May 28, 2022

Y M L P-207

It's a Business Adventure

The Business Case For Greater Climate Commitments

5 min read

N.A. Executive Director of the WBCSD, a global nonprofit working with corporations on sustainable business solutions.

Corporations that are sincere in their goal to reduce their carbon dioxide and greenhouse gas emissions usually do not make their climate commitments lightly. That is especially true for companies that are marching toward the endgame of being net zero.

Why? Because they invest a lot of time, energy and money to study the known and unknown challenges, conduct research, evaluate potential solutions, make investments to transform their business operations and steadfastly work toward achieving their immediate climate goals and those they set for 20 to 30 years from now.

Many other companies, however, have failed to disclose their climate commitments. That could mean they have not made any climate commitments, are fearful of disclosing this information for competitive reasons or believe their proposed reductions would be embarrassingly insufficient to share with their stakeholders.

A recent study by the Intergovernmental Panel on Climate Change (IPCC) shows how important it is for everyone—including businesses, nonprofits and individuals—to take a stand to reduce global warming and execute the necessary steps to make it happen. The report is based on the science offered by 270 authors across 67 countries and “has a strong focus on the interactions among the coupled systems climate, ecosystems (including their biodiversity) and human society. These interactions are the basis of emerging risks from climate change, ecosystem degradation and biodiversity loss and, at the same time, offer opportunities for the future.”

The IPCC report affirms what my organization, the World Business Council for Sustainable Development, has often pointed out: Climate change, loss of nature and social inequality are inextricably interconnected and, at the same time, inescapably interdependent.

At least 170 countries around the globe, along with thousands of corporations worldwide, are taking steps to lower their carbon and GHG emissions, the report points out. But is it enough?

I think it’s clear that corporations of all sizes, all around the world should lead this charge to transform their business operations, especially the industries that are mostly responsible for adding carbon and other GHG emissions to the atmosphere causing human-made global warming and subsequent climate change.

Sure, some sectors—such as coal-fired electricity, combustible engines in cars and trucks, and airplanes—contribute to global warming more than others. But it is essential to remember those industries are slowly but surely transforming, using more clean energy, migrating to EVs and testing hydrogen and other clean fuels to power the vehicles that move us all and the products we use and consume.

But, at the time of writing, only 696 out of the 2,000 largest publicly traded companies in the world have made net zero commitments, according to Net Zero Tracker. And, in the United States alone, 43% of the Russell 1000 companies—the top 1,000 publicly traded corporations by market capitalization—have committed to disclosing their emissions reductions, according to Just Capital research.

In my view, that’s simply not good enough. Not even close.

And this brings me back to companies making net zero commitments. It is understandable that making a net zero commitment is not easy.

According to a 2021 PwC study, committing to net zero requires a wholesale transformation that impacts every part of a company’s business and operating model. It also requires the committed engagement of all C-suite executives.

Many CEOs are reluctant to make public campaign commitments unless they know for certain their goals can be achieved. When it comes to net zero commitments, CEOs often realize that insufficient progress could jeopardize their access to capital, diminish their competitive edge, damage their corporate reputation and reduce their ability to attract and retain the best and brightest employees.

That’s why publicly committing to reaching a net zero target 20 to 30 years into the future is so extraordinary. In essence, they would be making decisions for the corporation’s next two to three CEOs to execute. It’s not an easy decision.

And that’s not to say we should take any company at its word. Critics are right to call out corporations that are not being transparent in their commitments. We should demand radical transparency so all stakeholders can have confidence in these company commitments and their ability to achieve net zero.

When it comes to the companies that have not disclosed their commitment to reduce their carbon and greenhouse gas emissions, there are things other business and nonprofit leaders can do to encourage public disclosure by the more tight-lipped corporations.

The U.S. Security and Exchange Commission’s newly proposed climate disclosure rule would require publicly traded companies to disclose their impact on climate risks for both their direct operations and their supply chain. This action would put the U.S. on par with other nations that require some form of climate disclosure. In other words, the train has left the station on disclosure. Signs suggest that it’s coming.

For those companies that have not yet publicly committed to reduce their carbon emissions, they must weigh the increasing business and reputation risks of continuing to do so. These companies would be wise to consider the following:

1. Determine the specific climate risks that materially impact the company and financial statements—including the potential effects of climate-related risks on company strategy, business model, operations, products or services and top-tier suppliers

2. Reach out to the most important stakeholders and identify the risks for continued refusal to disclose a climate commitment by:

• Assessing the degree to which continued silence might impact the company’s ability to attract and keep the best and the brightest employees.

• Discussing this issue with your investors and gaining their insights on the risk to capital this may pose.

• Talking to top customers and determining the risk of losing their business.

• Conducting a competitive assessment and determining if your company is lagging behind top competitors in disclosing a commitment.

• Determining where your company ranks with the top ratings and ranking organizations that evaluate both your company’s performance and its reputation.

Corporations may soon have to begin adhering to climate disclosure rules whether they like it or not. So, the adage “better late than never” applies. It’s time to get serious about making climate commitments.

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