15 March 2022
COP26 highlighted the rapidly evolving expectations and mounting pressure for businesses to be credible, distinctive and robust on climate—to demonstrate they’re delivering shareholder value and transitioning their business in line with the latest science on climate change. What does this mean in practice?
The answer obviously differs by sector and geography, but it’s clear that people expect business to act. Brunswick’s Net Zero Stakeholder Benchmark captures what we see as leading practice. It reflects the core components of a robust net zero strategy across a complex universe of stakeholders.
This is drawn from our experience advising many of the world’s leading companies on their climate ambitions, and our work with organizations—such as the UN Race to Zero and Glasgow Financial Alliance for Net Zero—that are driving the global agenda for climate action.
Every company is now expected to articulate how they will grow in a zero-carbon world. We think there are 10 things that they need to do to show this. Doing so positions them not only to manage climate risks, but also realize the significant opportunities presented by the transition to a zero-carbon world.
1. As obvious as it sounds, everything starts with understanding baseline emissions—if you can’t measure it, you can’t improve it. Increasingly, international best practice is to measure emissions across the full value chain, meaning Scope 1, 2 and 3 emissions.
2. From this baseline, leading businesses design a clear decarbonization strategy. This details how they’re adjusting the business model and outlines specific actions, including how capital allocation is aligned with the decarbonization strategy.
3. These enable leading businesses to define near-, mid- and long-term stretch targets consistent with a 1.5°C outcome. The expectation is that these targets, along with the strategies to reach them, align with standards such as the Science Based Targets initiative.
4. To implement the strategy, leading businesses put in place governance structures with clear oversight at a board level and clear responsibility for delivery with the management team.
5. This helps drive internal transformation—one that includes evolving organizational structures, capacity building, empowerment and employee engagement.
6. Aligning remuneration with climate goals creates powerful incentives for this transformation to take place—and instills a sense of accountability for it in those responsible for delivering the strategy.
7. With a strategy, governance structure, culture and remuneration approach all aligned toward net zero, businesses are positioned to harness their tremendous potential to drive innovation. This involves demonstrable commitment to harness and deploy the unique capabilities of the organization to help the industry and wider society reach net zero faster.
8. But leadership entails working across the entire value chain, not merely getting your own house in order. That requires working with suppliers, partners, customers—and even competitors—to help solve systemic challenges. Partnerships are particularly crucial in sectors that are difficult to decarbonize. As the transition gathers pace, those partnerships can help ensure the effects of a company’s decarbonization strategy on employees and local communities are understood and adverse impacts are mitigated.
9. Policy advocacy is a powerful, yet needs to be managed carefully. Done well, it helps support new technologies and encourages an enabling environment to accelerate the transition. Done badly, it can highlight gaps between rhetoric and action. Companies need to ensure that their direct and indirect advocacy—which includes their membership with trade associations and trade bodies—aligns with their strategy and targets.
10. Credible, transparent reporting of progress and climate risks was a huge focus going into COP26, and remains one after the conference. It’s an area that regulators, investors and civil society will continue to place intense focus and scrutiny.
Additional reporting by George McFarlane, a Director and climate advisor in Brunswick’s Business & Society offer.