The corporate decarbonisation imperative

The Paris Agreement has set the end-goal – a massive decarbonisation effort to mitigate against and adapt to climate change. Gerald Maradan considers how companies should respond.

What has changed for business since COP21?

For businesses large and small, the Paris Agreement has changed the terms of the debate around decarbonisation. December's climate talks showed, unequivocally, that the world's leaders are committed to addressing the greenhouse gas (GHG) emissions that are causing climate change.

The Paris Agreement has reaffirmed the goal of holding the rise in average global temperatures to no more than 2°C above preindustrial levels, and possibly to no more than 1.5°C. That will require an unprecedented global effort to reduce emissions, and wholesale removal of GHGs from the global economy.

So how should business respond?

Some, of course, are already subject to regulations to encourage them to reduce emissions. Others are seeing changing consumer preferences begin to influence the products and services they offer. Still more have felt some of the early physical impacts of climate change – whether the effects of flooding, drought or heatwave – either directly, or through their supply chains.

Many companies, however, are continuing to wait – postponing difficult decisions around investment, business strategies, even strategic corporate direction – until there is more clarity about the regulatory and market conditions that will evolve as the global economy decarbonises.

At EcoAct, we believe that businesses need to start taking action now as opposed to waiting. The first steps that we take on the journey towards decarbonisation might not be evident, but the ultimate direction – net zero emissions – is clear. The Paris Agreement provides a foundation upon which decarbonised companies and economies can be built.

Fundamentally, corporate decarbonisation rests upon three legs: evaluation, reduction, and offsetting.

Can you elaborate on these three steps?

As a starting point, companies need to understand their climate impact, and the climate risks they face. This involves assessing the sources and climate threat, and the specific emissions footprint of a company and its supply chain. It involves putting the systems in place to collect the data needed to monitor those risks and emissions. And it involves an initial evaluation for opportunities to manage hazards and deliver reductions.

Most firms find that this assessment – if rigorously carried out – will yield a range of emission reduction opportunities. Some of these can be implemented at low, zero, or even negative cost, if they also simultaneously deliver efficiencies in energy use, for example.

We typically also identify a range of intermediate-term options to reduce emissions that may require a small investment and a slightly longer-term planning horizon. Finally, we also consider long-term reduction goals, and the investments that will ultimately be required to decarbonise.

For most companies, full decarbonisation is likely to be a multi-decade journey; investments to reduce emissions are best made when replacing factories and equipment, to avoid stranded assets, and re-orientating strategic direction, when required, is necessarily a longterm process. In the mean time, companies are turning to lower-cost carbon offsetting opportunities to reduce their net climate impacts while they decarbonise.

Companies can purchase low-cost carbon offsets directly from the secondary market. However, we believe that more effective offsetting programmes are aligned with the overall corporate strategy of the offsetting company. By choosing offset projects that enjoy synergies with the offsetter's core business, they can generate reputational advantages, communication benefits and, by investing in carbon mitigation measures with suppliers, even help make supply chains more resilient.

How is climate action an opportunity for companies?

The Paris Agreement has thrown down the gauntlet to the corporate world. It has made clear that business-as-usual is not an option. Companies must acknowledge that risks exist for those companies that are tempted to free ride of the efforts of others. They should also understand that the decarbonisation agenda provides an opportunity to make businesses stronger, more sustainable and, ultimately, more successful.

For more information, please contact: William Theisen (Director, Business Development) E: william.theisen@eco-act.com or visit www.eco-act.com