Can the polar bear and business thrive together?

There must be a mindset shift redefining value along long-term rather than short-term outcomes. This is the central question of our times because the future of humanity only has two scenarios: either we make the cumulative investments amounting to $44tr by 2030 to stay within the 1.5 °C pathway, with transition technologies representing 80% of the total, or we don’t. If we don’t, at worse we risk runaway unstoppable climate change. Either way, climate action isn’t just a question of compliance, but of business transformation and being future fit.

The harsh reality is grim

Many (if not most) companies have become stuck in a model that demands the prioritisation of short-term investor demands when the transition to a net zero economy requires longer-term approaches. Regulators are trying to tackle this problem. The Integrated Reporting Framework helps companies report on the creation of value in the short, medium and long term in the context of the six capitals: financial, manufactured, intellectual, human, social and relationship, and natural.

But compliance with frameworks is one thing; what really shifts the dial is when companies purposefully evolve in a way that makes sense for all their stakeholders: investors, customers, communities, their own people and especially the planet.

And let’s not forget, in terms of impacts, climate and nature are one and the same thing. The United Nations is emphatic that biodiversity is our strongest natural defense against climate change. And it reminds us that the situation is dire: up to 1m species are threatened with extinction, many within decades.

No wonder, from a Chair and Risk Committee perspective, it’s increasingly tough to get a handle on risk: physical climate risk and transition risk alone make old-school scenario planning look easy.

And the economy (and therefore the companies that operate within it) can only move as fast as existing infrastructure allows. According to the EU’s Joint Research Centre, global annual investment in clean energy technologies increases six-fold from 2022 to 2030 in the 1.5°C scenario, up from $1tr today to $5.7tr in 2030. Annual investment in clean technologies for electricity production double from 2022 to 2030; and annual new capacities of wind off-shore and on-shore increase by eight-fold and two-fold, while unit costs are reduced by 16% and 20%, respectively.

But the grid has capacity limitations, and a question remains over what will happen if/when the grid can’t cope, and the lights go off.

At the centre of the issue is old-fashioned blinkered growth versus sustainable growth. Living within planetary boundaries is not the way our capitalist model has been constructed (and an issue that Kate Raworth acknowledges is unaddressed in Doughnut Economics).

But the prospects are great

There’s plenty to be said (good and bad) about energy sector investment planning and individual company road maps, but importantly the investor space is also changing, and this will drive boardroom decision-making in a holistic way.

Macro stewardship could help bring about the corrections needed for the market to price in externalities that are not yet internalised. These include the true cost of carbon, the threat of antimicrobial resistance, water or air pollution and the hidden costs of curtailing talent through diversity and inclusion failures – along with many others.

Mark Versey, Aviva Investors’ CEO

This inclusion of multi-stakeholder perspectives in business decision-making is resulting in purpose being chosen a pathway to growth for many large organisations. The upshot for them? More trust with all the commercial benefits that implies.

We know the rewards for trusted businesses are great – especially for consumer-facing sectors. McKinsey and NielsenIQ undertook an extensive consumer packaged goods study. They looked beyond the self-reported intentions of US consumers and examined their actual spending behaviour. Bringing environmentally and socially responsible products to market turned out to be not just a moral imperative but also a solid business decision.
But we must transition. Without transition factories will be flooded, value chains broken, businesses become unfinanceable and uninsurable, and there will be crisis: economic and physical.

Our invitation to you and our partners is to share your view on how and how far we go to meeting our global challenge: how the polar bear and business can thrive together.