Business Leadership

Skip to: BUSINESS LEADERSHIP   Business Leadership One of the key findings of the scenario analysis presented in our Pathways to 2050 report is that decarbonization requires action by all segments of society. The private sector, in particular, must play a leading role in positioning the United States for carbon neutrality by 2050. Every major […]

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  Business Leadership

One of the key findings of the scenario analysis presented in our Pathways to 2050 report is that decarbonization requires action by all segments of society. The private sector, in particular, must play a leading role in positioning the United States for carbon neutrality by 2050. Every major company should develop and pursue an overarching strategy for contributing to and succeeding in this transition. These strategies can complement, supplement, and play an important role in informing government policies aimed at decarbonization. Key elements of these strategies should include managing emissions, investing for long-term decarbonization, disclosing climate-related risks, strengthening resilience to climate impacts, and partnering with policy-makers, the public, and private-sector peers.

Key Recommendations

  • Companies should adopt carbon-neutrality goals and use only sequestration-based emission offsets after 2050. They should employ internal practices such as carbon pricing to systematically incorporate climate-related costs into investment and operational decisions.
  • Companies should invest now in the technologies and workforce needed to decarbonize the economy.
  • Companies should thoroughly assess and voluntarily disclose to stakeholders and investors their climate-related risks and opportunities, as well as their strategies to lower emissions, invest in long-term needs, and boost resilience.
  • Companies should actively engage policy-makers at all levels to voice support for the policies needed to decarbonize the economy, partner with their private-sector peers and collaborate across and between sectors to spread action throughout their industries, and help consumers understand their options for reducing their carbon footprints.

Managing Emissions

As a cornerstone of their decarbonization strategies, companies should adopt carbon-neutrality goals and report regularly on progress toward them. Already, almost half of 2016 Fortune 500 companies—and more than 60 percent of the Fortune 100—have set targets to reduce greenhouse gas emissions, improve energy efficiency, and/or increase the use of renewables. Many companies have adopted science-based targets in line with keeping warming below 2 degrees C, committed to 100 percent renewable energy, or set goals that encompass emissions from their products as well as their operations. Recently, some companies have started making net-zero-emission commitments—an encouraging trend that needs to accelerate. Companies’ carbon-neutrality goals should aim for a net balance of greenhouse gas emissions and withdrawals. While some industries may need to use emission offsets to achieve carbon neutrality, only sequestration-based offsets should be employed after 2050.

Companies should also employ internal practices such as carbon pricing to systematically incorporate climate-related costs into their investment and operational decisions and to incentivize least-cost reductions. Companies in the oil and gas, minerals and mining, electric power, and other sectors have used internal carbon pricing as part of their risk mitigation strategies since the 1990s. Internal pricing can take the form of a shadow price that guides long-term planning and investment strategies, or it can be an actual internal fee charged to business units (the revenues from which can fund corporate emissions-reduction efforts). As of 2017, almost 1,400 companies worldwide were factoring an internal carbon price into their business plans—an eight-fold increase from four years earlier.

To reduce the carbon footprints of their internal operations, companies should take steps to improve energy efficiency wherever possible and to transition to renewables and other zero-carbon energy sources at their facilities and in their fleets. In 2018, companies signed deals to procure more than 6.5 gigawatts of renewable energy, shattering the previous annual record. Companies are also making significant investments in on-site renewable generation. Beyond energy use, companies should employ “circularity” strategies to reduce emissions associated with resource extraction, industrial processing, waste handling, and more.

In addition, companies should work with their employees, suppliers, and major customers to promote carbon reduction throughout the value chain. For instance, companies can incorporate sustainability metrics into supplier scorecards and factor the embedded emissions of materials into their procurement processes. Further, cross-sectoral and regional collaborations are essential to decarbonizing the value chain and can create opportunities for circularity. In addition to working back up the supply chain, companies should factor emissions into their product distribution choices as well (e.g., mode-switching from road to rail, improving freight fleet efficiency).

Investing for the Long Term

With the greater certainty provided by robust climate policies, companies in climate-critical sectors should significantly ramp up investment in the technologies and workforce needed to decarbonize the economy.

Companies should work with investors to shift long-term investment from higher-carbon to lower-carbon resources, products, and business models. It is especially important that companies invest now in technologies that will make it easier to decarbonize over the long term. Companies, for instance, can advance low-carbon solutions by lowering internal investment hurdle rates or creating special pools of capital or corporate divisions. Partnering with other companies in the value chain can strategically pool capital, resources, and expertise. In addition to the value chain, companies can partner with governments to commercialize low-carbon technologies.

