Green business after COP26

CCS facility in Vatenfall
A carbon capture and storage facility in Germany. With its highly industrialized economy, Germany wants to become a pioneer in decarbonization without losing its international competitiveness. Image: Vattenfall, CC BY-NC 2.0

What is next on the global climate agenda? This year’s United Nations Climate Change Conference (COP26) in Glasgow certainly did not fail, but nor was it much of a success. While world leaders entered into promising new agreements on targets, global greenhouse-gas emissions so far are not being reduced at the pace we need them to. While some countries have strengthened their climate pledges have been strengthened, the lack of concrete measures for achieving these pledges is a real worry. We see a yawning policy gap.

Climate science clearly shows that future prosperity and equity lies in only one direction: toward a nature-positive, zero-carbon global economy. Between this year’s extreme weather events and the razor-sharp, science-based messages in the Intergovernmental Panel on Climate Change’s sixth assessment report, we do not need any more confirmation of the facts. The world is facing massive threats to biodiversity and nature. To remain on track to achieve carbon neutrality by 2050, we must reduce emissions significantly before 2030.

Many policymakers continue to drag their feet, voicing concerns that climate action will burden businesses. However, many top business leaders are increasingly putting their companies on a more sustainability-minded course. The vast majority of them have accepted the findings of climate science and moved beyond the phase of denial and hesitation. This broader trend was clear to see in Glasgow, where senior executives from many of the world’s largest corporations were in attendance.

In the run-up to COP26, we interviewed business leaders from more than 20 top German companies, including BASF, Daimler, Deutsche Bank, Deutsche Telekom, Lufthansa, and Siemens, and examined their sustainability strategies. Among our main findings were that nine out of 10 German CEOs consider sustainability to be at least as important as digitalization for the next five years.

This represents a striking change and it is not just words. On average, the companies participating in the study aim to achieve climate neutrality by as early as 2035, not only on their factory premises but across their global value chains. German corporate leaders are under no illusions that this will be easy and most recognize that their actions have yet to catch up with their attitudes. Nonetheless, sustainability has moved to the top of the CEO agenda, replacing COVID-19 as the number one issue that leaders care about. 

Our survey suggests that a new narrative has emerged in German business. Companies now consider a robust sustainability strategy necessary for maintaining their “license to operate”. More are coming to realize that there are business opportunities in sustainability and more CEOs are taking personal responsibility, establishing new corporate governance mechanisms and incorporating sustainability targets into executive board compensation.

In the context of the broader climate challenge, Germany makes for a particularly interesting case study. With its highly industrialized economy, Germany wants to become a pioneer in decarbonization without losing its international competitiveness. From the average German CEO’s perspective, progress is being held back not by a lack of green technologies or support from key stakeholders, but by high upfront costs. For 60 per cent of those surveyed, sustainability and profitability remain at odds. Many existing sustainability projects are nevertheless already paying off, and costs will continue to fall as the opportunities for increasing sales of sustainable products increase.

Transforming companies’ modes of operation requires three kinds of action. Firstly, companies urgently need to reduce their negative footprint on the planet and the society, by stopping the overuse and destruction of natural resources. Secondly, they need to increase their positive “handprint” through system-wide purpose-oriented (rather than solely profit-driven) business strategies to build resilience and contribute to the Sustainable Development Goals.

Lastly, they need to create a “heartprint” and win the support of all stakeholders. In this aspect, every consumer can make an impact by changing our behavior. Voters can support bold policies as voters,  scientists can create new knowledge, and policymakers can set meaningful incentives and frameworks. 

The German companies we surveyed offer good examples for sustainable corporate action. Some of them use “green digital twins” in product development to quantify a product’s climate effects even before a prototype is built. Others report on their “product carbon footprint” to provide suppliers and customers transparency about emissions and enable informed choices between alternatives. Many businesses cooperate across sectors to operate and finance sustainable projects. And several large German companies are training employees to become “sustainability ambassadors” who will show others how to pursue similar strategies.

Such models need to spread quickly, because the transition to a safer, healthier, sustainable world is not proceeding smoothly. The global economy is still shaped by misaligned incentives that make it profitable to pollute, destroy, and destabilize the climate and biosphere. We urgently need climate science-aligned policies that provide a new framework for business. COP26 did not deliver this – and it probably never would. Additional formats will be needed, starting with the 2022 G7 summit in Germany. The EU could sign on to the US-China declaration in Glasgow, even forming a science-based “climate G3.”

We need more companies to take it upon themselves to adopt science-based targets. This applies not only to cutting carbon-dioxide emissions, but also to conserving other limited resources, especially water, biodiversity, food, and soil.

The challenges ahead are immense, but so are the opportunities. We are currently in a phase of acceleration, having only just realized the urgency of the issue. The carbon budget for remaining aligned with 1.5° Celsius of warming will last (at current emissions rates) until the end of this decade – at most. We must start reducing emissions now, across all sectors and at all levels.

As our study shows, business leaders are aligning behind the science and showing a willingness to transform their operations. The question now is whether policymakers will provide the necessary framework to ensure a safe future for everyone.

Johan Rockström is Director of the Potsdam Institute for Climate Impact Research and Tobias Raffel is Co-Founder of the FUTURIST Institute for Sustainable Transformation.

Copyright: Project Syndicate, 2021.


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