PwC Ireland's Business Leaders Series, held at Spencer Dock on 22 November, has identified that reconfiguring operating corporate models towards sustainable business is one of the greatest challenges Irish businesses will ever have to face. It also highlighted that assessing and tracking material climate risks is becoming more important, and that the decrease in carbon intensity of the global economy in 2018 falls short of the required level to keep global warming below 2°C.
Pictured at PwC's Business Leaders Series (left to right): Feargal O'Rourke, Managing Partner, PwC Ireland; Steve Howard, former head of sustainability, IKEA and Chair, 'We Mean Business' and Professor John Sweeney, Climatologist, Maynooth University.
PwC's Low Carbon Economy Index (LCEI) report, highlighted at the PwC's Business Leaders Series, tracks the progress of the G20 countries in decarbonising their economies and compares that with the Paris Agreement goals of limiting warming to well below 2°C.
According to the 2019 report, the results are not good. Progress on climate appears to have stalled: the carbon intensity of the global economy fell by 1.6% in 2018, less than half the decarbonisation rate witnessed in 2015. The Paris Agreement goal slips further out of reach as a decarbonisation rate of 7.5% per year is now needed to give a two-thirds chance of limiting warming to 2°C.
When we first published the LCEI in 2009, the 2°C decarbonisation rate was a more achievable 3-4% per year. LCEI 2019 highlights the huge gap between the rhetoric of the 'climate emergency' and the reality of an inadequate global response. This is increasingly challenging for businesses to manage, as they deal with both extreme weather impacts and growing climate policy risk. They are having to balance continued demand for business as usual and urgent calls for disruptive change.
Addressing the audience, Feargal O'Rourke PwC Ireland Managing Partner said, "Business growth needs to be inclusive, responsible and lasting. It also requires a measure of business success that goes beyond financials. Instead of relying on shareholder return alone, it should incorporate and value all of the non-financial impacts. It's a holistic view of the risks businesses need to understand, identify opportunities and maintain a positive impact on society. By valuing social, environmental and economic impacts, business leaders are able to compare the total impacts of their strategies and investment choices. We urge all businesses to place a monetary value on their total environmental impacts and take action."
The Government commitment to reaching 'net-zero' emissions by 2050 targets businesses, farms and households. The Central Bank is also paying closer attention to the risk climate change poses to the financial system. The financial sector is subject to a wide-ranging legislative agenda from the EU's Sustainable Finance Action Plan.
Giving the keynote address at PwC Ireland's Business Leaders Series, Richard Bruton, T.D. Minister for Communications, Climate Action and Environment said, "Climate disruption is the defining challenge of this generation. The government are implementing the Climate Action Plan, which was published earlier this year and sets out actions across every sector of society which will ensure we step up, and meet our future climate commitments."
"A number of enterprises are signing up to the net zero ambition. However key sectors now need to see how they can align their business to this ambition. Funding is a key issue for many. There is now an appetite for green finance but our financial services must do more to support small and medium size enterprises to make the transition which is urgently needed."
One of the most significant international initiatives that offers a response mechanism is the Task force on Climate-related Financial Disclosures (TCFD). Globally, over 800 organisations have become signatories and it provides a comprehensive approach to determining and disclosing an organisation's climate risk.
The TCFD has specific recommendations per industry but all businesses can break the challenge into the following headings.
How equipped are your Board and Executive team to deal with climate risk and opportunity? Do they understand the company's exposure and do they have the relevant climate expertise? Do they understand, for example, the particular opportunities that may arise in some instances through increasing carbon tax?
Have you assessed your business against the 2°C climate scenario? Have you considered the actual and potential impacts of climate-related risks and opportunities on the organisation’s business, strategy, and financial planning where such information is material?
If climate risk is material, then consider how the organisation identifies, assesses, and manages climate-related risks. 'PwC's Irish CEO Survey 2019 revealed that over one in two (56%) Irish CEOs were concerned about climate change and environmental damage and is similar for global CEOs (57%)'.
Are metrics and targets used to assess and manage relevant climate-related risks and opportunities? This is important to your shareholders and customers. According to the Global Sustainable Investment Alliance, over $30 trillion of assets were managed under responsible investment strategies globally in 2018, up 34% from two years before. The biggest challenge for investors is improved quality and comparability of corporate disclosure on material climate risk factors. Given the increasing reliance and scrutiny being placed on the reported information, it is key that organisations are confident in the accuracy of any data being used to drive internal decisions or being made available publicly.
Kim McClenaghan Advisory Partner PwC Ireland said, "Taking action towards sustainable business is the 'challenge of the century'. While we are all inspired by our young people, businesses also need to take a leadership role and Think Beyond the short-term, beyond profits. We urge all companies, if not already done so, to do the right thing and immediately consider their exposure to climate risks and opportunities. When business profits derived from solving social and environmental problems benefit society and business performance simultaneously, it creates long-lasting sustainable solutions. First movers that adapt to respond to these risks will be the ones that gain competitive advantage as climate change impacts become more disruptive to all business sectors."
The carbon intensity of the global economy fell by 1.6% in 2018. This is less than half of the decarbonisation rate witnessed in 2015 (of 3.3%) when over 190 governments committed to the Paris Agreement. At this rate countries won’t even achieve their own national targets (NDCs) let alone the much more ambitious global goal in that agreement. We estimate that the average decarbonisation rate needed to meet the NDCs for the G20 economies is 3% per year to 2030.
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