COP26 came and went: Some progress, many disappointments, few surprises. This has been much covered and discussed already. But despite the lack of ambitions and absence of key players, the commitment from progressive businesses and governments has the potential to unleash an unprecedented wave of investments in the global energy transition.
Any business that plans to be in business 5-10-20-30 years from now needs to tackle this literally burning platform with a completely different sense of urgency. For non-executive directors, this means taking personal leadership and responsibility to support chief executives and their organizations in accelerating their net-zero transformation.
Science speaks volumes of the level of ambition required
The latest Climate Action Tracker, published at COP26, gives us a pretty good idea of what we are heading towards: With current policies, we’re shooting for a 2.7 degrees Celsius increase in global temperatures by 2050. By delivering on the 2030 targets, this will fall to 2.4 degrees C, and by fully implementing all submitted and binding targets we’re heading for a 2.1 degrees C scenario. In the right direction, yes. Yet, we’re still heading for disaster.
According to the Intergovernmental Panel on Climate Change (IPCC), we need to keep global warming well below 1.5 degrees C. This half degree will make the difference from bad to catastrophic for billions of people, affecting lives and livelihoods. The past couple of years have already given us a flavor of what is in store: Extreme heat waves; floods; arctic winters; droughts; wildfires; and irreversible changes in the world’s ecosystems — it’s already happening. It’s no surprise that half of all CEOs (49 percent) state that supply chain interruptions due to climate change are among their top risks, according to a recent United Nations Global Compact-Accenture Strategy CEO report, “Climate Leadership in the Eleventh Hour.”
The headline board agenda item in 2022 is climate action
According to the Climate Action Tracker, the “glass half-full” version of the story is that if everyone delivers on their announced targets, we could deliver on a 1.8 degrees C scenario. That’s why the headline board agenda for 2022 should be how to accelerate from commitments to transformational action.
Also here the UN Global Compact-Accenture report gives food for thought: Because while more CEOs are committed to taking climate action, they are struggling to accelerate their climate ambitions.
Companies working against science-based targets demonstrate real progress: From 2015 to 2019, they collectively reduced their annual CO2 emissions by 25%.
Fully 71 percent of CEOs say they are actively working to develop a net-zero emissions target for their company, and 57 percent believe they are operating in line with the 1.5 degrees C goal. Yet as an indicator, only 2 percent of these companies have a formal target validated by the Science-Based Targets Initiative (SBTI). In contrast, companies working against science-based targets demonstrate real progress: From 2015 to 2019, SBTI companies collectively reduced their annual CO2 emissions by 25 percent.
Scope 3 requires new stakeholder engagement skills
Scope 1 and 2 that focus on the company’s own operations and the energy supply are not simple, but CEOs find it particularly hard to deliver on Scope 3 of their emission targets. To broaden their net-zero impact throughout their supply chains, they need to work within their ecosystems of change, looking at competitors, policymakers, investors, providers and suppliers as stakeholders and partners. They need to join forces to improve traceability of their collective carbon footprint and agree on new incentive structures and price points to reward their collective progress towards net zero.
This is a hugely complex agenda. It bridges planetary, social and economic dimensions. It requires that we rethink leadership, governance and strategy so we create stakeholder value by default. It takes new capabilities and skillsets at the leadership level. At the board level, it starts by asking the right questions and by demonstrating the right level of support of senior management to steer the transformation through. But there is no other way.
Questions to take to the board in 2022
As you prepare for 2022, how about bringing along the following three questions for your next board meeting:
- Is ESG fully integrated into our overall business strategy and cascaded across the organization into transparent integrated reporting?
- Do we have a financed and operational net-zero climate strategy aligned with the Paris Agreement and 1.5 degrees C ambition for Scope 1, 2 and 3?
- Are we ready for the new company reporting requirements in the European Union complying with the Task Force on Climate-related Financial Disclosures (TCFD)?
The board has an important role in encouraging management to launch into the Race to Zero: This is a radical and transformational innovation agenda that needs full support and attention from every executive and non-executive director.