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The Science-Based Business Case for Addressing Climate Change

By 3p Contributor

By James Donovan

To create “a new plan of action for people, planet and prosperity,” the United Nations developed 17 Sustainable Development Goals (SDGs) in 2015. It aimed to achieve the SDGs by fulfilling a total of 169 targets by 2030. Last year, the COP21 talks in Paris resulted in a binding, comprehensive agreement designed to confront climate change. In September, momentum for climate change action accelerated when the U.S. and China agreed to ratify the Paris agreement. Last week, the agreement formally entered into force.

Momentum is a positive development, but tackling climate change will take a sustained effort, as the SDGs and the Paris agreement plainly recognize. It will require lasting commitments from multiple parties, including governments, NGOs and businesses around the world. That’s why both the SDGs and the Paris agreement encourage businesses and governments to integrate sustainability measures into their operations and policies. But one question that remains is how best to obtain commitments from businesses on climate change action. Should outside groups, regulators or litigators lead the charge?

Some observers note that, since businesses were integral to creating the SDGs and contributed to the Paris agreement, the companies themselves are well suited — and even obligated, in part — to make clear social commitments to achieve the goals outlined. Experts who review businesses in the climate change context point out with much justification that enterprises will gain major benefits from sustainability measures, including resource conservation, greater profitability and business continuity. Credibility with consumers is another benefit that accrues to companies that promote sustainability.

But getting businesses to commit to serious sustainability measures requires overcoming a formidable hurdle: the focus on short-term goals, such as quarterly shareholder returns, in favor of action on long-term corporate social responsibilities. It’s a heavy lift because company senior leaders are under considerable pressure to deliver on goals like higher stock prices and larger investor dividends. Their compensation and position often hinge on their ability to drive higher returns, so it’s natural that meeting or exceeding revenue expectations is their primary focus.

However, there are signals of a shift in this thinking as stakeholders who have a direct revenue link to companies begin to recognize the risks of climate change. Long dismissed as a political stance or branding issue, climate change is now being perceived as an operational threat. As the president of the Reinsurance Association of America put it earlier this year, “Our industry is science based: the actuarial sciences and, in this case, the natural sciences.”

Because of their science-based approach, insurers are obligated to consider sustainability as a factor in their overall risk calculations. And that means businesses must do the same. A science-based approach to risk calculation and other sustainability-related facts are beginning to have a critical impact on long-term business strategy and profitability projections across the spectrum of industries.

One instance that illustrates this is how international companies that contend with water issues plan around the scientific fact that 50 percent or more of the groundwater in South Asia is not potable. Increasingly educated shareholders understand the risks related to sustainability. And there is growing demand for meaningful programs that take on sustainability issues as well as for responsible investment options. Thanks to shareholder involvement, adopting long-term objectives is becoming a short-term goal.

There are limits to what can be accomplished with litigation, regulation and consumer pressure; they won’t be enough to drive the deep and meaningful change necessary to meet the SDGs or limit global temperature rise. While it is important for sustainability advocates to make their case, true transformation will only happen when corporate leaders come on board for climate change action, taking a longer-term view.

There are signs this is happening, including actions by groups like the Global CEO Alliance and others. With climate change looming as an operational issue, the business case for sustainability is getting stronger.

Image credit: Flickr/Dana
James Donovan is the CEO of ADEC Innovations.

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