The ‘other’ uncontested threat: climate change and the new change imperative

If COVID-19 has revealed our ability to respond quickly to an existential threat, it has also laid down a clear path to deal with an arguably more insidious threat: a changing climate. While it might seem ‘less visible’ than COVID-19, the risks from climate change have now passed a threshold. There will be clear winners and losers in how we respond and that will require collective change. However, if we can embrace the speed of change we’ve experienced in 2020 and marry that with clear and courageous leadership, long-term value creation based on a decarbonised economy is within reach.

But grasping the nettle on climate risk opportunities first requires leaders to clear the ground for action. I was recently invited to participate in the latest EY Oceania LinkedIn Live on Transformational change on this topic, where my colleague, Adam Canwell noted that at the beginning of the COVID-19 crisis, there was an incredible sense of urgency. He went on to comment how ”people had clarity, they knew where they were going, they knew what shift they were expected to make and that we had to be in it together. The space for change was uncontested. The biggest impediment to action on climate risk is the lack of uncontested space with a sense of urgency around it. Which is where leaders need to step in.”

The recent EY megatrends report highlighted decarbonisation as one of the most critical issues of our generation. If boards and senior management want their organisation to grow long-term value, they must analyse their underlying carbon profile, and plan for the physical and transitionary changes of climate change under a range of scenarios. We have the predictive capability to know what different scenarios look like at a local and a global level and yet, we haven't really taken the opportunity to stand back and say, ‘Well, okay, what are those, what are those upsides? How do we steer our organisations? How do we steer our countries in the right direction on COVID-19?’

The pressure to change won’t only come from inside organisations. As the EY Climate Change and Sustainability Services Institutional Investor survey shows, institutional investors globally are doubling down on environmental, social and governance (ESG) performance. They're assessing it more than they ever have and are tying decision-making into climate risks. Nearly 75 per cent of investors are either going to be reconsidering or moving away from investments on the basis of climate risk. It’s unprecedented, it’s not changing and it’s the way companies will be able to attract capital in the future.

This all means that to clear the ground, to create the uncontested space to ensure our economy grows rapidly in the future, we need to see more direct action from organisations and more collective action with government.

We obviously need better targets. We need a regulatory and policy environment that establishes the ground rules for business to operate and also incentivises growth and entrepreneurial activity. Because we're not just talking about the decline in industry sectors, we are talking about the fast and rapid rising in the industries or the sub sector of those industries, that are going to replace them.”

Despite 188 countries being signed up to the Paris Accord to reduce global emissions at a level consistent with two degrees of warming, we're not on target. In fact, we're somewhere between three and four degrees of warming, meaning we need to reduce emissions by around 8 per cent a year, every year for the next decade to get us back on track. While we don’t know the numbers, the predicted drop in emissions from the COVID-19 crisis won’t even hit 8 per cent. That's the quantum of change we expect to see and we clearly don't want that change to occur in the same way. It's my belief that climate change is the largest economic transformation we're going to see in our generation, and we need real leadership if we're going to get this right.

A lot of senior leaders are victims of their own success. Holding to assumptions that have been very successful can constrain how we approach the future. It’s by taking a future-back approach, connecting scenarios with concrete strategic actions, that companies will position themselves today for long-term success. Adam went on to say, “The only way to release yourself from the grip of those mental models is by shattering the way you see the world. This crisis has shattered our conception of organisations and the way companies are run. So, we need to use this moment to completely change our approach to climate change and decarbonisation.” I couldn’t agree more.

EY Megatrends expose leaders to trends and forces far outside their usual scope of analysis, reducing the risk of missing the next ‘big thing’. Join the conversation. #BetterWorkingWorld.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.