Last month, the Paris Agreement was ratified and entered into force. The global commitment to keep climate change below the 2 degrees Celsius (2○C) mark is reality. However, despite the historic nature of the agreement, there are already questions about execution and long-term support. As the U.S. prepares to change leadership, for example, some pundits believe that climate-related activity and investment will slow considerably. There’s even talk of the country backing away from or backing out of the U.N. agreement.
The fact is that governments around the world will continue to re-evaluate their priorities and where climate action belongs on the list. And with that, legislation will evolve, subsidies and other financial backing will ebb and flow.
However, these actions — and even inaction — is not enough to slow sustainable development. The business community, along with the consumers who support it, have quickly become and will continue to be the consistent driving force in the fight against global warming.
The journey is just getting started
Take renewable energy, for instance. Even if there’s less federal government funding for research and development, most large companies have set aggressive clean and renewable energy targets. And they’ll need to follow through on those obligations, especially with the growing call for sustainable practices from investors, customers, employees and other stakeholders, which will inevitably lead to outside support at some level.
“There are huge commitments made by companies like Walmart and Google and Apple. So if you’re a state, you basically have to offer renewable energy to those corporations,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, during a recent NPR interview.
At the end of the day, business is financially motivated, and companies around the world are realizing that sustainability must become a part of their business strategy because of the significant economic impact. Jill Duggan, director of The Prince of Wales’s Corporate Leaders Group recently said: “What is now required from corporate leaders is a real step change in the way they deal with climate change. They must move from an incremental, compliance approach to a transformational approach, the only one that can deliver a sustainable, prosperous world”.
In essence, creating a sustainable business climate requires a sustainable planet, which is coupled with a two other fiscal motivators.
1) Climate change presents financial risks
Scientists caution that a total warming of 2°C implies a high risk of catastrophic climate change. Even if each country meets the plans set out at COP 21, global warming is projected to reach 2.7°C by 2100. Extreme weather events, resource depletion and other related impacts present significant threats to businesses and require action.
TheWorld Economic Forum’s 2016 report highlights global risks over the next decade, many of which are related to climate change. For example, based on current trends, water demand is projected to exceed sustainable supply by 40 percent in 2030 — a little more than a decade down the road. As a result, business investments reliant on water in certain areas will become obsolete due to regulatory or environmental constraints.
> A recent study by McKinsey adds an extra dose of urgency: “The value at stake from sustainability concerns can be as a high as 25 to 70 percent of earnings before interest, taxes, depreciation and amortization.” This means without action, many organization wouldn’t be financially viable.
2) Sustainable operations save money
There is now sufficient evidence that companies that integrate sustainability into their strategy perform better financially and have a competitive advantage.
- A recent study showed leading companies experience an average internal rate of return of 27 to 80 percent on their low carbon investments.
- There is evidence that being more efficient at using resources is a strong indicator of superior financial performance in industrial sectors and companies that have over-performed have taken their sustainability strategies the furthest.
- Purchasing renewable energy and investing in the technology to generate it is now cheaper than ever, and cheaper than fossil fuel-based energy in many areas
There are many more examples of the positive impact of sustainable operations such as increased innovation due to lean operations resulting in competitive advantage, lower employee turnover and higher stakeholder engagement.
A recent Harvard Business Review article states, “Much of the strategic value of sustainability comes from the need to continually talk with and learn from key stakeholders. Through regular dialogue with stakeholders and continual iteration, a company with a sustainability agenda is better positioned to anticipate and react to economic, social, environmental and regulatory changes as they arise”.
A strong business case for change
While political opinions on climate change and regulation dominate the news, businesses have been quietly revolutionizing their operations and supply chains to benefit from sustainable growth. As the return on investment and need for risk mitigation grows, companies will continue to embed sustainability into all aspects of their operations.
Learn more about strategies companies can deploy today to start on their journey to sustainable growth.