Companies worldwide are working to reduce their emissions and become resilient to the impacts of climate change. Many have adopted corporate greenhouse gas (GHG) reduction targets.
So far, 300 companies have set a GHG emission reduction target; over 100 have set goals to be 100% powered by renewable energy. Yet others are adopting carbon neutrality goals or are purchasing carbon offsets from projects that reduce deforestation.
Leaders have found that addressing climate change is beneficial to their businesses, helping save money, improving operational efficiency and reducing production costs — while becoming more competitive.
However, the business outlook on tackling climate change has been almost entirely through the lens of policy and regulation or protecting reputation with customers and stakeholders. In the face of this staggering need and challenge, one-off goals are proving insufficient for businesses to address climate change suitably.
Executives and change managers have to think of climate action in terms of their whole business and incorporate it into their strategy and every decision the company makes. Without rethinking their business model, they will lose their standing, competitiveness and ability to progress.
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What the Current Approach to Climate Action Looks Like
Most organisations are looking at climate action from the perspective of products and production, policy and regulation or business processes — but not concertedly. Some are reducing GHG emissions, others saving energy; some are setting 1-2 absolute limits, while others are taking action relative to production levels and revenues.
Internally, enterprises are seeking a better understanding of their risks and opportunities related to climate change. Externally, they are engaging suppliers, customers and policymakers.
Business leaders are also publicly reporting emissions and energy-usage data, and partnering with other organisations and supporting policies like the Paris Agreement. Many have incorporated ESG assessments into their investments and expect partner companies to report on how they deliver these metrics.
Some institutional investors are also using the Bloomberg/Carney Task Force on Climate-Related Financial Disclosures to report the climate risks of their financial holdings. They are investing in “purpose” and how the prospect companies measure up against SDG goals.
The Limitations of the Current Approach to Climate Change
The majority of businesses consider climate action a part of their corporate sustainability and corporate social responsibility. These functions have traditionally been relegated to the sidelines and are now growing in scope. Many organisations have integrated CSR into their main business activities and are exploring new opportunities that ESG activities afford.
However, the limitation is thinking of climate action as something that can be contained within the CSR function. Business executives have yet to systematically integrate climate innovation processes into the core of their organisation. They consider climate change actions separately from their core business activities — and as a result, risk diminishing their competitiveness, ability to operate and return profits.
Disconnecting climate innovation from business priorities is a wasted opportunity. It’s also why, despite all the effort, corporations have made very little progress on their climate action targets.
Business leaders need to know how to move their enterprises from a compliance and reporting approach, to climate change, to making it a part of a strategic plan. They need to shift their companies from mere compliance to sustainable competitive advantage2:
- Corporate social responsibility: CSR doesn’t necessarily affect core business models or value drivers.
- Compliance-driven: reporting and compliance become a means unto itself instead of a way to track progress.
- Reactive changes for sustainability: businesses are often just reacting to externalities based on what stakeholders or consumers want.
- Business model transformation for climate innovation: leaders have to innovate their business models and ensure societal and organisational benefits. They have to maximise the positive impact by taking climate actions while seeking out the opportunities these transformations are bringing.
What a Sustainable Business Model That Maximises Climate Innovation Look Like
Apart from being resilient, durable, competitive and creating value for the stakeholders and the planet, a sustainable business model will2:
- Scale without risking failure or diminishing returns.
- Make the organisation more competitive.
- Build an environmental and societal surplus.
- Stand up against emerging environmental and social threats.
- Utilise network effects, accumulate value and increase value chains.
- Reform the business ecosystem for organisational benefits and create a greener economy.
- Increases returns — not just for direct shareholders but the whole community.
Pursuing a business model transformation in light of climate change is an ambitious agenda for any business leader. But doing so will open up new growth opportunities and create value for shareholders, society and the planet.
Sign up for the Imperial College Business School Executive Education Climate Innovation: Accelerating to Net Zero Emissions programme to learn how to reconceive your business model and pursue climate innovation to create organisational and societal value.
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