BusinessGreen and DNV GL's latest roundtable outlined how businesses must incorporate climate threats into their long-term strategies
Is the messaging around climate change too focused on 'doom and gloom'? Should business leaders target the opportunities arising from meeting the challenges of a warming world? And how can policy-makers ensure more corporates are encouraged to take action?
These were some of the topics debated at a roundtable hosted by DNV GL and BusinessGreen in London earlier this week, which set out the key findings from DNV GL's recent report A Safe and Sustainable Future: Enabling the Transition.
The report puts forward predictions for what the global economy may look like by the middle of the century, highlighting the pressure trends such as growing population, more frequent extreme weather, resource shortages, and stricter environmental regulations are likely to impose on businesses. "In terms of additional costs from climate change, our estimates range from five to 20 per cent of GDP," said Bjørn Haugland, executive vice president and chief sustainability officer at DNV GL. "These added costs will just increase and increase."
DNV GL's research identifies 36 "barriers to sustainability" ranging from economic and market barriers, to policy, societal, and behavioural issues. The number and scale of the barriers can seem daunting, but Haugland insisted these problems can be overcome if businesses and politicians frame the response to these threats as an opportunity to innovate, open up new markets, and meet customer demands. "We believe there is a need to put the focus on the opportunities," he said. "For corporate leaders and politicians to speak a positive narrative is so important as it directs so much activity in society. We believe it is possible to create a thriving economy, it is possible to stay within the limits of the planet and it is possible to create a society for nine billion people to live well if we want to. It is human activity that has taken us into this situation and it is human activity that will take us out of it."
For Richard Ellis, director of corporate responsibility at Alliance Boots Group, involving the financial sector is the key to unlocking the door to these opportunities. "The investment community does need to understand that longer-term sustainability is the key to long-term value," he said. "The problem is that you can talk about all these things, but when you look at how quickly stock is turned over, it's clear that this message is not getting through."
But others argued short-term thinking is equally prevalent in many boardrooms. Nick Molho, head of climate and energy policy at WWF-UK, agreed that at the moment there is a "fairly significant disconnect" between the urgency climate scientists are calling for and the level of corporate action. But he said policy-makers can help accelerate a low carbon shift by better understanding the timescales businesses factor into investments. "The absolute necessity of bringing the business world on board if we're going to get the speed of change we need is clear," Molho added. "But there is a challenge in ensuring policies are tailored to the challenges faced by different energy sectors."
He referred to International Energy Agency (IEA) research that found a lot of policies were completely ineffective in driving energy efficiency improvements because they had not taken into account the internal rates of return boardrooms were aiming to deliver. "Commercial companies wanted investment to pay back within four years, but a lot of the energy-efficiency measures governments push for have payback periods of nine to 10 years," Molho said. "Unless you tailor policy to how a company operates you're going to struggle to get the buy-in you want." He also noted that in many countries there is a lack of policy clarity beyond the end of the decade, which makes investment decisions more risky and subsequently pushes up the cost of capital.
For James Robey, group corporate responsibility and sustainability director at Capgemini, viewing low-carbon investments as a corporate change agenda helped executives buy into longer-term thinking. "Climate change and sustainability is the biggest business change problem we'll see and are ever likely to see – that's how I sell it to executives," he said.
As an example, Robey explained how at Capgemini the board has been considering purchasing carbon offsets, but he convinced them to spend the money on reducing the impact of the business instead. "That enabled us to invest in things that didn't have the conventionally expected payback for the industry, which was around 18 months," he said. "Provided it would break even over the lifetime of the investment we'd go with it. We shifted the mindset and we now have a CFO who looks at things across the lifetime of the investment."
Mark Gough, head of sustainability at The Crown Estate, argued that sustainability professionals must play a key role in normalising green practices into corporate behaviour, ultimately allowing businesses to profit from new markets. "One of the biggest opportunities is about responsibility, ensuring that we don't become the only experts, but that it's embedded into decision-making," he said. "So our job should be more and more, for example, helping our investment team to make investment decisions. We're only ever going to see real progression when they stop coming to us for a solution and find it themselves."
All the attendees at the roundtable were clear that greater collaboration would be crucial in underpinning a low carbon transition. "Each of us as a business acting on our own can only become less bad," Ellis said. "If we want to really start to impact on the behavioural issues we have to look at the whole of the lifecycle, get all of the people connected with it and try to come up with a solution."
Connor Hill, Plan A sustainability and delivery manager at Marks & Spencer, added that companies need to share knowledge and expertise not just horizontally, but up and down their value chains. "We're not that big a retailer on the global scale of things so we need to work more closely on consumer goods forums so we can bring the scale and pace of change," he said. "We can't do it by ourselves; we need to do it together."
He added that rapid change will also mean companies will have to ensure that while they have long-term visions for addressing environmental risks, these will need to be sufficiently flexible to cope with new technologies and economic models.
This focus on the potential for disruptive change returned the debate to the importance of embracing new and exciting technology as a means of establishing a more positive view of the opportunities presented by climate change. "I think negative perspectives are the biggest obstacle we face," said Annie Heaton, corporate responsibility programme manager at ArcelorMittal. "The need for getting excited and the creation of technology and innovation is key."
Haugland added: "The power of envisioning the future in a positive and inspiring fashion is so important. To envision a world of tomorrow is a good exercise for businesses and politicians because then you can see the future you want – not just the one you think will happen."
And the scale of the benefits of achieving the shift to a greener economy cannot be underplayed. "We are going to be economically, environmentally, and socially better off if we adequately tackle the climate crisis now than if we do nothing," Molho said. "If we don't tackle the problem now, then the bulk of our financial resources in 2050 and beyond will be spent on damage control rather than productive financial investment. So we need to move away from a doom and gloom discussion to focus much more on the fact that the alternative is exciting and the transition to a new economy brings with it new opportunities and new ways of doing things."
Tracy Oates, director of DNV GL Business Assurance, concluded that collaboration, as evidenced by the roundtable discussion, would prove crucial to delivering this exciting vision of the future. "Meeting with industry experts to hear their opinions on how we can address key sustainability challenges is important," she said. "In all of this, collaboration is key. When businesses can work together with governments and NGOs, we feel hopeful that we will be able to meet the challenges head on."
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