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Meeting climate goals: Four things companies can do

The public sector alone cannot reduce greenhouse gas emissions and curb climate change. Experts at the UN Global Compact’s Caring for Climate Summit shared how business and investment decisions by companies can help achieve low-carbon growth.

Developing countries will need to spend as much as US$175 billion every year to mitigate climate change by 2030, and public resources alone will not be enough to meet this goal. 

This is why the private sector has both a moral responsibility and an economic opportunity to help address this global challenge, said corporate and civil society leaders at the UN Global Compact’s Caring for Climate Business Forum on Monday. 

The summit, attended by 400 representatives from business,  international organisations, governments, and civil society, was held on the sidelines of the United Nations climate change conference in Paris, where world leaders are meeting to ink a universal agreement on climate change. 

Dimitris Tsitsiragos, vice president for global client services, International Finance Corporation, said that “the private sector has an absolute pivotal role to play in solving the climate puzzle”. 

From business associations to investors to corporations, every private sector player has a role to play in delivering the emissions reductions needed to limit temperature rise to the two degrees Celsius target recommended by scientists. 

Here are four things companies can do to support the global climate agenda:

1. Put a price on carbon 

While there is widespread consensus on the need to eliminate government subsidies for polluting fossil fuel industries, “we now need to get active on carbon pricing”, said Jose Manuel Entrecanales Domecq, chairman of Spanish renewable energy, infrastructure, and water giant Acciona. 

To help drive investment to sustainable development, “carbon pricing is absolutely essential”, said Domecq. This is because it makes sustainable projects more economically viable while penalising carbon intensive initiatives. 

About a third of the global economy participate in a carbon market or cap-and-trade system in which companies can buy carbon credits at an average price of US$7 per tonne of carbon, he noted.

“While I am not optimistic that there will be a global deal on carbon pricing, there are plenty of successful examples around the world”, he added. China, for example, has several regional carbon markets and aims to roll out a national system by 2017.

Indian industrial conglomerate Mahindra is an example of a company that has developed an internal system to track how much it spends on reducing greenhouse gas emissions.

Anirban Ghosh, vice president of sustainability, Mahindra Group, shared that the company considers this a carbon tax of sorts, and spends between US$10 and US$12 for every tonne of emissions reduced.

Mahindra decides which sustainability projects to fund by dividing its expected emissions reductions by the payback period of the investment - guided by the US$10 to US$12 figure - and spending on the most cost-efficient projects, he added.

2. Divest or dissociate

Companies not only have to reduce their own emissions, they must also take a strong and public stand against unsustainable practices, said Winnie Byanyima, executive director of development charity Oxfam International.

“Forward looking companies can no longer afford to sit on the sidelines. They have to pick a side,” she said. For example, there are some companies with vested interests in fossil fuels which are advocating for a less ambitious climate agreement at the UN talks, she said. 

“Businesses should speak out against these firms, or even cut ties with them,” she said. Not only do companies have a moral imperative to be more responsible, there is also a strong business case to do so, said Byanyima. For example, food and beverage companies which helped smallholder farmers improve their cultivation practices would benefit from better crop quality and a more resilient supply chain. 

3. From small projects to the new normal

Byanyima added that Oxfam’s ‘Behind the Brands’ initiative, which campaigns for the ten largest food and beverage companies globally to be more environmentally and socially responsible, has successfully spurred eight out of these 10 companies to sign a leadership statement on climate change. 

“But this campaign is just one innovation - we need to bring it to scale,” she said. That is why Oxfam has partnered with UN Global Compact to develop a tool, known as the Poverty Footprint Tool, to look at how business practices contribute to, or alleviate, poverty.

“We want this tool to be applied voluntarily by all companies under the compact,” said Byanyima. The UN Global Compact has about 8,000 corporate members from across the world. 

Lise Kingo, executive director, UN Global Compact, echoed Byanyima’s recommendation. “We need to create a global movement of companies that can take the sustainability agenda forward,” she said. 

4. Fund clean companies, penalise dirty ones 

Even as companies work to reduce their own greenhouse gas emissions, institutional investors are also becoming increasingly aware of the risks that climate change poses to their investments. 

These include damage to company’s brand reputations and loss of assets due to floods, droughts, and other climate impacts. 

Mats Anderson, chief executive of the Fourth Swedish National Pension Fund, or AP4, shared that while institutional investors have long supported ambitious climate policies, a recent initiative known as the Portfolio Decarbonisation Coalition took their commitment to the next level. 

This is a multi-stakeholder initiative through which investors look at the carbon footprint of companies in their portfolios, and take action to reduce the carbon intensity of the companies they invest in.

As of today, 25 investors are members of the coalition, and are behind the gradual decarbonisation of US$600 billion worth of assets. This is six times as much as the Coalition’s initial target, shared Anderson.

“Leading investors are doing this because they know that there is no viable alternative to a low-carbon economic transition”, he noted. 

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