Head of Climate and Sustainability Strategy, Marsh
No organization will be untouched by climate change, and the transformation of the global economy it demands.
Risk managers must ask themselves two key questions: what is the impact of my organization on the climate? And on the flip side, what is the impact of the climate on my organization, both now and in the future? Keeping global warming within the 1.5°C agreed in the Paris Treaty means almost halving CO2 emissions by 2030, underscoring the need to understand how every organization can play its part. While cutting emissions, businesses will also have to build resilience to a new reality that includes more extreme and costly natural disasters. In 2021 alone, ten of the world’s most destructive events cost $170 billion in damages.
Oliver Wyman’s Climate Action Navigator found that businesses across multiple key sectors need to take significantly more action to have emissions by 2030. This chimes with a recent Deloitte study, which revealed that while 97 percent of CEOs know their companies are already negatively impacted by climate change, just 19 percent have implemented ‘needle-moving’ sustainability actions.
Meanwhile, the risks of inaction are mounting. Managers will also need to gauge their organization’s exposure to climate liability. A series of lawsuits against fossil fuel companies for causing climate change signals a growing desire for accountability.
To provide the momentum that is so urgently needed, here are three key ways companies can help cut greenhouse gas emissions to reduce their risk exposure, while gaining a competitive edge.
1) Prepare sustainable adaptations to extreme weather
The risk of destructive extreme weather events such as hurricanes, flooding, and heatwaves is rising. In addition to terrible human misery, these events disrupt global supply chains – the 2011 flooding in Thailand devastated many large industrial estates, causing a global shortage of hard drives. Fast forward to 2022, and Europe’s heatwave has dried up the Rhine river to such an extent that only about 50% of the usual cargo is able to pass along this vital artery for everything from chemicals to car parts, according to a news report.
Despite the unpredictability of physical climate risks, companies can adapt with anticipatory strategies which identify relevant risks and put mitigation measures in place. They could make use of modeling techniques to understand their vulnerability to evolving weather patterns and build a bespoke risk-management toolkit.
Adapting to physical climate risks is an opportunity to implement sustainable practices, such as decentralization of supply chains. For instance, companies vulnerable to power outages could invest in rooftop solar panels and other low-carbon distributed power generation forms.
2) Decarbonize across the supply chain
More and more, businesses are scrutinizing the greenhouse gas emissions in their supply chains. In 2017, Apple laid out new, stronger sustainability criteria for its suppliers. In the same year, Walmart announced plans to cut one billion tons of greenhouse gas emissions from its supply chain by 2030. There is vast decarbonization potential in supply chains. Oliver Wyman’s Climate Action Navigator shows that materials production alone accounts for 25 percent of global energy use and switching to a more sustainable use of materials has emissions reduction potential up to the equivalent of 1.6 gigatons of carbon dioxide annually by 2030. This could include adopting material recirculation and finding material efficiencies, supporting a company’s climate resilience, particularly as access to raw materials like helium gas and lithium becomes less secure. Businesses can also cut supply chain emissions by switching to low or zero-emissions transport options: 15 percent of greenhouse gas emissions are derived from transport, with more than half coming from trucks, trains, aircraft, and ships.
3) Proactively seek the opportunities of the net-zero transition
It is beneficial for businesses to stay one step ahead of regulation, investor concerns, and consumer attitudes to prevent being caught out in a world in which sustainability is taking center stage. This is why the most climate-resilient companies do not just defensively prepare for climate change impacts – they build offensive strategies which account for risk and embrace opportunity.
According to the 2017 report, How climate resilient is your company? Meeting a rising business imperative: “The shift to decarbonization will drive dramatic structural changes across the economy. Companies that proactively adapt to these changes will have powerful competitive advantages.” This means something different for every company, but requires leaders to overcome short-term thinking and invest in sustainable technologies, operations, and assets that have a clear future in the low-carbon economy: from hydrogen to carbon capture.
One of the biggest single changes a business can make to cut its emissions is switching to renewables and other sources of low-carbon power: scaling up low-carbon power accounts for around 30 percent of the ‘emissions gap’, with the potential to cut the equivalent of nearly 10 gigatons of carbon dioxide annually by 2030. Switching to a renewable energy supplier makes a business less vulnerable to volatility in oil and gas prices while building green credibility among investors and customers. Fighting the climate crisis is not a zero-sum game. If companies make smart decisions to build resilience, they can prosper in the long term while playing a positive role in one of the biggest challenges of our time.