Companies pledge to move to net zero

Businesses have been accused of being slow to act on cutting carbon emissions but efforts now appear to be gathering pace.

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  1. Rob Morgan

Tackling climate change was a major focus of the World Economic Forum in Davos this week. This year’s theme at the gathering of policymakers and business leaders was “Stakeholders for a Cohesive and Sustainable World”, with activist Greta Thunberg and the Prince of Wales in attendance urging action on the carbon emissions thought to be to blame for rising global temperatures.

Companies have been accused of being too slow to act, but at an international level countries can’t agree on what is to be done and this hasn’t made things easy. The last UN climate talks in Madrid ended in frustrating deadlock, and there are few cohesive strategies coming from governments. Despite this, many parts of the corporate world are making headway regardless, either driven by their own conscience or by the fact that legislation is likely on its way. In addition, they are addressing the growing demands for action from their stakeholders – including customers, employees and shareholders. Momentum is building.

Competition to be green

Some global businesses even seem to be engaged in environmental one-upmanship in terms of cutting carbon emissions. Last year, 87 multinational companies, including Nestlé, Unilever and Vodafone signed up to a UN pledge to become carbon-neutral – not adding any net carbon to the atmosphere – by 2050. Amazon has promised to do it even quicker, by 2040, which is a challenging goal for a business delivering 10 billion items a year as well as running huge energy-intensive data centres. Chief Executive Officer, Jeff Bezos, is planning a fleet of 100,000 electric delivery vans and has said the company will invest $100 million to restore forests and wetlands to help offset emissions.

Not to be outdone, Microsoft recently pledged to become carbon negative by 2030, not just in its own business, which is already carbon neutral, but throughout its supply chain too. This entails actively removing more carbon from the environment than its emitting and, remarkably, the company also aims to offset all the carbon it has ever emitted since 1975 by 2050.

Cynics may say that moves to go green are simply a PR exercise, and for certain ‘capital light’ areas, such as technology its comparatively easy to offset emissions through planting trees and purchasing renewable energy. However, even if the ‘feel-good factor’ is part of the reason, it’s still helping drive the amount of wind and solar capacity being built.

Some banks are also scrambling to prove their environmental credentials. Lloyds Banking Group recently pledged to cut the carbon emissions it finances by more than 50% in the next decade to “help finance a green future”. However, there is more to be done. Only a third of the global banking sector has so far committed to align with the 2015 UN Paris agreement goal of limiting the rise in global temperatures to 2oC.

Who cares wins?

A recent survey from PwC appeared to show that businesses had an overly relaxed attitude to climate change and environmental damage. The issue only ranked 11th in the rankings that CEOs gave as threats to their companies’ growth prospects. The number one concern was overregulation. However, some saw the issue as an opportunity rather than a threat.

Building in climate-related initiatives into supply chains or procedures was viewed as a differentiating factor and an edge that could be created over the competition. They also considered it important for recruitment because it is increasingly valuable for organisations to have decent environmental credentials to attract employees. This suggests a competitive force for good is at work.

Investors demand action

The investment industry also has a vital role to play in holding companies to account. Ultimately, businesses are run for shareholders, and if they demand action not just on financial performance but on environmental issues then chief executives will have to take them seriously. Companies will not just face scrutiny over their balance sheet but, increasingly, their carbon intensity and other environmental metrics as well.

With major investors set to offer more socially responsible products to their customers, pressure will continue to grow. BlackRock, the world's largest investment manager, recently announced it will put sustainability issues at the heart of its investment approach and will create versions of existing funds that target climate-friendly companies. This has laid down the gauntlet to other large asset owners, and it wouldn’t be a surprise to see others follow suit.

Through ‘investing with conscience’ and choosing socially responsible investments all investors, large and small, can put their weight behind this change. If more investors vote with their feet by backing companies that take carbon emission and other environmental issues seriously then it puts more pressure on businesses not doing enough to address them. If these businesses struggle to attract shareholders and lenders, they could face a deteriorating share price or higher borrowing costs. They also have reputational risk to consider, as well as the prospect of being left behind by industry change or swamped by legislation and higher taxes.

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