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Jul 25, 2018

Low-carbon science will drive future investor confidence, says CDP

Sixty-five percent of business executives say environment will affect business growth in next five years, finds YouGov poll

The enormous challenge of the Paris Agreement – to keep global temperature rises below 2°C – is also creating enormous opportunities for the business community. Rather than avoid the tough climate science behind Paris, many leading companies are embracing it and using it to set ambitious ‘science-based’ targets for emissions reduction that unlock innovation and put them a step ahead of the competition. 

The idea behind science-based targets is for firms to commit to reducing their emissions in line with the decarbonization rate required by the Paris Agreement – rather than setting an arbitrary internal target such as, ‘Let’s halve our emissions in 10 years’. These targets are managed by the UN-supported Science Based Targets initiative (SBTi), a collaboration between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature that helps companies develop a clearly defined pathway to future-proof growth by specifying how much and how quickly they need to reduce their greenhouse gas emissions.

Investor relations teams know better than anyone the importance of being ahead of the curve. So it will come as little surprise that a recent YouGov survey finds more than half (52 percent) of leading executives expect at least half of their products and services to be low carbon by 2028 – with the survey defining low carbon as ‘causing only a relatively small net release of carbon dioxide into the atmosphere’. And nearly one in five predict that all of their products will be low carbon in 10 years’ time. The new green economy is coming fast, and business leaders are increasingly recognizing this and pushing to decarbonize their products and services.

The business benefits of going low carbon are plentiful. Emerging environmental legislation means incorporating tough climate targets can make companies more resilient against changes in laws and regulations. In turn, investor confidence will be strengthened by knowing companies have sustainable, long-term plans in place. 

The transformation going on in the auto sector provides perhaps the best example. China, India, France, Britain and Norway all want to ditch petrol and diesel cars in favor of cleaner vehicles, and are debating legislation. Not to be left in the dust, car companies are embracing green technology and shifting resources to the ballooning electric vehicle (EV) market. The EV market is projected to surpass $1 tn by 2030, when 30 percent of new car sales are expected to be zero-emission or plug-in hybrids. Automakers investing in EVs not only stand to gain a large piece of an ever-expanding pie, but can also count on investor confidence in their brand. 

By setting science-based emissions targets, companies are providing their engineers with a license to innovate. Not only are new products being created, but costs are also being cut. For instance, Kellogg’s now has fuel cell technology at a facility in San Jose that generates electricity while making waffles. Likewise, Sony has developed a new plastic, SORPLAS, made up of 99 percent recycled material, which helps to reduce CO2 emissions by nearly 80 percent during manufacture. For both companies, science-based targets were the catalyst for these innovations. 

When asked which trends will affect business growth most in the next five years, 65 percent of executives in the YouGov poll cite the environment, second only to technological change. One needs look no further than the implementation of the Paris Agreement and the Task Force on Climate-related Financial Disclosure in recent years to see some of the drivers behind this trend. 

With social media revolutionizing the business and marketing worlds, brand reputation has become paramount. As a new generation of ethical consumers has emerged, setting a science-based target allows firms to demonstrate their commitment to tackling climate change and strengthen their brand in the process. 

A low-carbon future is arriving fast, with many business leaders already acknowledging the opportunities that come with it. Through setting tough, science-based targets, businesses are driving growth, unlocking innovation, strengthening brand reputation and cutting costs. Investors would be wise to consider asking high-emitting companies in their portfolios to follow their lead. 

Dexter Galvin is global director of corporations & supply chains at CDP

Dexter Galvin