Climate disclosure highlights opportunities, too

We’ve often heard climate leaders say “climate change will be the greatest challenge but also the greatest opportunity of our lifetimes.” Unfortunately, the latter part of the statement—about climate-related opportunities—can be lost in translation, overshadowed by the very real risks of climate change. There’s plenty of evidence, however, that companies are seeing and seizing opportunities to drive the low carbon transition.

Over the last few years, there has been growing pressure for companies to publicly disclose the risks and opportunities that climate change poses to them. This is intended to help ensure that businesses are prepared for the impacts of climate change and investors can make smart capital allocation decisions based on this climate-related information.

The Task Force on Climate-related Financial Disclosures (TCFD) released recommendations in 2017 to guide companies’ voluntary disclosures. The recommendations focus primarily on risks—both physical risks from a changing climate and “transition” risks from the corresponding market and policy response. However, TCFD also encourages businesses to disclose climate-related opportunities such as cost savings from efficiency improvements or increased revenues from producing low- or zero-emission products.

C2ES’ April 15 webinar, Climate Disclosure: Transparency as a Corporate Strategy, offered many examples of the kinds of opportunities companies are pursuing and disclosing.

Mackenzie Huffman of JPMorgan Chase highlighted how “opportunities are just as important as risks” and how her company is expanding its financing in renewables and low carbon technologies. This includes JPMorgan’s recent $200 billion commitment to advance the objectives of the United Nations Sustainable Development Goals.

Sharon Basel of General Motors (GM) added that increasing demand for low carbon products has driven GM’s vision for a “future with zero crashes, zero emissions, and zero congestion” and its investment in low carbon products such as electric vehicles. GM has also identified autonomous electric vehicles as an opportunity because the technologies integrate more seamlessly than internal combustion engines with autonomous vehicle technology (electric vehicles have fewer parts and it is easier and safer to recharge than refuel autonomously).

The webinar made clear that companies can use climate-related risk and opportunity disclosure to be better prepared to capitalize on financial opportunities.

While it can be challenging to quantify the financial benefits of investments that reflect climate resilience and contribute to mitigating GHG emissions, some economic and social evidence of the benefits is already emerging. In the midst of the current economic fallout, U.S. Environmental and Social Governance (ESG) investment funds have performed better than conventional funds. This makes sense: Companies that invest in environmental resilience, employee health and safety, and good governance are typically better managed and therefore better equipped to cope with sudden economic shocks. As part of those efforts, undertaking measures to reduce emissions and energy use also reduce operational costs, positioning companies to thrive in a lower-carbon economy.

Talent retention and attraction also play a key role in businesses’ ongoing financial performance. Young people joining the workforce increasingly value corporate climate action when choosing where to work. To recruit top talent, attract investors, and be sustainable, companies will need to implement a robust climate change strategy.

Highlighting business benefits that can arise from the climate challenge might seem secondary to the pressing need to reduce emissions. However, the two are intertwined. Maintaining successful companies and addressing climate change require capitalizing on opportunities to build a cleaner and more resilient economy, such as investing in the low-carbon technologies of the future and reducing emissions across supply chains.

We are already seeing signs of more sustainable business models taking root with assembly line workers building electric vehicles, financial analysts pitching ESG funds, and contractors pouring lower-carbon concrete. Companies must not only protect themselves against the risks of a changing climate, they must also drive the shift to a sustainable one. Only then will climate-related opportunities transition from taglines to mainstream operations.

Webinar Video