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Climate Change: Why Now?

10/27/2021
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Climate Action: Why Now?

31 October is the start of COP26, which many consider the most important climate conference since 2015. Once again, the world’s leaders will have the opportunity to discuss how to address the looming climate crisis.

Action cannot be delayed, as stated by the “climate emergency” declaration made by the United Nations in December 2020. Climate change is a very real risk for people, the planet and the economy. According to the World Economic Forum, “Failure to act on climate change” is the second most impactful and likely to happen global risk.

In a new study published in October 2021, climate scientists have found that at least 85% of the world’s population has already been affected by human-induced climate change. And, according to the World Economic Forum, more than half of the world’s total GDP, around USD42.4 trillion, is moderately or highly dependent on nature and therefore exposed to climate change.

Climate Change: Impacts on Nature

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Source: Euromonitor International from EM-DAT: The Emergency Events Database - Université Catholique de Louvain (UCL) - CRED, D. Guha-Sapir - www.emdat.be, Brussels; UN Food and Agriculture Organisation (FAOSTAT); and World Resources Institute (WRI)
Note: Data expressed in constant prices and fixed 2020 exchange rate

The journey to net-zero carbon

Given the magnitude of the climate challenge, we need an entire transformation of economies, business models and lifestyles, and this involves all sectors and everyone – every government, company, bank, insurer, investor, NGO, scientist, activist and consumer.

Climate Change: Business Impacts

imagejisvj.pngSource: Voice of the Industry: Sustainability Survey 2021

At a time when the global economy is still highly dependent on fossil fuels, many governments are setting net-zero carbon targets for 2050 or earlier. While these targets look good on paper, the pathway to achieve them is less clear. Governments need to start playing a greater role to facilitate the transition, developing clear policies and metrics to assess progress.

The private sector is also under pressure to help reduce national carbon emissions in line with the Paris Agreement, with an increasing number of companies launching net-zero commitments. The challenge now is translating these commitments into practical, actionable steps.

57% of surveyed professionals work for a company that supports Climate Action (one of the Sustainable Development Goals), but only 14% of them report their company having a net-zero decarbonisation strategy (Voice of the Industry Sustainability survey, 2021). This means there is a huge gap between corporate intention and action.

According to Mark Carney, former head of the Bank of England, “Investing in a net-zero future is the greatest commercial opportunity of our age”. But capturing these opportunities takes money, which is precisely one of the biggest barriers for the private sector. According to Euromonitor International’s Voice of the Industry Sustainability survey, costs and limited budget are the biggest barriers to investing in sustainability.

It is urgent to mobilise financial markets to help companies realign their business models for net-zero. Cleaning up global supply chains, launching low-carbon and climate-resilient products, services, technologies and infrastructure requires investments with high upfront costs.

The World Bank estimates that new climate-smart infrastructure could cost between 2% (USD1.7 bn) and 8% (USD6.8 bn) of the world’s GDP per year through to 2030. This is an investment in the range of USD15.3-USD61.1 bn over the next nine years, which is less than half of what the World Bank Group mobilised since the beginning of the COVID-19 pandemic (USD157 bn).

Fmcg companies investing in climate action

The low-carbon transition is creating demand for new sustainable goods and services worth trillions of dollars across all sectors. As a result, companies are now ramping up climate action to help the world shift to a low-carbon economy.

The top investment areas across all sectors are energy efficiency, optimising energy use and providing employee education. Over 50% of surveyed companies are currently investing in or planning to invest in these areas in the next few years.

Other areas for investment are renewable energy, consumer education, low-carbon innovation, and for those emissions that are perhaps more difficult to reduce, offsetting is also an option companies are looking into.

Companies cannot make the necessary changes if they act in isolation. A quarter of companies are investing in supporting their suppliers to transition to low-carbon. Helping suppliers, de-risking investments, and bringing down technology costs are all fundamental steps towards successful decarbonisation.

Business Investments in Climate Action

imageufhrr.pngSource: Voice of the Industry: Sustainability Survey 2021

While an important impact on climate change comes from the CO2 emitted by transport, investments in electric vehicles are yet not a top priority for fmcg companies. However, this could change as governments place more emphasis on delivering low emissions transport.

It is for the world’s leaders to decide whether the upcoming UN climate conference is a turning point in the fight against climate change, or yet another year where emissions pledges and action continue to fall short of the mark.

 

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