The urgency of the climate crisis is well understood in business circles. “Climate risks top the World
Economic Forum s Global Risks Report 2022, which analyzes global perceptions among risk experts and
world leaders in business, government, and civil society,” the World Economic Forum describes
regarding the Davos 2022 agenda.

 

Today, all the world’s leading corporations have adopted some formal response and commitment to the
global climate crisis as a result. These include commitments to divest from fossil fuels and hit specific
carbon-neutral or carbon-negative targets based on scientific recommendations.

 

But it’s difficult to measure the efforts of business leaders towards reducing their companies’ carbon
footprints. Questions remain as to whether the net impact of environmental and social governance
(ESG) initiatives will make a meaningful difference as well. This article benchmarks these companies real
progress towards sustainability goals and assesses how meaningful those results will be in the long term.

 

Benchmarking Industry’s Impact on the Climate Crisis

 

The climate crisis is already having severe socioeconomic consequences that are projected to become
much worse in the coming decades. Climate change could force over 140 million people to migrate by
2050, the World Bank estimates, exacerbating poverty in climate-vulnerable countries. The United
Nations has warned that the world is on track for a more than 3.2 Celsius increase in temperature over
pre-industrial levels, which would lead to widespread devastation as well.

 

Meanwhile, “100 energy companies have been responsible for 71% of all industrial emissions since
human-driven climate change,” not-for-profit advocacy group NRDC reports. The findings are indicative
of the weighted impact industry has on climate, especially the handful of global companies that produce
and consume large quantities of energy and generate hazardous waste.

 

For example, transportation, aviation, and shipping industries are all major source of emissions due to
the burning of gasoline and diesel fuel. The shipping and aviation industries are particularly polluting, as
they use heavy fuels with high carbon content. But virtually every industry has a carbon footprint its
leaders have a moral obligation to address.

 

Fortunately, investor, economic, public, and regulatory pressures have galvanized business leaders to
respond. Specifically, business leaders have made several commitments, including divestment from
fossil fuels and specific carbon-neutral or carbon-negative targets. “Virtually all of the world’s largest
companies now issue a sustainability report and set goals; more than 2,000 companies have set a
science-based carbon target; and about one-third of Europe’s largest public companies have pledged to
reach net zero by 2050,” Harvard Business Review reports.

 

But Is Their Environmental Progress Real?

 

But it is difficult to assess the sincerity of these commitments from case to case, or how realistic those
targets are given the scale of the climate crisis. Part of the problem is that there is no agreed-upon
definition of what constitutes "sustainability." For some companies, sustainability simply means
reducing their emissions. But for others, it involves a complete overhaul of their business model.

 

There are also several different ways to measure progress towards sustainability goals. For example,
companies may use “absolute metrics,” “intensity metrics,” or some combination of the two.
Specifically:

 

• Absolute metrics involve setting a specific goal, such as reducing emissions by a certain
  percentage over a specific number of years. Absolute metrics are specific to a single company.

 

• Intensity metrics involve setting a goal relative to something else, such as reducing emissions
  per unit of output. Intensity metrics are often relative to industry norms and standards.

 

There are also different ways of accounting for emissions; namely, "direct" emissions and "indirect"
emissions. For example:

 

• Direct emissions include only emissions from a company’s own operations, assets, and
  activities.

 

• Indirect emissions include emissions from a company’s entire supply chain. Reducing indirect
  emissions my require choosing new partners, distributors, or providers as a means of reducing
  environmental impact.

 

Finally, there is the issue of time frames. Some companies have committed to becoming carbon-neutral
by 2050, while others have set more ambitious goals of becoming carbon-negative by 2030. Less
ambitious targets may seem compelling from a PR perspective but may not be very ambitious at all in
terms of real action and results.

 

Public Pressure Can Instigate Real Change

 

Fortunately, public pressure on corporations has had a significant impact on senior-level decision
making at the world’s leading companies. In response to mounting public pressure, many companies
have made meaningful commitments to divest from fossil fuels and set aggressive carbon-neutral or
carbon-negative targets. For example, “At all of its parks, Disney uses zero net direct greenhouse gas
emissions and has a zero-waste policy so that nothing ends up in landfills,” Forbes reports. The size and
popularity of the company fuels public pressure; its size is also what makes action so impactful.

