Businesses are recognizing the risks associated with climate change. More severe weather patterns are already impacting the economy and making parts of the world more volatile. Such changes damage infrastructure, interrupt supply chains, hurt agricultural productivity and impact human health.
The United Nations has estimated that the economic cost of climate-related disasters alone hit $2.245 trillion over the last two decades, an increase of more than 150% compared to the previous two decades.
Companies are also addressing risk from a variety of voices applying pressure. The public, customers, investors and employees are calling on companies to do more – and scrutinizing companies to make sure they follow through on commitments.
More and more, companies are realizing that they are at risk if they don’t step up on climate change. In addition to this, they are also missing the potential rewards of helping to shape a changing economy and regulatory landscape before it changes without them.
In order to keep up in the competitive market, for climate action, as for any other business endeavour, companies must do what they have always done: improve, invest and innovate.
The constant search for ways to do more with less is an intrinsic part of how businesses compete by cutting costs and adding value to customers. Creating more efficiency and resiliency is not just table-stakes. It is an ongoing process for companies to constantly re-evaluate their business strategies. This includes what companies can do in their operations and across the value chain.
For example, companies that set science-based targets and net-zero carbon goals are committing to realizing the ambition of the Paris climate agreement, and energy efficiency is a primary way to unlock new ways to grow their business while reducing emissions.
Waste reduction is another area where companies continue to make progress. The principles of a circular economy and ecosystem services are leading to reductions in areas including energy consumption, water use, food waste and excess packaging, among other things. Meanwhile, companies are tapping into the value of materials that would have otherwise been sent to landfill.
Investment in nature is a proven method for sustaining a business. Natural climate solutions, for example, are both a mitigation and adaptation strategy. We need to reduce emissions through them, alongside efforts on energy, industrial processes and transport.
Natural climate solutions – based on the conservation, restoration and management of forests, grasslands and wetlands – can deliver up to a third of the emission reductions needed by 2030.
Meeting the challenges of emission reductions requires dramatic innovation across sectors, including agriculture, energy, transportation, buildings, IT, and more. From start-ups to Fortune 500s, climate action cannot exist at the margins of the business. Innovation can and should take many forms:
Technological Innovation: Climate considerations are now central to innovation that will meet supply-side constraints and demand-side pressures. Companies are developing smart solutions to tackle pressing challenges, like making fisheries more sustainable, quantifying the economic benefits of nature, creating better software to support battery storage for renewable energy, and improving water quality and quantity.
Institutional Innovation: Often overlooked, institutional innovation is an important aspect of entrepreneurship, economic dynamism, and environmental progress. For environmental entrepreneurship, new institutional arrangements that improve environmental and energy performance fall into several categories, including new contracting, supply chain, and service relationships between manufacturers and suppliers, employers and employees, brands and customers.
Policy Innovation: Public policies can remove barriers to action, enhance incentives for clean energy, and tackle pollution, including greenhouse gas emissions. Creating low-carbon economies may be one of the most difficult tasks humanity has ever tackled, but the benefits of success can be profound.
By pure necessity, we are on the frontier of a revolution around how our society – and business –operates. Our management of resources cannot continue on its current trajectory. Which is why we must adapt quickly and reap rewards of climate action or sit back and bear the losses.