THE CARBON RECKONING: Why ignoring the transition is a risk too big to ignore
The Carbon Reckoning: Why ignoring the transition is a risk too big to ignore - By Nicky Amos and Dr Rory Sullivan
Amid the criticism of COP29, it is easy to lose sight of how much progress has been made on international climate policy. Billions of dollars have been committed to climate finance, there has been progress on global carbon markets and 195 countries have now prepared Nationally Determined Contributions (NDCs) that set out each country’s actions to reduce national greenhouse gas emissions and adapt to the impacts of climate change. Of course, there are uncertainties, not least around the future approach of the United States to international climate policy and the ongoing opposition from the fossil fuel industry to efforts to significantly reduce and eliminate fossil fuel production.
Despite these uncertainties we are likely to see continued policy action on climate change in most countries. The significant reductions in the cost of renewable energy and the need for energy security mean that governments are likely to maintain their focus on reducing greenhouse gas emissions, and irrespective of the causes, countries need to adapt to changing weather patterns and to rising sea levels.
Transition planning still critical for companies
What does this mean for companies? It means that they need to continue to prepare for a policy environment that prioritises sustainability, resilience, and responsible growth. It is likely that those that proactively engage in carbon transition planning and sustainability initiatives will be better positioned to secure access to capital, build their long-term resilience and effectively manage climate-related risks. Those that do not do so risk operational disruption, increased costs, and reputational damage.
While the case for recognising and responding proactively to climate change is clear, companies also need to navigate political headwinds, the risk that governments do not match their climate rhetoric with concrete action, technological limitations and social resistance to action on climate change. These are not easy challenges to navigate.
Anchoring climate in business strategy
We have worked with Chapter Zero to develop guidance for board and non-executive directors that helps them navigate the complex realities of climate change in a way that enables them to deliver on their fiduciary duties as directors while also ensuring that their businesses are successful and resilient over the short-, medium- and long-terms. The main guidance is the Chapter Zero Transition Planning Toolkit which anchors climate strategy within the discussion on business strategy.
The Toolkit includes a Board Scorecard which allows Boards to assess how effectively they are responding and contributing to a climate-resilient economy, a Governance Compass which can be used in board committee meetings to ensure that the committee’s work considers, aligns with and supports the company’s strategic ambition and transition plan, and a guide to managing Barriers and Enablers, which discusses the barriers (and how these might be addressed) to developing and delivering on the company’s transition plan.
Underpinning the Toolkit is the belief that boards need to maintain their commitment to the carbon transition, and the recognition that they also need to address climate change with the same diligence and attention as they would any other major risk. By explicitly recognising these obligations, we hope that companies can design and implement climate transition strategies that ensure their short and long-term business success.
Notes:
1. The Transition Planning Toolkit was produced by Chapter Zero in collaboration with Chronos Sustainability and with the Centre for Climate Engagement. The development of the Toolkit was supported by LSEG and its Foundation.