Business Needs to Pay Off Its Climate Debt

It’s climate treaty season again.

As the Kyoto Protocol reaches its diplomatic conclusion, countries are looking to a new international accord and submitting fresh carbon reduction targets in anticipation of a United Nations Climate Conference in December 2015. The European Union, for example, just pledged to reduce greenhouse gases from 1990 levels by 40% by 2030. Even more noteworthy, the U.S. and China jointly announced big emissions cuts in late 2014.

Such global political progress is vital if we are to avoid the 2°C maximum increase that the UN has identified as the most we can allow to prevent catastrophic warming — but if we’ve learned anything from 15 years of politicking around the Kyoto accord, it’s that governments aren’t going to get this done alone.

The only other global player with the reach to take meaningful action on climate is the business community. And the potential contribution from the corporate sector is surprisingly huge. Critics normally point to countries like the U.S. and China as big polluters, but when you strip away the conventions of national boundaries and take another look, it turns out that it’s actually just as easy to point at specific companies as major contributors to global emissions. There are over 190 countries involved in the climate negotiations, but investigations show that just 90 companies account for two-thirds of all the carbon emissions since the industrial revolution.

So this time around, as governments make their climate commitments, companies need to do so as well. Auspiciously, many businesses are making these efforts — just not the ones that matter. In 2012, according to the Carbon Disclosure Project, an impressive 82% of the Global 500 had some kind of climate policy in place. Unfortunately, researchers found no evidence these activities were measurably reducing company carbon emissions.1 Corporate climate practices include things like calculating the carbon footprint or creating board-level climate committees — policies that may set the groundwork for action, but do nothing about actually lowering emissions. It’s worth emphasizing that the few companies that are making material progress on their carbon footprint are those with explicit emissions reduction commitments measured in absolute terms.

So this climate treaty season, companies need to step up and commit to absolute reductions in their carbon footprints. And not one-time commitments, but sustained, multi-year commitments. It’s been calculated that the U.S. business sector needs to reduce emissions by more than 3% per year to avoid the worst climate scenarios. Luckily, cuts at this rate can generate cost savings and supply-chain improvements that make it cost effective for most sectors. And as technology and cost curves improve with adoption, the “low-hanging climate fruit” can grow back, ensuring a more cost-effective transition to a low-carbon future.

This is the smart move. The alternative is waiting for a climate crisis to force massive reductions in a short time frame. The calculated economic costs of this scenario are catastrophic. In the end, the planet doesn’t care either way how we pay it — but we will pay. The choice that remains is this: We either pay now at a manageable rate by “refinancing” — that is, reimagining how businesses use resources and approach emissions — or we pony up later with a ruinous balloon payment. Addressing climate change now is in business’s best interest — in more ways than one.