Emissions-reduction pledges from world leaders at the COP26 summit set the stage for a renewed push to coordinate globally on climate.
President Biden has proposed cutting US greenhouse gas (GHG) emissions by 50 to 52% from 2005 levels by 2030, moving up the timetable. But soaring oil prices amid a geopolitical crisis are complicating his climate agenda. While the US is releasing oil from its reserves to help push gas prices down, Biden has also reiterated the need to remain focused on the long-term energy transition.
The bipartisan $1.2 trillion Infrastructure Investment and Jobs Act passed in November 2021 will direct $550 billion of new federal investments in US infrastructure over eight years focused on climate change mitigation, equity and green jobs. Meanwhile regulators and investors are continuing to push companies toward managing—and disclosing—their carbon emissions. The SEC has proposed amendments that would enhance and standardize companies’ climate-related disclosures for investors, including greenhouse gas emissions and exposure to climate change risks. Beyond disclosures, positioning the organization to be compatible with a low-carbon future has become an operational necessity for companies as the physical and transition risks related to climate change become more apparent—and they increasingly integrate ESG into business.
President Biden’s pledge enhances the signal that changes are coming throughout much of what you do. Proactive companies can seize opportunities to grow their market share and increase their profitability with products and solutions that meet low- or carbon-free demands.
Moreover, reporting and compliance requirements are expected to grow. Regulatory agencies will play a big part in implementing the Biden administration’s climate goals. CFOs across industries are stepping up efforts to gather and validate ESG data and identify frameworks and metrics for reporting, according to our March 2021 US Pulse Survey. As ESG reporting continues to evolve, companies that progress faster than others—for example, using ESG data insights to inform strategic decisions—will race ahead.
Every commitment made by a CEO, institutional investor or government to reduce GHG emissions rests on the premise that every organization is capable of coming to a clear understanding of the sources and intensity of those emissions, and that they can act on it to reduce their share over time.
To support companies on their journeys, PwC has defined nine key building blocks necessary for a successful decarbonization transformation. Regardless of the ambition of your organization, all approaches to GHG reduction begin with these building blocks:
This is often referred to as the GHG inventory. Companies will typically assess emissions for a year, setting a baseline to track progress in reductions over time. The more ambitious the goal, and with net zero commitments specifically, the more the exercise broadens to identify emission sources across their value chain. Reduction targets will drive companies to look for ways to make changes across geographies, product lines, the supply chain, downstream in logistics, product use or end of life. A value chain-wide GHG footprint is essential to baseline impact and to translate the net zero implications into business-specific parameters. The assessment should have an executive sponsor and audience but can be driven by the sustainability function, whose team members are familiar with these assessments.
Transitioning to a low-carbon economy will impact every company in a different way. The goal of GHG reduction within imperatives to attain positive returns on overall transformation initiatives will require strong governance, starting from the top. Companies can begin by consulting publicly available sources of information for effective climate governance. The FSB Task Force on Climate Related Financial Disclosures (TCFD) and WEF Climate Governance Principles and Guiding Questions may help build an understanding of the key issues. As a company matures, senior leaders should reevaluate any existing incentives that may hinder progress and consider creating incentives that assist management in delivering on milestones and targets.
Leading decarbonization commitments have certain attributes: They are science-based. They take responsibility for tackling value chain emissions including those of suppliers, products, services and investments. They also explicitly recognize that net zero requires a reshaping of corporate strategy and in turn, a company’s operating and financial model. And they allocate substantial funding for skills, innovation and R&D. It will be important to assess market dynamics to ensure both upside opportunities and downside risks are captured to understand net zero implications on business growth and where reshaping or reinvention is needed. Those who lead the transition will move from defense to offense sooner and lead the creation of new markets.
Investors and other stakeholders increasingly expect companies to disclose their plans for how their business models will be compatible with limiting global warming to the threshold agreed upon by 189 countries. Companies are facing evolving global reporting guidance for enhanced climate change disclosures. But without any US enforcement standard (yet), where do you begin?
A good starting point is the Task Force on Climate-related Financial Disclosure (TCFD), which recommends broad analyses of climate risks, far beyond the immediate physical risks many companies prepare for, e.g. operational and business impacts from hurricanes and wildfires.
This is not just a defensive exercise; companies can seize transformational opportunities by conducting climate risk modeling and structuring operations and strategies to better respond to climate change.
We believe the most prepared companies are investing in the capabilities needed to capture the coming opportunities. They are integrating decarbonization building blocks into their operational and financial strategies, enhancing governance to drive desired outcomes and investing in new products and services to meet the changing needs of customers. In so doing, they are demonstrating leadership in this evolving economy.
PwC has a large team of professionals with expertise in the standards, methodologies and technologies that can help your company move from ambition to action in the decarbonization transition.