Companies can harness innovation and partnership to help build a more cohesive, sustainable world.
Businesses need to accelerate their responses to climate change – starting today. Its impacts – including sea-level rise, droughts, flooding, increasingly severe storms and scorching heat –are sparking unrest and threatening efforts to build a more cohesive world. They are also a threat to company operations and business models because of their potential to severely disrupt manufacturing and distribution processes, force up costs to rise and sway consumer purchasing habits.
In fact, the 2019 EY CEO Imperative Study found that climate change is one of the top five global business challenges that can potentially harm business growth and the global economy over the next 5 to 10 years. The investors surveyed for the study ranked it as their top global challenge, jointly with national corporate security.
Businesses in the sectors I work with, including agriculture, automotive, chemicals and energy, are factoring climate change into their strategy and their allocation of investment capital. Energy companies are investing in renewables. Automotive manufacturers are developing electric cars. Farmers are adopting new agricultural methods that make more efficient use of water and decrease methane emissions.
Topping the board agenda
Climate change, and policies to address it, will probably affect certain businesses more than others. Nevertheless, every board should prioritize the issue because climate change presents acute reputational risks to any company that refuses to take it seriously.
Stakeholders – from employees and customers through to investors and the public – want companies to play a leading role in addressing climate change. They want businesses engage with the issue in a way that makes an immediate difference while helping to build a more inclusive and sustainable world over the long term.
So how can business do this?
Disrupting climate change through innovation
One obvious way is through innovation. Companies can innovate so that they exploit both natural and man-made resources more efficiently. They can generate energy using solar and wind power, explore advanced recycling techniques that allow them to reuse more materials, and develop “as-a-service” business models instead of producing products primarily for sale.
A major opportunity for innovation lies in the area of batteries – in particular, the development of cheap, long-life batteries that will transform the market for electric cars. I believe that successful companies in this space will become the industrial giants of the future.
Companies also need to reconsider their engagement with suppliers and customers. Do they rank their suppliers against sustainability criteria? Should they do business only with customers that meet their sustainability expectations? Companies require internal processes that allow them to assess the sustainability of both their suppliers and their customers before they engage with them.
Power in partnership
No innovation or regulatory body can single-handedly solve the climate challenge. To curb climate change, governments must work together and businesses must collaborate across sectors as part of innovation ecosystems. By learning from each other, and sharing ideas, companies will be able to develop products and services that transform markets and change consumer behaviors. It is through using their business ecosystems that CEOs will be able to help save Earth’s ecosystem.
Measurement is key to this effort because boards will understand how their companies are progressing only if they have appropriate sustainability metrics in place, and if they monitor and report on outcomes against targets. EY developed the Embankment Project for Inclusive Capitalism in partnership with the Coalition for Inclusive Capitalism and more than 30 global companies with a combined US$30t of assets under management. We made a breakthrough by creating an encompassing long-term value framework that has buy in from the wider financial community representing asset managers, asset owners and multinational companies in how businesses can measure and report the true value they create for all stakeholders.
The decade to act
Companies that fail to confront climate change are in a very vulnerable position. If they don’t act voluntarily, it won’t be long before governments force them to act. Climate change is already an important issue for voters and will become even more important as it impacts on their day-to-day lives. In the future, any company that fails to operate sustainably could be subjected to restrictive legislation and punitive tax rates or be banned from having premises in sought-after smart cities. It could even end up without a viable business model.
The Inevitable Policy Response (IPR), a pioneering project involving the United Nations-supported entity, Principles for Responsible Investment, has already made a chilling forecast. It predicts that by 2025, governments will be responding to the climate threat in a way that is “forceful, abrupt and disorderly.”
We are about to enter both a new year and a new decade. As the urgency of the climate crisis intensifies, this decade must be the pivotal era when companies take crucial decisions to make our world more cohesive and sustainable. By doing so, they will not just protect the world from potentially devastating consequences, and the associated social fallout. They will also be in a good position to reshape their market, seize new opportunities and gain vital competitive advantage. Climate change has ceased to be a corporate social responsibility initiative – it’s now a global imperative.
When will you move long-term value from ambition to action? Join EY to discuss pressing economic and social issues as we look to the World Economic Forum Annual Meeting 2020 – from 21-24 January. Join the conversation via ey.com/wef and using #WEF20 and #BetterWorkingWorld