Sustainability is the new business megatrend, says Topping
As promised in an earlier blog, here's my second entry from the sustainability conference that I attended earlier this month covering the presentation from Nigel Topping, Chief Development Officer at the Carbon Disclosure Project (CDP). The CDP was set up in 2000 to collect corporate climate change data to help institutional investors to make investment decisions. The organization has extended its remit over the last decade to look at both climate change data in the supply chain, public sector procurement and corporate water consumption.
Topping started his presentation by describing sustainability as the latest 'megatrend'. This is also the opinion of the Harvard Business Review, which said that because sustainability is a megatrend, businesses should have a clear idea how to strategically approach it: "Our research into the forces that have shaped the competitive landscape in recent decades reveals that 'business megatrends' have features and trajectories in common," says the article. "Sustainability is an emerging megatrend, and thus its course is to some extent predictable."
For example, Topping pointed out that businesses have already coped with the impact of previous megatrends, such as the quality revolution popularized by the Japanese in the 1980s and the IT explosion that followed shortly afterwards. Companies that fail to grasp the implications of the sustainability megatrend will fail, says Topping, as demonstrated by the fate of some European car manufacturing in the face of the Japanese makers 30 years ago.
corporate action against climate change
Fighting climate change needs to be a crucial part of the corporate sustainability strategy, but unfortunately many companies and nations are not doing enough, says Topping. "We seem to have set on a target of two degrees temperature rise, but this is largely political expedient. Two degrees is where there is a 50% risk of runaway climate change - so this is a massive risk. And we are even missing this."
So how are business doing against these 2020 targets? On the face of it, says Topping, businesses look to be on track, but much more worryingly the heavily emitting industries appear to be at least 10 years behind. Already there is a big gap between our current objectives and reality, and these targets may well get tightened as we understand climate change better.
Measurement is key in helping us tackle climate change and the CDP plays a role by helping investors manage the risk of businesses not doing enough to manage their climate change and resource impact. It is a clearing house for information which acts on behalf of institutional investors (it already has 534 investors with $64 trillion worth of investments). The quality of data in carbon disclosure is also very important, and Topping says there is already evidence of financial analysts referring to this in their research notes, particularly in energy-intensive industries.
So it's clear that sustainability and climate change is an issue that investors are already taking very seriously, because there are many real risks facing corporates such as: regulation (driving up the cost of business, or even shutting down operations), the impact of changing weather systems (such as drought or floods), employee attraction (i.e. will the best talent want to work for them) and consumer attitudes (i.e. will consumers buy the businesses' products).
Of course, businesses reporting on their own direct emissions is only part of the picture of their exposure to risk. To this end the CDP started to look at the supply chain in 2007. "Over 90% of Wal-Mart's emissions were in the supply chain," said Topping. Companies still have only limited control over their supply chain and have to rely on procurement standards or other mechanisms.
Despite the failure of the Copenhagen summit to come up with anything concrete, regulation will continue to play a crucial role in the development of sustainable business strategies. For example, the CDP, World Economic Forum (WEF) along with an number of other organizations have formed the Climate Disclosure Standards Board (CDSB), which aims to make climate change data an integral part of the corporate annual report.
This will help give companies standardization around climate change reporting, in line with accounting standards and will help harmonize different national standards that multinational companies now have to meet.