5 minute read 26 May 2021
High line park at night New York

Three ways business can help meet global climate goals

Authors
Steve Varley

EY Global Vice Chair - Sustainability

Passionate about sustainability, diversity and entrepreneurship. Husband and father of two. Triathlete.

Orlan Boston

EY Americas ESG Markets Leader ; Senior Partner, Health Sciences & Wellness, Ernst & Young LLP

Sustainability champion, Innovator. Entrepreneur. Social justice advocate. Presidential appointee. Film producer. Author. NYU alum.

5 minute read 26 May 2021

Business can help fight climate change and achieve the ambitious sustainability commitments governments made at the Leaders Climate Summit.

In brief
  • Significant financing is needed for the green transition, and private capital will be essential.
  • Business will take the lead on clean technology innovations and green job creation.
  • Companies are prioritizing sustainability reporting, which will help governments, investors and consumers understand where emissions reductions are needed.

US President Joe Biden opened the Leaders Climate Summit calling on countries to be more ambitious in fighting “the existential crisis of our time.” The summit galvanized new commitments from governments around the world and provided much-needed momentum heading into the 2021 United Nations Climate Change Conference (COP26) in November. But governments alone cannot solve the climate crisis.

The role of business will be critical, and public-private partnerships will be essential. Business can take three key actions to help the world meet its climate change goals.

1. Mobilize capital to finance the green transition

The green transition requires significant financing. Developed market governments are still mobilizing the $100 billion they committed to international climate finance as part of the Paris Agreement in 2015. At the recent summit, UK Prime Minister Boris Johnson previewed that he will call on Western governments to commit even more to climate finance at COP26 in Glasgow.

But promised government funding has been slow to materialize. And it will not be enough to meet the challenge – particularly when public finances are stretched thin due to the COVID-19 crisis. Private capital will be essential to financing the green transition.

Nearly all big banks that we work with are setting up sustainable finance teams and offerings. The Glasgow Financial Alliance for Net Zero (GFANZ) launched ahead of the summit will accelerate these efforts. It brings together banks, asset managers, insurers and others to mobilize trillions of dollars in financing for the green transition.

As banks pivot to green financing, companies across sectors need to ask how they can leverage this capital. Can they use such funds to manage the green transition or invest in new opportunities? How will this shift affect their existing loan and insurance arrangements? Will they still have access to the capital they need tomorrow, under the same terms they have today?

2. Leverage clean technology and innovation

Technological innovation will also be necessary. Public-private collaboration is needed to develop clean technologies quickly and at scale. This was clear in President Biden’s focus on promoting innovation in clean technologies during the summit. Government funding and policy incentives can support R&D in clean technology. And the private sector is where these innovations for sustainability will occur – and where new green jobs will be created.

Take electric vehicles (EV). The International Energy Agency (IEA) reports the global EV fleet has grown to 7.2 million in 2019, with more than 2.1 million sales in 2019 alone. Dozens of automakers now compete in this market globally. This expansion has been driven primarily by private innovation and consumer demand. Now governments from Beijing to Brussels are supercharging growth with policies to promote EV industries and related supply chains within their economies.

We’re also seeing companies leverage technology for the green revolution. Energy companies are investing in renewables and carbon capture use and storage (CCUS). Consumer companies are innovating in packaging to make them with fewer emissions and so they are more degradable after use. And technology companies are creating software solutions that help companies manage and report on environmental, social and governance (ESG) metrics.

Companies need to ask what their role is in the green technology revolution. What do emerging technologies mean for their business? Will they be a consumer or developer of clean technology, or both?

Companies need to ask what their role is in the green technology revolution. Will they be a consumer or developer of clean technology, or both?

3. Measure and report on sustainability

Reporting will also play a crucial role. On the eve of last week’s summit, the European Commission adopted a Corporate Sustainability Reporting Directive (CSRD) proposal, which would more than triple the number of companies in the EU required to report on sustainability data. And President Biden’s US International Climate Finance Plan signals the Treasury and US regulatory bodies will focus on improving reporting on climate-related risks among other climate risk objectives.

Even without such regulation in place, investors are pushing companies to report more ESG metrics. In the 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor survey, 72% of investors said they conduct a structured, methodical evaluation of nonfinancial disclosures that relate to the environmental and social aspects of a company’s performance.

The “alphabet soup” of ESG reporting standards and metrics can be daunting to the C-suite, but efforts are underway to bring more clarity, such as the IFRS Foundation effort to accelerate standardization of these metrics. Recent conversations with our clients reveal C-suites and Boards are prioritizing sustainability reporting.

A global energy company is exploring how to make its sustainability reporting as rigorous as its financial data, as it plays a stronger role in the company’s investor narrative. And a large automobile manufacturer that’s been reporting on ESG for more than a decade is now involving the Audit Committee, Controller, Legal Counsel, and others in the C-suite in the process, cementing ESG as central to the company’s reporting.

Companies need to ask where they are in terms of reporting. What do their customers, shareholders, and other stakeholders expect? What work is needed with suppliers to improve sustainability across the value chain?

Collaboration is necessary to make COP26 a success

Business will be vital in ensuring the commitments governments made at the Leaders Climate Summit translate into tangible action at COP26 and beyond. Both public-private and company-to-company collaborations are needed. All companies have a role to play, no matter where they currently are on the green transition. Companies across sectors need to continue to activate capital, technology and reporting to help the world achieve its climate goals. In doing so, they will also position themselves for (green) growth in the coming decades.

This article was originally published in Environmental Finance under the headline “Three ways business will be critical in achieving global climate goals” (log-in required).

Summary

Governments are providing much-needed policy momentum heading into COP26 in November 2021. Business will also have a crucial role in the green transition. Companies across sectors can leverage their financing, innovation and reporting capabilities to help translate policy goals into tangible sustainability improvements.

About this article

Authors
Steve Varley

EY Global Vice Chair - Sustainability

Passionate about sustainability, diversity and entrepreneurship. Husband and father of two. Triathlete.

Orlan Boston

EY Americas ESG Markets Leader ; Senior Partner, Health Sciences & Wellness, Ernst & Young LLP

Sustainability champion, Innovator. Entrepreneur. Social justice advocate. Presidential appointee. Film producer. Author. NYU alum.