COP 21 could dramatically change how business manages energy and natural resources and plans for a low carbon future. As companies adapt to an economy that puts a real value on natural capital, they will be propelled towards a more sustainable way of doing business, including smarter resource stewardship and more efficient supply chains.
The United Nations Climate Change Conference (COP21) to be held in Paris the first two weeks of December could well be one of the most highly anticipated global political gatherings in decades.
For the first time since hopes were dashed in Copenhagen 2009 there seems genuine optimism that governments can agree a durable and global climate deal though whether it will be legally binding remains to be seen. Their aim at the Paris summit is to cut carbon emissions in order to limit warming to two degrees Celsius above pre-industrial levels by 2100.
At the time of writing this Spotlight, emissions pledges (known as Intended Nationally Determined Contributions or INDCs) had been made by 158 countries. Our analysis of these pledges shows that although they don’t reach the two degrees goal, they are a step change from business as usual.
Many of the INDCs are explicit about goals in particular sectors including power generation, transport, steel and any binding global agreement will have a major effect on global business and regulation. Business should expect further regulation of emissions, increases in the direct or implied price of carbon, and more incentives for investment in low carbon infrastructure.
The Paris summit will bring even more public attention to energy transition – the latter being an area explored in detail in PwC’s recent Global Power & Utilities Survey.
The coal industry will be the most likely loser even though it is still expected to be a major component of the energy system in 2030. As PwC’s Low Carbon Index points out, King Coal is being targeted as major economies cap and regulate it in their INDCs. In fact coal is being challenged not just by regulators and clean energy advocates, but also by oil and gas companies who position natural gas as a stepping stone to a clean energy economy
The low carbon transition will also have major ramifications for the financial services sector in terms of direct investments and the potential for stranded fossil fuel assets. The scale of investment in the low carbon transition implied by the INDCs is estimated to be up to $700bn each year in the EU and China alone. Finance is essential for meeting both ambitious renewable energy targets and to accelerate a low-carbon transition, for example in the transport sector. And, as PwC CEO, Dennis Nally, highlighted in a recent blog post, resource scarcity and climate change now constitute business critical risks that all companies need to consider when planning future growth.
So how much attention should your company pay to the Paris climate summit? Our recent CEO pulse on Climate Change found that many are more focused on energy prices and national regulation than COP21. But 77% did say that a clear, consistent and long-term national government policy framework would drive real climate change action in their sector. And it’s clear that a binding agreement will have a knock-on effect by boosting national, state and regional regulation that no company can ignore.
A successful Paris agreement will be important for business in another more expansive way – it will elevate sustainability thinking and planning within every organisation and make the UN’s new Sustainable Development Goals (SDGs) resonate at board level.
In September, over 20 global organisations wrote an open letter to the FT and New York Times urging business to get behind the SDGs. PwC was one of that number, again recognizing the role business has in driving change.
At present the majority of companies we talked to for PwC’s recent Sustainable Development Goals survey say they understand the importance of the UN’s 17 main goal but, by 2020, only 30% expect to have identified the tools they need to assess their impact. Global Goal 13 Climate Action was the only goal that appeared in the top 5 for both business opportunity and citizen importance – it could be the best Global Goal to partner with citizens to achieve, as it’s the global goal with strongest appeal to both groups.
A successful COP21 summit could accelerate the necessary change in companies’ focus and priorities. They’ll need to. As Malcolm Preston our head of global sustainability argues, while business and government have a joint responsibility to shape a sustainable future, consumers tend to hold business to a higher standard because of the role companies and brands play in our everyday life. As he writes in a blog post: “Business will need to watch out that a lack of visible or communicated engagement doesn’t become a reputational issue.”
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