Climate Change: The Window Is Closing to Take Action
The United Nations’ Intergovernmental Panel on Climate Change (IPCC) recently released the Working Group II contribution to the Sixth Assessment Report, which evaluates the impacts of climate change on ecosystems, biodiversity, and communities on regional and global scales. Here are a few staggering headlines from that report1 :
- Roughly 3.3 to 3.6 billion people live in places that are highly vulnerable to climate change.
- We have already experienced a rise of 1.1 degrees Celsius in mean global temperatures in the industrial age, from which we are already seeing climate-related impacts.
- Near-term actions that limit global warming to close to 1.5 degrees Celsius would substantially reduce projected losses and damages related to climate change … but will not eliminate them.
- Projected adverse impacts and related losses and damages escalate with every increment of global warming.
There is no time to waste. We have missed the window to avoid all the climate-related impacts predicted by scientists. We are already witnessing climate stresses. Even if we are successful in limiting warming to 1.5 degrees Celsius as prescribed in the Paris Agreement of 2015, the IPCC says that the health and livelihoods of North Americans will be severely impacted. Under even the most optimistic scenarios, we will likely need to adopt adaptation measures to protect vulnerable topographies — for example, erecting sea walls around cities like New York. The U.S. economy will be further affected by impacts felt in other parts of the world that disrupt supply chains and drive mass migrations of people leaving affected areas.
Yet, as the need to adapt to our new climate reality increases, the fundamental imperative to mitigate global greenhouse emissions remains. With every degree increase due to global warming, the economic impact of climate change will rise disproportionally higher. Some researchers suggest that annual losses will increase by approximately 0.6 percent GDP per 1 degree Celsius at +1 degree Celsius of Global Mean Surface Temperature (GMST) warming (relative to 1981–2010) to 1.7 percent GDP per 1 degree Celsius at +5 degrees Celsius GMST warming.2
Private Sector Investment Is Needed
We need investment and widespread adoption of cleaner technologies that shift our economy away from fossil fuels and toward net-zero emissions. To do so will require multistakeholder action across virtually all industry sectors if we have any hope of slowing climate change. This includes not only aggressive government policies to facilitate market shifts, but also the active efforts of the private sector to speed and scale the commercialization of clean technologies.
The good news is that clean technology innovation is happening in every major industry sector. We take a close look at the technologies and practices that hold the most promise for decarbonization in our book, The Decarbonization Imperative: Transforming the Global Economy by 2050. Electric vehicles, renewables and net-zero buildings are well-positioned to scale quickly with minimal investment in developing the technologies themselves. Much of the focus in these industries is on infrastructure and financing.
For industrials and agriculture, the challenge is far greater, with significant investments still needed in basic R&D. To address these sectors, it’s looking more likely that we will need carbon capture and storage (CCS) solutions to abate carbon emissions. Yet, CCS technologies are early in their own commercialization cycles, and without financial incentives to adopt and to scale production, deployment will likely be slow. One thing is clear: Across all industries, we will need an active private sector to move the needle on climate change.
Business as Climate Influencer
Companies today are feeling the pressure to act on climate from governments, investors, customers and their own employees. Long gone are the days of annual sustainability reports being sufficient to satiate stakeholders. Firms are expected to take a public stand on many social impact issues, including climate. Here are just a few ways that companies can be effective climate influencers:
- Bake Sustainability Into Your DNA: Operationalize sustainability, incorporate it into every division in your company, and be transparent about your goals, metrics and actions. Identify ways to influence your suppliers, partners and the broader industry.
- Sell Quality Green Products: Eco-friendly products are no longer niche. According to Simon-Kucher & Partners, sustainability is rated as an important criterion for 60 percent of customers around the world (50 percent rank it in the top five).3 Consumers don’t just want green, they want products that are comparable on other dimensions of merit with the benefit of being eco-conscious. Offer products that meet consumer demand, both in sustainability and performance.
- Purchase Low Carbon: Whether you manufacture a product or not, companies have purchasing power that can shift industries. From eliminating fossil-fuel-generated plastics to serving meat alternatives in your cafeteria to buying clean energy, it all makes a difference.
- Be a Climate Educator: Promote your climate actions and the benefits of green choices. Use your platform to educate consumers more broadly about climate change, providing them with simple actions that they can take to help mitigate it. Speak with MBAs and other business leaders about the risks and opportunities around climate change.
We are quickly approaching an era in which leading on climate change is no longer an opportunity to differentiate, but rather a requirement for doing business. In Larry Fink’s words: “Every company and every industry will be transformed by the transition to a net-zero world. The question is, will you lead, or will you be led?”
This article was developed with the support of Darden's Business Innovation and Climate Change Initiative, at which Michael Lenox is faculty director and Rebecca Duff is senior researcher. The two co-authored The Decarbonization Imperative: Transforming the Global Economy by 2050.
- 1IPCC Sixth Assessment Report: Impacts, Adaptation and Vulnerability, Summary for Policymakers Headline Statements, 28 February 2022, https://www.ipcc.ch/report/ar6/wg2/resources/spm-headline-statements/.
- 2S. Hsiang et al., “Estimating Economic Damage From Climate Change in the United States,” Science magazine, Vol. 356 No 6345, pp. 1362–1369, 30 June 2017, https://www.science.org/doi/10.1126/science.aal4369#.
- 3“Recent Study Reveals More Than a Third of Global Consumers Are Willing to Pay More for Sustainability as Demand Grows for Environmentally Friendly Alternatives,” Business Wire, 14 October 2021, https://www.businesswire.com/news/home/20211014005090/en/Recent-Study-Reveals-More-Than-a-Third-of-Global-Consumers-Are-Willing-to-Pay-More-for-Sustainability-as-Demand-Grows-for-Environmentally-Friendly-Alternatives.