Companies also should invest in efforts to transition the workforce—both to ensure that workers have the skillsets needed for a decarbonizing economy and to assist workers and communities disadvantaged by the transition away from high-carbon resources. The nature and geographic distribution of work in energy will change due to decarbonization of the energy system and to trends such as automation and digitization. The skills needed for some jobs will change, while new occupations will be created requiring new skillsets. Companies should assess their future needs and be leaders in moving the workforce to a low-carbon future. They can, for instance, institute training and retraining programs in collaboration with local and regional planning commissions, environmental justice groups, labor unions, secondary schools, universities, technical schools, and others.

Boosting Resilience

Companies should undertake comprehensive strategies to assess their exposure and strengthen their resilience to extreme weather and other climate impacts that are already locked in. Small businesses can increase their insurance coverage, adopt disaster recovery plans, and add on-site energy resources. Large companies should assess the vulnerability of their assets in light of future climate conditions, adjust existing business planning and risk management processes, implement strategies to reduce risks, engage with stakeholders, form partnerships, and upgrade infrastructure and equipment.

Disclosing Climate-Related Risks
and Opportunities

Companies should thoroughly assess and voluntarily disclose to stakeholders and investors their climate-related risks and opportunities, as well as their strategies to lower emissions, invest in long-term needs, and boost resilience. Indeed, as noted in the Mobilizing Finance chapter, companies are facing growing pressure from investors and others to disclose such information. Producing the information needed for disclosure can both increase the salience of climate action within companies and provide data to investors to help them make low-carbon investment decisions.

In advance of—or in the continued absence of—any mandatory U.S. climate risk disclosure requirements (again, see Mobilizing Finance above), all major companies should follow the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. These recommendations address both physical and transition risks, focusing on corporate governance, strategy, risk management, metrics, and targets. As of July 2019, more than 800 companies and other organizations had expressed support for the Task Force on Climate-related Financial Disclosures recommendations.

Partnering with Others

Beyond their own business operations, companies should actively engage policy-makers, the public, their industry, and broader private-sector peers to facilitate decarbonization across the economy.

Individual corporate action, while important, is not sufficient to address the scale of the climate challenge. To drive action at the scale needed, companies must actively engage policy-makers at all levels to voice support for the policies needed to decarbonize the economy. Many business leaders recognize that well-designed climate policies are consistent with sound business planning and good corporate governance, provide more certainty for short- and long-term investments, and help them better anticipate regulatory risks and economic opportunities. Many favor comprehensive policies that level the competitive playing field by ensuring comparable levels of effort within and across sectors. Companies should work on their own and through their trade associations to constructively contribute to the assessment and enactment of effective climate policies.

Companies also should partner with their private-sector peers to spread action throughout their industries. Major companies in any given sector are often recognized for their leadership, but efforts are needed to raise the floor for action industry-wide. Decarbonization will move faster and more efficiently if more oars are rowing in the same direction. Trade associations can play a vital role in building broader action.

Companies should explore opportunities to reduce emissions across sectors as well. Companies should launch or actively seek out multi-sectoral decarbonization efforts that engage a broad and diverse group of stakeholders, such as regional efforts focused on the electrification of transportation, industry, and buildings.

In addition, companies should help consumers understand their options for reducing their carbon footprints. This includes, for instance, promoting lower-carbon products and advising consumers on practices that help save energy. Companies can use their powerful marketing and education tools to increase consumer awareness, promote behavior change, and prime the market for the shift to a low-carbon future.

A Vision: Business Leadership in 2050

U.S. companies have reduced their net greenhouse gas emissions to near zero—across sectors and across value chains. Backed by a supportive policy environment, companies routinely integrate low-carbon frameworks into their strategic, financial, and operational decision-making. This reflects a broader shift within the business community toward generating stronger long-term value for shareholders, employees, consumers, and other stakeholders through sustainability and other efforts. In addition to reducing their own carbon footprints and strengthening their climate resilience, companies have shifted investment toward low-carbon technologies and business models and have worked with suppliers and consumers to facilitate decarbonization throughout the value chain. American companies are leaders in the global clean energy market, contributing strongly to U.S. growth and competitiveness.

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