While climate change takes center stage in global conversations nowadays, the discussion is evolving beyond carbon management to encompass all aspects of environmental sustainability. Regulations aimed at reducing emissions such as the implementation of carbon pricing for corporations, alongside efforts to protect biodiversity, and promote renewable energy sources highlight the multifaceted approach needed to mitigate environmental impact. The Paris Agreement sets ambitious temperature control goals – well below 2°C above pre-industrial levels, emphasizing the global commitment to combating climate change. This complex scenario demands a comprehensive understanding and action plan from businesses and society.
With the Earth’s capacity to sustain life under increasing pressure through the planetary boundaries – defined as the limits within which humanity can safely operate before there is a risk of irreversible environmental damage, one question arises: How can businesses effectively tackle this challenge without a thorough understanding of it?
This article aims to navigate through the complexities of this critical issue, highlighting the compelling reasons for actions, the inherent dangers of failing to adapt, and the potential benefits of an enlightened and proactive approach to these critical environmental challenges.
Understanding “Why” Reducing Carbon Emissions
According to the United Nations, Climate change refers to ‘long-term shifts in temperatures and weather patterns’. It is primarily due to the accumulation of greenhouse gases in the Earth’s atmosphere, with carbon dioxide (CO2) being one of the main contributors. The undeniable role of human activity in accelerating climate change was confirmed with a scientific consensus in 2019. Thus, understanding the direct link between day-to-day actions and their global impact is the first step in redefining business models to adapt and reduce emissions.
Additionally, broader economic analyses underscore the severe consequences of unmitigated climate change. For instance, the Swiss Re Institute warns that climate change could wipe off up to 18% of GDP from the worldwide economy by 2050 if global temperatures rise by 3.2°C, highlighting the stark economic risks of exceeding the 1.5°C target.
Consequently, the challenges raised by climate change underline the importance of reducing carbon footprint. For leaders and their teams, recognizing this urgency is essential not only to integrate these dynamics into their strategic thinking but also to drive positive change.
Understanding “Why” Mitigating Climate Risks
Because of climate change, it becomes imperative for companies to assess the climate risks they might face. These risks are twofold: transition risks, which arise from the global shift towards a low-carbon economy and can encompass policy, legal, technology, and market changes; and physical risks, resulting directly from climate change effects such as extreme weather events and long-term shifts in climate patterns. Understanding and being trained on these risks is therefore crucial.
Companies face significant financial risks from transition dynamics, including changing market demands for sustainable products and services. Firms slow to adapt risk losing market share, profitability, and access to capital. Stricter environmental regulations and carbon reduction policies may incur compliance costs, fines, and potential litigation for environmental damage or unmet sustainability goals. Reputation damage is a risk for companies seen as neglecting climate change responses or contributing to environmental harm, affecting brand value and customer loyalty. A critical case is the oil and gas industry, where the move towards renewable energy and Paris Agreement policies has led to asset stranding, causing an estimated $1.4 trillion in financial losses globally, from the baseline to the policy scenario in 2022 over a 15-year horizon of profits.
Companies are also increasingly vulnerable to physical risks from climate change, including more frequent and extreme weather events. These risks can elevate operational costs through the need for more resilient infrastructure, higher insurance premiums, and liabilities for not safeguarding assets or teams. Climate change also poses a risk to supply chains by affecting the availability and cost of raw materials and commodities, disrupting production, and altering transportation logistics. Supply chains concentrated in specific geographical areas are especially susceptible. For instance, a study by Schroders and Cornell University predicts that by 2030, extreme heat and flooding could reduce clothing export revenues by $65 billion in four Asian countries, as worker productivity declines and factories face shutdowns.
The Task Force on Climate-related Financial Disclosures (TCFD) publishes guidance on integrating climate change into business governance and strategy. Following TCFD recommendations helps companies understand climate change’s financial impact, improve transparency, and enhance reputation and competitiveness by integrating sustainability into their business models. It equips leaders with tools to manage climate risks effectively.
Tackling the «How» and Seize Opportunities for Change
Learning about carbon issues is not just a need, it is also an important business opportunity that enables companies to differentiate themselves.
Beyond spreading awareness of the “why” and urgency for action, it is crucial for leaders to work on the “how” with their teams and stakeholders. For managers, knowledge of carbon issues enables them to identify innovative solutions that reduce emissions, improve efficiency, and meet the growing demand for sustainable products and services. For example, transitioning to renewable energy sources can lead to significant energy savings, while adopting energy-efficient technologies in manufacturing processes can reduce operational costs. Additionally, companies can benefit from government grants designed to support green initiatives, such as funding for installing solar panels or improving building insulation. Tax incentives, like deductions for energy-efficient upgrades, further enhance the financial viability of these projects. Therefore, this approach attracts new customers, investors, and teams, and represents a business and financial opportunity.
Unilever explains in its annual report and via figures published on its website that training on climate issues has led to significant financial opportunities. Indeed, it shows that by engaging its leaders and teams through internal training programs and external initiatives, the company deepened their understanding of the environmental impacts of their operations and products, integrating sustainable practices at all levels. These efforts, including reducing greenhouse gas emissions and using recycled plastics, resulted in significant financial growth. In 2020, Unilever’s sales increased by 1.9%, followed by a record growth of 4.5% the next year, with projections between 4.5% and 6.5% for the following year, thus showcasing the positive impact of sustainable practices on its financial performance.[1]
However, companies must ensure that their commitment is supported by action. Genuine sustainability efforts can enhance a company’s reputation and strengthen its brand, whereas greenwashing can damage the trust and credibility of all stakeholders. For this reason, training on climate issues should emphasize the importance of transparency and integrity in all environmental initiatives . In focusing on the “how,” these trainings should delve into strategies for seizing opportunities through innovative solutions. This involves teaching leaders and teams how to identify and leverage emerging technologies, sustainable materials, and new business models that align with environmental goals. Practical sessions could explore case studies of successful green projects, detailing the steps taken from concept through execution and the resultant benefits.
Additionally, fostering a culture of collaborative innovation within organizations can encourage the sharing of ideas and solutions that contribute to sustainability goals. Empowering teams with the tools and knowledge to propose and implement changes not only accelerates progress toward a low-carbon future but also positions the company as a leader in sustainable practices. This hands-on, solution-focused approach ensures that training translates into tangible actions, driving both environmental and economic value. While most organizations share the emergency of aligning with the Paris Agreement’s objectives as soon as possible, there is no “one size fits all” solution for implementing a climate change mitigation and adaptation strategy. To this extent, leaders’ climate education helps them better identify the most impactful actions and best implementation conditions according to the maturity, timing, and strategic context at both macro-organizational and teams’ level.
In conclusion, the necessity of educating leaders and teams on carbon issues has never been more important. As concerns grow about climate change and its far-reaching environmental and business implications, leaders with a deep understanding of carbon issues are at the cutting edge of driving meaningful change. Indeed, training on climate issues isn’t just about compliance or risk management; it’s about identifying and addressing the opportunities that arise from the transition to a low-carbon economy. Leaders who understand these issues can drive their company towards resilience, innovation, and long-term success, making a positive impact on the planet while achieving business objectives.
[1] Unilever’s Annual Report and accounts and article on the link between growth and sustainability
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