A call to action for businesses: How to respond to and internalize the IPCC's 6th report

Since last week I’ve been asked by a broad variety of clients, partners, colleagues and friends about the latest UN #IPCC report and how businesses can best respond, especially in the wake of recent #ESG backlash. It’s a complicated question and there is no single answer to demystify or simplify what is our most fraught, daunting and critical global challenge.

First, a bit of context. Last week Monday the Intergovernmental Panel on Climate Change (IPCC) released its Sixth Assessment Report, which makes it both the most recent and comprehensive report on climate change.

For those unfamiliar, the UN assembled the IPCC as world leading scientific to monitor and assess all global science related to climate change; this is evidence by the magnitude of due diligence that went into the latest report, which has summarized more than 14,000 scientific studies.

The scientific findings are more resolute and dire as ever – to limit runaway negative effects that will lead to catastrophic outcomes for all global populations – we have a very short window to rapidly decarbonize our economy. No, not decades. We have single digit years. Based on current climate actions, the planet is predicted to be about 2.7°C warmer than pre-industrial levels by 2100.

There is still hope of maintaining the 1.5°C ambition, but only if immediate, adequate and systemic action is taken to explore “multiple, feasible and effective options to reduce greenhouse gas emissions and adapt to human-caused climate change.”

Business leaders have a pivotal role to play in driving these changes. Taking more ambitious action now will materially reduce future losses and damages from climate change, mitigate potential for climate-related litigation and foster long-term sustainable business growth.

Recent data indicates that leaders increasingly understanding the risk of climate and broader ESG/Sustainability questions to their operations, brand and overall viability. According to a recent survey of over 1000 European CEOs, nearly a quarter (24%) of EU CEOs believe their companies will be highly or extremely exposed to the impact of climate change in the next five years. Moreover, the survey found that exposure to climate change risk is the fastest growing threat to businesses.

How can businesses respond to the latest scientific findings and demonstrate their alignment to the global decarbonization effort? I suggest the following. ?

1. Build a Strong Climate, ESG and Sustainability Policy Foundation. Start with the basics, adopt responsible and sustainable policies internally and throughout your value chain; this means institutionalizing respect for human rights, biodiversity and social and environmental standards
2. Leverage New Climate Financing Instruments. Consider leveraging new climate financing instruments towards topline value generation for your organization, which will provide much needed support to global mitigation and adaptation efforts. The proliferation of green bonds, climate bonds, social bonds is an indication of bold private sector action towards the climate agenda
3. Anticipate Upcoming Disclosure Requirements. Better anticipate increased investor pressure and expectations from investors, customers and regulators regarding the disclosure of their greenhouse gas emissions. Get your house in order, take stock of where you are at, streamline data collection and reporting mechanisms. Namely in the US, build in capability to address upcoming climate-related disclosure reporting requirements from the SEC for publicly traded companies. Learn and implement the most important frameworks, including the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD). These are increasingly mandatory for certain large organizations and financial institutions, and will extend to most businesses by 2025. Moreover, the International Sustainability Standards Board (ISSB) frameworks, which are investor-focused and closely aligned with TCFD proposals, will be finalized by June 2023 and are widely expected to inform climate reporting globally in a bid to unify disclosures from corporates
4. Recalibrate Strategy to Support Paris Targets. Align business strategies and investments with the Paris Agreement goals and science-based targets. Ensure these are in place before broad launch of communication strategies. The attention and risk of greenwashing has never been more acute. Consider joining the Business Ambition for 1.5°C campaign by committing to net-zero with the Net-Zero Standard by SBTi in partnership with the Race to Zero. For any multinational or investor doing business in Europe, expect codification of these targets to spill into business requirements; the EU has passed a first-ever requirement for all member states to reduce greenhouse gas emissions by 2030, and raising the EU’s overall 2030 emissions reduction target to 40% compared to 2005 levels, up from its prior 30% goal
5. Work in New, Unexpected Partnerships Towards Net-Zero. Consider pre-competitive collaborations, joint-ventures to spur innovation across sectors and industries to develop and scale-up low-carbon technologies, solutions and business models. A powerful example originated by large multinationals – Danone, Maersk, Mercedes Benz, Microsoft, Natura and Co, Nike, Starbucks, Unilever and Wipro – is the Transform to Net Zero coalition to help other companies on the journey to net zero. The goal is to support others in turning commitments into actionable, cross-sectorial plans. Consider investment opportunities to net-zero technologies to generate carbon credits and high scope four potential
6. Decarbonize Faster, Lead Supply Chain by Example. For those with net-zero targets in place, consider how you can accelerate your achievement and push harder on your main suppliers to do so on the longer journey on scope 3. Surely this will take additional resources and broad C-level engagement and I recognize many will say this is wishful thinking. Nevertheless, companies are pressing ahead and some well ahead of the pack. According to SBTi, there are now 6 US-based companies with verified net-zero targets by 2035. Could the 7th be your organization? Every effort to decarbonize faster will result in resounding primary and secondary effects for all global stakeholders
7. Mitigate Future Climate Litigation Risk and Account for Historic Emissions. Many visionary companies are considering their historic impact and are making plans to offset all historic emissions that they have been responsible for, notably Microsoft. Although this is not yet in the mainstream, we can envision a world where climate risk litigation becomes more codified and having proactively accounted for historic emissions can enhance long-term business viability as well as catalyzing a race to the top. More importantly, it’s the right thing to do for future generations
8. Realize that Emissions Alone Won’t Suffice, Biodiversity and Water Stewardship Wait Around the Corner. As evidenced in the recent landmark agreement at COP15 in Montreal, nature loss poses a major risk to businesses, while moving to nature-positive investments offers opportunity. The Taskforce on Nature-related Financial Disclosures (TNFD) will publish its final recommendations in September 2023. For the first time, market participants can view the beta framework, which includes the Taskforce’s proposed approach to disclosure metrics. Forward-looking business leaders will begin to study and anticipate new disclosure requirements. Additionally, with heightened global attention on water scarcity, more investors are requiring an array of water metrics – efficiency, pollutants, recycling, withdrawal, etc. According to new analysis by CDP and Planet Tracker, the water crisis is draining billions of dollars from financial institutions. Business leaders will have to take note and act swiftly

We recognize the challenges for business leaders in balancing the perceived and real trade-offs between securing net-zero emissions in the future and capturing growth opportunities for today. There is an important reframing to this question, not as costs, but as investments in humanity’s collective future. The time to invest is now.

Although the findings are stark, I want everyone to know that there is still so much be hopeful for. More than ever, businesses are raising their hands, committing their dollars, collaborating pre-competitively and putting their teams to work towards this common goal of global decarbonization and limiting the worst effects of climate change. I see it every day in the work we do at Telesto Strategy. It's been the greatest gift of my career to see this uptake in real action and to know that so much more is to come.