Recent news showed a mindful global move towards sustainability. President Biden signed an executive order calling for transparent disclosures and financial implications for companies failing to report. Then the G7 countries announced that they would stop all new financing of international coal projects by the end of 2021. These were followed by the mega news of oil giant Royal Dutch Shell losing their court case on emissions, along with a couple of further court announcements against other oil giants.
Regulations and court rules are on the rise. Corporate sustainability and climate change efforts are fast transitioning from voluntary to mandatory for organizations around the world. These recent game-changing events provide a clear direction for companies still debating whether they should wait or invest in ESG strategy.
A turning point in history.
The landmark court case in the Hague has been dominating the news since this is probably the first time that a multinational and oil giant must cut emissions through a court decision. Shell has been told that its emissions plans should fall in line with the Paris climate agreement. The company must cut carbon emissions by 45% by 2030. This should act as a lesson for similar companies in the nascent stages of their carbon emissions plans. Fortunately, they can get help from experts to make their climate ambitions fall in line with the Paris Agreement and avoid cases like Shell.
Companies are now being held increasingly accountable for their actions. As the court pointed out to Shell, they have a duty of care for the planet and its people. An insufficient sustainability policy will be inadequate for them to play their part in tackling the climate emergency. This unprecedented ruling will have broad implications for the energy industry and other polluting multinationals. They will have to reduce their CO2 output even if it outweighs their commercial interests.
It is not just oil and energy companies facing the pressure to cut their emissions to meet global climate change targets. G7 countries agreed unanimously to stop financing coal by the end of the year. This came in the heels of the International Energy Agency declaring that no new coal projects and mines should be financed if we want to cut emissions to net-zero by 2050. Coal power generation is the single biggest cause of global temperature increases; therefore, unabated coal power generation is incompatible with keeping 1.5°C within reach. This is the time for industries to invest in scalable technologies and rapidly move away from carbon-intensive fossil fuel energy.
Why are companies not getting the urgency?
Companies like Shell have been aware for decades of the dangerous consequences of CO2 emissions, but their targets have remained insufficiently robust. While most multinationals have declared their efforts towards a net-zero path, little concrete action has taken place to reduce the carbon intensity of energy products. The lack of action violates the international human rights code when alternative measures can restore the right to life and family life.
Some companies believe that governments alone are responsible for meeting Paris targets. But states cannot tackle the climate issue on their own unless companies cooperate. The lack of a one-global agreement adds to the confusion leading to rather undefined, intangible, and non-binding plans for the long term. This historic ruling may change that. It will tighten the climate policy for MNCs and force them to take immediate and effective action to deal with the climate crisis.
Biden just announced the suspension of all oil-drilling leases in Alaska’s Arctic National Wildlife Refuge. Environmental groups and local Alaska tribes have worked to keep the remote area off-limits for decades while the energy industry and Republicans have long sought to open. Biden’s decision is being heralded as the “standing up for human rights and identity” and a step in the right direction to protect this irreplaceable, million-year-old ecosystem. Companies have an opportunity to facilitate new economic opportunities based on preservation policies instead of increasing their carbon footprints.
Biden’s Executive Order on Climate-Related Financial Risk
Another reason why companies do not act with urgency always is due to the fact that the risks of climate change are often hidden. We may think that climate change is not impacting us because we are living, we are healthy, and we are seemingly fine. But extreme weather, water shortage, and rising sea levels are happening right now and impacting infrastructure, investments, and businesses.
The Biden administration aims to address and mitigate the economic risks of climate change by enforcing strict regulations. The order has wide-ranging disclosure, transparency, and investment implications for investors, companies, and regulators. Financial regulators must assess climate-related financial risks and consider plans to improve climate-related disclosures.
The U.S. Securities and Exchange Commission (SEC) is considering the deployment of mandatory climate and sustainability disclosures by companies. Now the federal government is stressing that climate-related financial risks be incorporated into regulatory and supervisory practices. Companies will have to focus on disclosing these risks to the public and empower them to make informed financial decisions. But it is not exactly the wild west anymore. Companies can financially quantify their climate risks with the help of the right software and data and with expert advice.
Gearing up for the UN COP26
All eyes are on the COP26 now, the 2021 United Nations Climate Change Conference scheduled to be held in the city of Glasgow, United Kingdom. Expectations are high since this is the first time all parties are set to commit to enhanced ambition since COP21. The summit will work to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.
Every day more companies are adding their voice to the COP26, reflecting a growing awareness to act now and account for carbon emissions. It will require a unified effort to take carbon dioxide from the air, achieve net-zero targets and limit global warming to pre-industrial times of 1.5C [2.7 degrees Fahrenheit]. Therefore, events leading up to the conference will play a crucial role in motivating regulators and investors to take a closer look at their investments. Companies that do not show accountability and transparency may find it hard to catch up with these changes unless they act now.
Disclosure is the essential first step toward environmental action and a sound financial future. ESG reporting and disclosures catch investor attention and lead to strong ESG performance in the long term. SpheraCloud integrated data and software services will help companies navigate the varied regulations to reduce their emissions and financial risks associated with the same. Robust sustainability and ESG strategies will lead to capital market access and increase business resilience.