Strategy & Operations » Financial Reporting » Unilever and L’Oréal lead the way on corporate climate action

Marcus Norton, Chief Partnerships Officer & General Counsel at non-profit global environmental disclosure platform, CDP, discusses the A-listers of the low-carbon economy

Two years ago, the Paris Agreement fired the gun in the race to a low-carbon economy and the message to financial directors could not have been clearer. Get ready to adapt to, and grab the opportunities of, a once-in-a generation economic transition or risk being left behind.

New analysis from non-profit global environmental disclosure platform, CDP, assesses climate action that is being taken by over a thousand multinationals, including Samsung, The Coca Cola Company and Anglo American, examining the extent to which leading companies have heeded this call, and begun future-proofing their business models.

The headline finding from the comprehensive research is that corporates are closing the emissions gap. More companies are setting tougher emissions reduction targets, producing more low-carbon products and consuming more renewable energy. If all current targets are achieved then the companies in the sample would be 31% of the way to being consistent with keeping global warming below 2 degrees; a step up from the 25% that the same analysis reported last year.

Clearly, the race to Paris is picking up speed. With this is mind, many financial directors will want to know how to make sure their company leads on climate.

The tools of the trade

We all know that what gets measured gets managed, and corporates should ensure that they are tracking their carbon emissions and setting science-based targets (SBTs) – which align with the stated ambition of the Paris agreement to keep global temperature rise below 2 degrees – to reduce those emissions.

Encouragingly, 14% of companies in CDP’s analysis have committed to the Science Based Targets initiative, meaning their emissions reduction target is, or will be, in line with what science says is required to prevent dangerous climate change. Companies with SBTs are at the very forefront of global climate action, taking steps now to align their strategies with the goals of the Paris deal and giving themselves a competitive advantage in the race ahead.

AkzoNobel, BT, and EDP are among the 151 companies included in the sample that have joined the initiative, up from 94 last year. An additional 30% – 317 companies – anticipate setting a science-based target within two years. With the companies in the sample representing 12% of global greenhouse gas emissions, that’s a huge amount of emissions that will be prevented if these commitments are fulfilled.

Transitioning to the low-carbon market

CDP’s analysis also shows how the race to a low-carbon economy is driving innovation: both in low-carbon products, and in the use of renewable energy. Over a third of companies now generate revenue from low-carbon products such as electric vehicles and zero-energy buildings.

Even those companies that cannot so easily shift towards lower-carbon products can significantly reduce both their climate impact and costs by using energy from renewable sources. The number of companies with targets for renewable energy consumption has risen by 23% and there is an even greater rise (36%) in corporates setting goals to produce their own renewable energy. For example, BT and Unilever have committed to sourcing 100% renewable energy by 2030 as part of the RE100 Initiative.

One of the things driving this development is carbon pricing: 32% of companies analysed by CDP are now using internal carbon pricing, with another 18% saying they plan to implement it within the next two years. An internal price on carbon provides a straightforward tool for financial directors to assess the sensitivity of their business model to current and future low-carbon regulation.

Climate leaders and laggards

As with any race, we are beginning to see winners and losers emerging as the pace accelerates.

This month CDP also released its environmental A List for 2017, naming 160 companies as leaders for their approaches to climate change, water security and deforestation. The 160 A List companies include Colgate Palmolive, Diageo, J Sainsbury, Sky and Sony Corporation. Unilever and L’Oréal lead the way as the only two companies to achieve A grades across all three areas of climate change, water and forests.

The A Listers demonstrate how business can reduce CO2 emissions, increase water security and tackle deforestation whilst making a profit. For example, since Water A Lister Nissan launched its Leaf electric car in 2010 it has sold almost a quarter of a million electric vehicles (EVs) and become the leading manufacturer of mass-market EVs.

Meanwhile, for those companies who fail to plan for a low-carbon economy, the transition risks posed by accelerating climate change are becoming more severe. The energy sector by and large still has a long way to go – both in terms of disclosing the risk to their business models from climate change and the low-carbon transition, but also in terms of actually shifting investments to lower-carbon modes of energy generation. The sector remains significantly exposed to regulatory threats such as tightening rules on emissions and carbon pricing.

The best laid climate plans

While it is good news that 89% of the world’s biggest, most environmentally-impactful companies now have carbon emissions targets, a target is only significant if it is successfully met. The data that companies disclose to CDP is critical to monitoring this process and ensuring that companies continue to pick up the pace on climate action.

As a part of the disclosure cycle, financial directors are in a key position to help ensure that corporate climate action is timely and comprehensive, and builds long-term financial and environmental sustainability for their companies.

 

 

Marcus Norton is Chief Partnerships Officer & General Counsel at CDP, a non-profit global environmental disclosure platform