Meaningful Business Leadership on Climate Change

Published September 14, 2018

2018-09-14 11:54:13

This week thousands of delegates are in San Francisco for the Global Climate Action Summit.  Spearheaded by California Governor Jerry Brown, the Summit showcases the commitments of states, cities and businesses to cut their greenhouse gas (GHG) emissions and protect the Earth from further dangerous warming.  This is an urgently needed response to the U.S. vow to become the only country in the world to back out of its climate commitments under the 2015 Paris Agreement.

Many large U.S. companies are participating in the Summit, and corporate sponsors include Google, Amazon, Facebook, Microsoft, United Airlines, Bank of America, Tech Mahindra, Wells Fargo and Bank of the West.   As the President of the Alliance for Research on Corporate Sustainability (ARCS), a consortium of leading business schools, I am excited to see so much participation by the private sector.  After all, it has been estimated that the world’s 100 largest-emitting publicly traded companies account for as much as a quarter of global greenhouse gas emissions (UNEP, 2017).  It is appropriate that these companies take responsibility for their climate impacts.

Yesterday, 21 companies in the technology sector, led by Salesforce, announced a set of new climate commitments in the form of the Step Up Declaration.  The coalition voiced support for the Mission 2020 goal of “bending the climate curve” by 2020, in order to put the planet on a trajectory toward a cooler world.  Each of the individual members announced its own specific commitment, ranging from Salesforce’s promise to use 100% renewable energy by 2020 to Tech Mahindra’s goal of cutting GHG emissions 50% by 2050.  Importantly, the participants recognize they need to work “collaboratively with others— across all sectors of society, including individuals, corporations, civil society, and governments.”  This is a welcome step, but how far can it take us towards meeting the goals of the Paris Agreement?

The Emissions Gap

The Paris Agreement of 2015 represented a radical new approach to international climate policy.  Instead of seeking international agreement on an umbrella policy that would cover the whole world, countries were invited to offer whatever “Nationally Determined Contribution” (NDC) they liked.  Every country in the world has made an NDC (including the U.S., although the Administration plans to pull out on November 5, 2020, the earliest date it can).  The goal is to cut the current emissions level of about 53 billion tons (known as giga-tons, or GT) of carbon dioxide per year to at or below 42 GT per year by 2030.  As one might expect from a purely voluntary agreement, however, the sum total of the individual NDCs falls short what would be required to meet the goal of holding global warming “well below” 2oC (preferably 1.5oC).  Careful estimates suggest that if all commitments are fulfilled, the Paris Agreement could potentially get us about 1/3 of the way to hitting the 1.5oC target, but the planet would still be likely to warm by 3oC over pre-industrial levels.

The United Nations Environment Program (UNEP) reports each year on the “emissions gap” between what has been promised and what would be needed to hit climate goals.  Its 2017 report, the most recent, estimates that by 2030 we will be 13.5 GT/year above the 2oC trajectory and 19 GT/year above the 1.5oC trajectory.  These values constitute the emissions gap.  How much of that gap can be filled by commitments from the private sector?

NewClimate Institute and the Climate Group have inventoried the climate commitments made by sub-national entities such as cities, U.S. states, and companies.  Their findings are represented in the table below, which shows that as of 2017 companies had made commitments totaling about 100 million tons of carbon dioxide equivalent (MtCO2-e) per year.  This is 1/10 of 1 giga-ton, and less than 1% of the low estimate of the emissions gap.  Although it is a welcome step, it is simply not enough to move the needle.

Even if the private sector were to increase its commitment by a factor of 10, to 1 GT/year, this would only fill about 7% of the gap.  Such steps are certainly worthwhile, and the companies making such commitments can be justly proud of them.  But given the urgency of the situation, and the limits to private action, a new model of business climate leadership is needed.

A New Vision of Business Leadership on Climate Change

The Alliance for Research on Corporate Sustainability recently released a Statement on Business Leadership and Climate Change that offers a new vision.  Signed by dozens of leading academic researchers, it starts from the premise that the profit motive alone is not enough to solve our climate problems.  The emissions gap analysis drives this point home—voluntary action by the private sector simply cannot solve the problem.  Action by nation-states is crucial to any serious solution.  Thus, the most important thing for a company to do, if it takes climate seriously, is to lobby powerfully and publicly for a stronger policy response.

The ARCS Statement puts it this way: “Firms that wish to be sustainable must act both as stewards of their own operations, and as advocates for rules that support system-wide sustainable action.“

Moreover, companies need to be transparent about their advocacy.  Citizens are rightly concerned that too much lobbying goes on behind closed doors, and that too many companies talk a “green” game while “lobbying brown” in Washington, DC.  True climate leaders need to be best-in-class on both transparency and on public advocacy.

The Step Up Declaration from the tech sector is a very welcome step forward.  We can only hope that it will spur similar actions by companies in other sectors with even bigger carbon footprints.  And we must remind tech CEOs that if they really want to show meaningful business leadership on climate change, they must also step up as vocal lobbyists for stronger policy action.

Thomas P. Lyon is the current president of the Alliance for Research on Corporate Sustainability.

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