Corporate leaders increasingly embrace the need to act. They recognize that failing to address climate change would both undermine trust with their stakeholders—from employees to investors—and compromise their ability to deliver sustained outcomes. As we set out in our strategy, a focus on trust and sustained outcomes is essential for success.
The need to increase management and boardroom commitment to change will never go away, but it needs to be matched with a focus on directing the commitment that exists into the most effective areas, with actions that deliver real impact. In particular, there are four priorities business should pursue.
The first is the decarbonization of a company’s operations and, crucially, of its supply chain. For PwC, supply chain emissions dwarf the carbon impact of our direct operations. That is not unusual. For most companies, they make up 65–95% of their carbon impact. Many companies recognize the need to tackle these emissions in principle but are put off doing it in practice by a fear that it is too complex to do. However, we’ve typically found that as much as 80% of an organization’s supply chain emissions come from as few as one-fifth of its purchases. Companies need to commit to understanding and cutting these emissions.
Second is the need to understand climate risk and build resilience. There are a number of different types of risk to consider, but one of the starkest is one that many businesses haven't yet properly evaluated: physical risk from the changes that are manifesting in the climate. From the droughts that have gripped the world this last year to the catastrophic floods in Pakistan, there is no longer any doubt that climate change is a material threat to communities and businesses around the world. Supply chain is, again, an important element here. Many businesses may feel their centers of operations are relatively secure from, at least, the short term risks of climate change. The pace of climate change means that judgement is not always reliable, but, even if it is, a study of supply chains will often identify locations that are highly vulnerable.
The third priority is the mobilization of sustainable capital. The net-zero transition is the right choice for the world economically, but it can only happen if it taps into the capital held in the private sector.
Fourth is the need for robust reporting and audit, as well as the right high-quality data. In a global survey of investors, only about one-third thought the quality of the environmental, social, and governance reporting they’re seeing today is good enough. A survey of the public might find an even lower number. There is real effort going into addressing this trust problem, with regulators demanding new types of disclosure and standard setters creating frameworks that should enable robust, comparable reporting.