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Having been put in the spotlight as a key driver of climate solutions, how is business responding to the Paris call to action? Through our work with a number of ambitious corporates, we identify four key attributes that we believe underpin climate leadership…
Raising the stakes in Paris
Unlike previous climate negotiations, COP21 demonstrated the changing nature of public-private interaction, with business recognised as a key participant in driving the required change. The unprecedented demonstration of global will to take action on climate change has given a new sense of joint purpose. But how exactly are corporates embracing this call for leadership and accelerating the transition to a low carbon economy? For Natural Capital Partners, there are four key attributes which demonstrate the new benchmark for climate leadership.
The race to zero
The Paris agreement’s main aim is to keep global temperature rise below 2 degrees Celsius, to avoid the worst impacts of climate change. This requires commitment and action – both regulatory and voluntary – and for many, including Christiana Figueres who led the negotiations, "getting to zero" is the only acceptable target. For many businesses a step change in how emission reduction targets are approached is now required to raise the level of ambition. Some are employing a science based target method to ensure target setting is consistent with the pace recommended by climate science. Others are committing to carbon neutrality.
This simple, compelling statement of action is being made by companies from all sectors, with Norwegian packaging company Elopak, US insurance giant Metlife, and Dutch business Philips Lighting all making carbon neutral pledges in the last year. Marks and Spencer became the first carbon neutral retailer in 2012 and Microsoft has used an innovative, award-winning, carbon fee approach to fund its carbon neutral programme since 2012.
For Sky, 2016 marks a decade of carbon neutrality, with offsetting used as a means for the business to bridge the gap between internal reductions and a zero target. Over this time, Sky’s carbon neutral programme has evolved: from supporting wind power in its key supply countries of India and China, to aligning with its television programming focus on Amazon forest protection through Reduced Emissions from Deforestation and Degradation (REDD) projects in Brazil. Initially used to signal a significant shift in the brand, carbon neutrality is now an integral part of Sky’s corporate identity which employees value and trust.
Commitment to 100%
According to the World Resources Institute (WRI)1, roughly a quarter of greenhouse gas (GHG) emissions are from electricity and heat, representing a significant opportunity for corporates to reduce emissions by decarbonising their power use. Driven by greater availability and lower cost, the number of commitments to 100% renewable electricity are on the rise, with RE100 – an initiative of The Climate Group in partnership with CDP – further stimulating this trend. By encouraging corporate engagement, the initiative hopes to increase market demand and availability of renewable energy. Clarity on reporting and quality criteria, offered by the GHG Protocol Scope 2 guidance, has resulted in the rapid development of the renewable energy certificates market, offering corporates flexibility beyond Power Purchase Agreements (PPA’s) and direct investment (on-site) to address their Scope 2 impacts and meet renewable energy targets.
In becoming a member of RE100 in 2015, H&M made a commitment to source 100% renewable electricity for its global operations, to support the company’s target of reducing emissions by 5% relative to sales each year. To drive progress toward this target, the company is complementing its use of on-site solar and wind at its warehouses and IT centres, with a portfolio of renewable energy certificates aligned with its locations of consumption in North America and Europe. The continued expansion of the International Renewable Energy Certificates (I-REC) market has enabled H&M and other corporates with operations extending throughout Asia, the Middle East and Latin America, the opportunity to meet their commitments for renewable energy throughout the world.
Connecting the dots
A truly effective response to climate leadership requires an integrated approach to embed sustainability in business; an approach which has been enhanced with the launch of the United Nations Sustainable Development Goals (SDGs). The SDGs promote the integration of environmental, economic and social goals, offering a global, comprehensive set of sustainability priorities. Through a common language and framework, the SDGs can help businesses to prioritise action and align corporate strategies for meaningful sustainable development.
Since becoming CarbonNeutral® in 2012, Marks and Spencer has sought ways to align its carbon offset portfolio with its programme to empower communities within the supply chain, selecting projects which support livelihoods and food security, protect biodiversity and improve health and well-being. Research conducted by Imperial College London estimated that for every one tonne of carbon offset in carbon finance projects, up to $664 in additional benefits are delivered to households, communities and ecosystems. Increasingly, companies see value in meeting their carbon reduction goals while also delivering low carbon sustainable development beyond the immediate boundary of their operations.
CDP’s research shows that the number of corporates using an internal price on carbon is on the rise - from 150 in 2014 to 435 in 20152 - demonstrating the growing integration of emissions into decision making and budget planning. For some, this price is used for future risk mitigation while others use it to incentivise emissions reductions programmes. For the latter, the price on carbon can be used to charge business units based on their respective emissions, providing a central climate fund and also motivating action to drive internal efficiencies.
To meet its companywide commitment to carbon neutrality, Microsoft established a carbon fee in 2012. The funds collected from business units on a quarterly basis are used to fund climate action to achieve the net zero target. So far, Microsoft has saved more than US $10 million per year in energy cost savings, has purchased more than 10 billion kilowatt hours of renewable electricity, and has reduced emissions by 7.5 million tonnes CO2e. Additionally, through a global portfolio of more than 44 carbon offset projects in 25 countries, Microsoft has positively impacted seven million people, with projects that match a range of business goals such as access to energy in underserved populations, improving education and supporting entrepreneurship.
A leadership response
While carbon emissions are continuing to rise and still more innovation, collaboration and scaling of solutions is required, the signs are positive that business is rising to the challenge. For those wishing to demonstrate real leadership, the call to action is clear – get to zero now, commit to 100% renewable electricity, and use the SDGs to guide action. Mobilising an internal carbon fee can be a powerful motivator as a funding mechanism. Companies such as Sky, H&M, Marks and Spencer and Microsoft are using an integrated approach, setting meaningful targets that are firmly aligned with the priorities of the business and using the flexibility and immediate results of market based instruments. For ambitious corporates, that’s what climate leadership looks like post-Paris.
1 World Resources Institute. (2005) Navigating the numbers: greenhouse gas data and international climate policy, [Online], Available: http://pdf.wri.org/navigating_numbers.pdf (29 Jul 2016)
2 CDP. (2015) Putting a price on risk: carbon pricing in the corporate world, [Online], Available: https://www.cdp.net/cdpresults/carbon-pricing-in-the-corporate-world.pdf (29 Jul 2016)