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Insights 30 Jun 2016

The Evolving Private Sector Response to Climate Change Post-Paris Agreement

By Rida Bilgrami

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The 21st of March 2016 marked 100 days since the historic climate agreement was struck in Paris between 195 countries, setting the first long-term goal for carbon emissions reduction. It was bolstered, too, by the World Economic Forum, whose work demonstrates that global leaders for the first time perceive the failure to mitigate and adapt to climate change as the top risk in terms of greatest potential impact.

While the Paris agreement is officially due to enter into force in 2020, it is already shaping public policy and corporate action. Pre- and post-Paris, governments have not been the only actors motivated to commit and act. Business was a key voice leading up to COP21, and the role of business is even more crucial as we shift from the negotiation table to the massive systemic change that is required to keep global warming to 1.5°-2° Celsius. Below we highlight three priority areas where action is taking place by the private sector.

Changing business models

The energy utility, oil and gas, and financial sectors are being questioned on the viability of their business models in a low carbon economy, and some are ready to change. The CEO of Energy UK, a lobbying organisation that had staunchly defended fossil fuels is now supportive of a coal phase out, and will lobby for clean energy. Their own policy research on “pathways to 2030” with KPMGshifted the group to focus on longer-term thinking and financing. JP Morgan also joined Bank of America, Citigroup and Morgan Stanley to announce that it would no longer be funding new coal-fired power plants and will shrink its credit exposure to companies that generate most of their revenue from coal mining and sales.

Leading as advocates

The Paul Polman, CEO of Unilever, and other corporate sustainability leaders (e.g. BT, IKEA, Marks & Spencer, and Nike). So far 376 companies and 183 investors are involved, representing $7.9 trillion in revenue and $20.7 trillion in assets under management. Who will join the coalition next?

Improving disclosure

Bank of England Governor Mark Carney has established the Task Force on Climate-related Financial Disclosures, chaired by Michael Bloomberg. The task force will develop voluntary climate risk disclosure guidelines for use by companies in providing information to lenders, insurers, and investors. While early, business widely regards this as a signal that investors are taking climate change seriously and are interested in the guidelines to be issued by the end of 2016 on reporting the potential impact of climate change on energy sources, physical properties, and supply chains.

We expect to see more ambition and action from business in a post-Paris world through exploring low carbon business models, setting science-based targets and being more active on internal carbon pricing, as well as the shadow pricing of other resources such as water. More than 400 companies already use or are considering an internal carbon price to future-proof their business, as CDPreports. What’s next for you?

Read more about SustainAbility’s Global Trends and Opportunities: 2016 and Beyond.

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