Companies need to prepare for a low-carbon, or carbon-constrained, economy.
Most business leaders are incorporating climate change risk and the cost of carbon into their business strategy.
Regulated companies generally outperform non-regulated firms on carbon performance. At present, however, both sides are mainly taking advantage of inexpensive emission reduction measures.
In the longer term, companies need to prepare for a low-carbon, or carbon-constrained, economy. This process will occur incrementally. Techniques to monitor and report GHG emissions and carbon management strategies are improving, as is our understanding of the impact of risks and opportunities related to climate change.
The response so far is an important development in terms of risk management and value creation. But in time, these strategies will need to be scaled up to incorporate the full cost of carbon. The challenge will be to make sustainable growth compatible with business models. Eventually, some businesses may need to ask themselves if their company actually fits in a low-carbon economy.
Ultimately, this will separate the winners from the losers.