector over climate action. In a case against the Dutch government, in which the court determined that the government should reduce emissions by at least 25% by the end of 2020 compared to 1990, sparked legal battles in other European countries . In addition, carbon pricing mechanisms, such as carbon taxes or emissions trading systems, are implemented globally. Companies that adapt to these realities early will have a competitive advantage in the future.
Other mechanisms target reporting rules where companies must comply with carbon disclosure obligations. In the UK, the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 require all UK listed companies to report their greenhouse gas emissions as part of their annual directors’ report since 1 October 2013. In addition, from 2019, the Companies (Directors’ Report) and Limited Liability Companies (Energy and Carbon Footprint) Regulations 2018 required listed companies to disclose their global energy consumption and large companies to disclose their annual energy consumption and GHG emissions in the UK. More recently, the United States Securities and Exchange Commission (SEC) released a plan which, if passed, would require listed companies to disclose relevant climate data and information, such as direct and indirect emissions, physical impact and climate risks and their influence on the model and strategy of business. The scope of the disclosure rules will be primarily limited to Scope 1 and 2 emissions.
The clock is turning
Whether all these efforts are enough to slow down the devastating effects of global warming remains to be seen. The 3rd report of the sixth assessment (AR6) of the United Nations Intergovernmental Panel on Climate Change (IPCC) will be launched on April 4and and focuses on mitigation strategies against climate change. The report’s conclusion will also be summarized and discussed in the IPCC Synthesis Report to be published in September 2022, which will set the tone for the 27th meeting of the Conference of the Parties (COP 27) in Egypt. Climate diplomacy will be about bringing all actors around the table to prioritize long-term actions to stop climate catastrophe over short-term gains. Governments and companies will need to detail as soon as possible how they will actually achieve their net zero commitments and balance the energy transition to renewables in an increasingly unstable geopolitical environment. As UN Secretary-General Antonio Guterres has said, “You cannot pretend to be green when your plans and projects undermine the 2050 net zero goal and ignore the deep emissions reductions that need to take place. this decade.