The business case for aggressive climate and energy action is gathering in strength and expanding in scope, much like how many believe climate change is fueling stronger and scarier superstorms. More and more companies are setting science-based climate targets in response.
As I explained in my previous blog, companies are increasingly aligning themselves with the vision of a climate-compatible future by setting science-based targets. But what’s the fundamental business case behind this trending ambition in climate and energy?
The short answer: Today, there is range of top-line, bottom-line, and ancillary business factors that compel companies to act. They go beyond productivity, the classical business rationale for minimizing environmental impact in the pursuit of efficiency gains and cost reductions. Businesses taking climate and energy issues seriously are reaping a variety of benefits in surprising ways. Here’s how:
- Revenue: Products addressing climate and energy challenges serve expanding market demand, fueling top-line growth. For the past decade, revenue growth from General Electric’s Ecomagination product line was four times greater than that of GE’s overall product portfolio.
- Brand: A company’s reputation is increasingly built (or destroyed) by social and environmental performance. The Coca-Cola trademark—worth more than US$78 billion—is no stranger to reputational risk, which is why Coca-Cola Enterprises’ commitment to science-driven climate protection helps create and conserve brand equity.
- Innovation: Climate and energy solutions increasingly inform innovation and product development. Dell’s ambitious science-based climate targets take aim at product users near the tail of its value chain, incentivizing its engineers to embed energy conservation in consumer electronics at the earliest stages of design.
- Customers: Increasingly, customers are evaluating social and environmental indicators when making procurement decisions. Walmart surpassed its goal of eliminating 20 million metric tons of greenhouse gas emissions from its supply chain last year by directly engaging suppliers.
- Investors: Stranded assets, endowment divestment, green bonds, and so on—investors are increasingly concerned with climate and energy. Earlier this year, proxy season saw a record number of shareholder resolutions dealing with climate change, with scrutiny stepping up for oil majors such as Exxon and Chevron.
- Supply: Climate change impacts such as extreme weather, droughts, floods, and shifting rains threaten the stability of global supply chains. That’s why General Mills, which depends on crops and farms to do business, views its science-aligned climate goals as a means to improve agricultural resilience and supply continuity.
- Regulation: Most climate-change-causing carbon emissions come from power generation, which makes the sector particularly susceptible to related regulatory intervention. NRG’s progressive science-based climate targets help future-proof the power producer against possible regulation.
- Productivity: Amid global competition and uneconomic uncertainty, companies today must continually cut costs. Climate and energy is a natural complement to productivity because reductions in carbon emissions and energy use typically come at net economic savings.
As you can tell, the swirling system of business drivers for aggressive climate and energy action is strengthening and expanding, much like how storms in a warming world are intensifying. This is both appropriate and necessary. In order to avoid the worst consequences of climate change, businesses must mobilize resources, galvanize action, and demonstrate leadership. One way companies can do this is by adopting science-based emissions-reduction targets. Now that you know what they are and why to use them, join me in my next post, where I will explain how to go about setting science-based climate targets.