 

Its undeniable there has been real progress in these cases. (Forbes lists 101 companies who have made
meaningful progress or who have set ambitious goals.) The concern is whether that progress is scalable
and sustainable; another concern is whether the net impact of that progress will be positive when
combined with other contributors to the climate crisis overall.

 

In many cases, it is simply too early to tell whether companies (a) are sincere in their efforts to reach
their carbon targets and (b) will make a difference in terms of net results. What is clear, however, is that
the scale of the climate crisis demands much more than lip service from the world’s leading companies.

 

Environmental, Social, and Governance (ESG) Policies

 

 

 

Successful Characteristics of ESG Policies

 

There is no single set of characteristics that make up a successful ESG policy. Industries differ based on
their size and the nature of their environmental impact. For example, airlines use an inordinate amount
of fossil fuels compared to hotels, which may produce carbon waste indirectly via their supply chains.
Successful ESG policies vary depending on companies’ specific goals as well.

 

However, there are a few general characteristics that are common in successful ESG policies. For
example:

 

• A clear commitment from senior management to the goals of the policy. Examples include
  setting and achieving specific carbon-neutrality targets; investing in, or offsetting with.
  renewable energy; divesting from fossil fuels; and making these commitments public to lock in
  accountability.

 

• A clear and achievable set of initiatives that are aligned with the company’s overall business
  strategy. For example, airlines that have committed to carbon-neutral growth by 2050 need to
  invest in fuel-efficient aircraft and alternative fuels, while carmakers must produce a larger
  share of electric vehicles.

 

• Independent verification to ensure that the company is meeting its commitments. Measurable
  progress depends on accurate and reliable data. Data should be independently verified by a
  third party, such as the Carbon Disclosure Project.

 

One example of a company implementing a successful ESG policy is Unilever. Unilever is a consumer
goods company that owns dozens of consumer product brands, which makes its environmental
responsibility complex. Nonetheless, Unilever has committed to achieving net-zero emissions by 2039.
The company has set several targets as part of this commitment, including “finding new low-carbon
ingredients, expanding plant-based product range and developing fossil-fuel-free cleaning and laundry
products.” So far, the company is on track to achieving its goal.

 

As Unilever and other leading global companies face increasing pressure, it will be interesting to see
how their ESG policies evolve—especially in response to the governing bodies that determine their
levels of success. In fact, there are already several ESG rating systems for companies, including:

 

• Sustainability Accounting Standards Board (SASB)
• Global Reporting Initiative (GRI)
• Climate Disclosure Standards Board (CDSB)
• Carbon Disclosure Project (CDP), as mentioned

 

Each of these groups employ rating systems, each with its own specific methodology, but they all aim to
provide investors, stakeholders, and the public with information about companies’ environmental and
social performance. As a wider variety of companies and industries begin taking responsibility, it’s likely
more ESG rating systems will emerge in the coming years.

 

Competitive Value in Environmental Responsibility

 

Global businesses and their activities are more visible than ever thanks to the ubiquity of internet access
and reporting. Internet access is central to what will become an essential, “four-pronged” approach to
enacting real change in corporate sustainability actions:

 

• Non-profit third-party arbitrators will implement new and evolving independent verification
  systems to ensure major corporations are meeting their commitments.

 

• Customers, civil society groups, and the public will pressure companies to be more transparent
  about their progress, forcing them to take a meaningful, brand-oriented approach.

 

• Investors will play a role by considering environmental and social factors when making decisions
  about where to invest their money.

 

• Government regulations in the interest of public welfare will motivate companies to make
  meaningful change through incentives, taxes, or a combination of measures.

 

Business leaders have a choice: approach environmental responsibility as an obstacle or seize upon it as
a competitive opportunity. Transparency can help to hold businesses accountable and encourage real
change, but it can also become a channel for brands to increase their appeal among customers—not to
mention to act upon their ethical responsibility to create a better future for all.

 

Partner with Uvation as You Prepare Your Own ESG Policies

 

The sustainability experts at Uvation can help you as you prepare your own meaningful and achievable
environmental goals. Contact us directly to begin a conversation today.