It is hard to consider the word ‘transformation’ without remembering the great innovator Thomas Edison who transformed the world with inventions that helped shape the 20th century. He knew the old ways of doing things were not enough, so he created a strong vision of the future, believed it was possible and took action.
This is worth remembering as we stand at the brink of great change, looking towards a vision of a new way of doing business that is not only good for profits, but also for people and planet. This vision of a low-carbon economy cannot be fully realized through incremental action within the confines of how we have always done things. We need to do business in a new way.
In recent years corporate action on climate change has increased apace. The Paris Agreement heralded a new dawn in climate action with more international consensus to tackle climate change than ever before; and it has intensified the spotlight on company progress. This scrutiny is required given the scale of the challenge: emissions have increased exponentially during the last century and must peak by 2020 in order to reach a 2ºC limit
We need to assess whether corporations are prepared, with a strategy that is in line with a 2ºC pathway and equipped with new business models. Whilst many large companies readily state that they will continue to profit in the low-carbon economy, robust ways to check to what extent companies are truly ready for the transition have been lacking. This is the gap that the Assessing low-Carbon Transition (ACT) initiative, developed by CDP and the French Government Environment Agency ADEME, is working to close.
ACT has spent a year developing and piloting three sector based methodologies, which assess how electric utilities, automotive and retail companies have aligned their business strategies with the low-carbon transition. These take companies through an assessment framework which begins with understanding where the company wants to be, how it plans to reach that destination, its current activity and what it has done in the past which continue to influence its emissions trajectory and finally, how its strategy, plans and actions fit together.
This work highlights that business as usual is no longer an option. Companies need to evaluate how to successfully transition to the low-carbon economy in a way that is not only connected to today’s emissions, but also to all relevant choices made in the past that will continue to impact future emissions. These can be fossil fuel power stations with years left to run of their technical lifespan or plans to continue producing road vehicles which will emit CO2 for many years into the future.
For the electric utilities sector, maintaining a business as usual approach to emissions reductions means that almost all companies that took part in the ACT pilot would have no way of meeting their 2050 carbon budget within 5 to 15 years. The lifespan of power plants means the carbon effects of decisions made now will last for a long time. There are important time lags in our systems that need to be fully considered. Another example is road transportation, as cars sold now can last until 2035 on the road. For road transport to achieve total or near total decarbonisation by 2050 requires all car companies to pivot their business model to one dominated by sales of low-carbon vehicles by 2025-2035. Yet most companies’ plans only stretch five years into the future and a full commitment to this pivotal shift is lacking.
Making public commitments such as setting emissions reduction targets in line with the science are absolutely fundamental first steps to aid the transition to a more efficient and renewably powered low carbon economy but, most important, they need to be supported by actions. These include R&D investments in new technology and low-carbon products; investment in low-carbon infrastructure which avoids future stranded assets; and engagement within the supply chain to promote its decarbonisation; as well as re-thinking business models. Ultimately this needs to be incorporated into a robust transition plan with a clear step-by-step trajectory that ensures they are on the right path to the low-carbon economy in 5, 10 and ultimately 33 years from now.
Companies are already starting to challenge a ‘business as usual’ approach. Enel has committed to reduce its CO2 emissions consistent with the level of decarbonisation required to limit climate change to the 2ºC benchmark. This science-based target includes the decommissioning of 13 GW of thermal plants in Italy and the expansion of its renewable business line. Renault is another company with strong science-based targets to reduce its scope 1, 2 and 3 emissions. It has rapidly increasing electric vehicle sales, which are far above the level of growth in low-carbon vehicle sales that would be expected of a company with its market share.
Taking these steps is good for business. Actions such as setting science-based targets are compatible with long-term economic growth and bring a competitive advantage by driving innovation, reducing costs and enhancing profitability.
Through its work with ACT and the Science Based Targets initiative amongst other projects CDP is driving innovation and providing companies with the tools and guidance they need to develop strong transition plans and take action towards them. We will also use our vast disclosure system to track company progress and provide a public platform to communicate successes.
There are important time-lags built into our production systems that might seem like we have enough time and can still wait, but in fact the time to take action is now. As Edison said, “Everything comes to him who hustles while he waits.” The journey ahead may not be easy but as the world moves inevitably towards a clean, low-carbon economy, business transformation may just be the difference between brand success and brand irrelevance.