|Firefighters battle a blaze in a forest in western Sweden. Photograph: Mats Andersson/EPA via The Guardian
Extreme weather events have dominated the headlines this summer. The heatwave in Japan, where record-breaking temperatures sent thousands of people to hospital with heat stroke; the wildfires raging across California, Greece and Sweden fuelled by months of unusually dry conditions; the severe flooding in Kerala, India, that has claimed 350 lives and displaced more than a million people. Scientists warn that these catastrophic events are a sign of things to come if we do not drastically cut greenhouse gas (GHG) emissions.
Two years ago, world governments signed the landmark Paris Agreement and accelerated the global transition towards a low carbon economy. To avoid dangerous climate change, we must keep global temperature rise “well below” 2 degrees Celsius from pre-industrial levels. But there is a huge gap between current policies and pledges and the emissions reductions needed to achieve this target (scientists give us a 5% chance). Businesses can expect increasing pressure from regulators to curb emissions through mechanisms such as carbon taxes and stricter emissions and efficiency standards.
One way that businesses can prepare for policy changes is to ensure their GHG emissions reductions targets are “science-based”, meaning that they are based in climate science and in line with the level of decarbonisation required to achieve the 2-degree scenario. Since it was launched in 2014, over 400 companies have made commitments under the Science Based Targets initiative (SBTi), a collaboration between CDP, the United Nations Global Compact (UNGC), World Resources Institute (WRI), and the World Wide Fund for Nature (WWF), and an initiative of the We Mean Business Coalition. The SBTi aims to make science-based target setting standard business practice by 2020, and provides companies with resources, case studies and training workshops to reduce barriers for adoption. SBTi also assesses and validates the targets.
Climate Governance, Strategy and Risk Management
Beyond emissions reduction, investors are increasingly interested in understanding the extent to which their portfolios are financial risks associated with climate change. These risks fall into two main categories: risks arising from the physical impacts of climate change, such as disruptions to operations and supply chains caused by extreme weather events, and transition risks arising from changes in policy, legislation, technology and markets as the world transitions to a low-carbon economy. In 2017, the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) issued a set of recommended disclosures to guide companies that want to provide information on these risks to investors, lenders and insurers. Alongside disclosure of GHG emissions metrics and targets, which many companies already do, the TCFD recommendations force reporting companies to consider how climate change is embedded into business strategy and planning. TCFD recommends disclosing:
- Governance – the role of the board and management in assessing and managing climate-related risks and opportunities;
- Strategy - actual and potential climate-related risks and opportunities for the short, medium and long term, how they impact business strategy and financial planning, and the resilience of the organisation in different possible climate scenarios
- Risk management – the processes used to identify, assess and manage climate-related risks, and how this is integrated into the company’s overall risk management approach
- Metrics and targets –including GHG emissions and other metrics the company has identified, as well as related targets and performance against targets
Leadership from Asian Companies
Whilst many Asian companies are still getting to grips with GHG accounting and disclosure, there are several leading companies that have developed comprehensive approaches to addressing climate change risks. Singapore listed company City Developments Limited (CDL), was the first developer in Singapore to set a science-based target. Using the SBTi’s Sectoral Decarbonisation Approach, CDL raised its carbon emissions intensity reduction target from 25% to 38% by 2030 against 2007 levels, to align with the reductions needed to achieve the 2-degree pathway.
CDL was also a pioneer in adopting the TCFD recommendations, and embarked on a scenario analysis in early 2018 to inform its climate change strategy. Climate scenario analysis requires companies to consider different possible futures using pre-determined assumptions such as climate projections. CDL considered the risks and opportunities to its core business in three key markets – Singapore, China and the UK – for a 2°C temperature rise scenario (i.e. achieving the Paris Agreement target) and a 4°C temperature rise scenario (i.e. business as usual), the results of which will inform business resilience and capital investment strategies moving forward. CDL also conducted a scenario analysis to assess the impacts of climate change on its supply chain and, to prepare for Singapore’s 2019 carbon tax, has completed an internal carbon pricing study.
Join us at CSR Asia Summit 2018, Hong Kong, 18-19 September