COP26 takes place in Glasgow from 31 October to 12 November against a backdrop of global extremes and a stark warning from the Intergovernmental Panel on Climate Change which issued a “code red for humanity,” presenting indisputable evidence that greenhouse gas emissions are now putting both people and planet at risk.
One of the key objectives of COP26 is to provide a forum to create a globally co-ordinated climate response, where all nations commit to ambitious emissions reductions plans (“NDCs”). Achieving this globally co-ordinated response, including the creation of an internationally agreed carbon market (which COP25 failed to achieve), will be one of the key measures on the success of COP26.
Ireland has joined a select few countries in enshrining its climate goals in law. The Climate Bill, ratified this summer, commits to a 51% reduction in emissions by 2030 relative to a baseline of 2018, with the Climate Action Plan and first round of sectoral carbon budgets due in the final quarter of this year. Nonetheless, Ireland remains an outlier on pollution with the third-highest emissions per capita in the EU. Where carbon leakage is a concern, partnerships and collective action across governments, businesses and civil society are essential.
Why does climate matter to business?
Too often, we think of far-off impacts of climate change such as wildfires in California or Australia – but Ireland is not immune to the climate crisis. The EPA’s recent Status of Ireland’s Climate study showed that the decade between 2006 and 2015 was the wettest on record, while 15 of the top 20 warmest years on record have occurred since 1990.
Meanwhile, KPMG’s most recent CEO survey shows that in both the Republic of Ireland (40 percent) and Northern Ireland (44 percent), a noticeably higher percentage of respondents than the global average (27 percent) are concerned that not meeting climate change expectations will result in public market investors shying away from their organisation.
Mike Hayes, KPMG’s Dublin based Global Head of Renewables says “There is no doubt in my mind that corporates in Ireland and throughout the world are facing pressure from stakeholders. But who are those stakeholders? It’s not just investors who are applying the pressure, it’s employees, customers, and the whole supply chain. It’s also future employees who are increasingly influenced by climate and sustainability performance in their choice of employer.”
Businesses and listed corporates in particular are getting it from all sides in terms of ESG says Hayes but the part of the agenda that matters most is the climate question. “Companies face a very real and immediate financial risk if they don’t address it. Investors may walk away, customers may not buy their products and services, consumer sentiment is changing rapidly, and employees want to work for companies with purpose. Companies who do not address the climate change and ESG agendas in a meaningful way are going to suffer.”
This has become even more serious in the aftermath of the IPCC report and its Code Red for the Planet warning, and regulators and governments are going to force the agenda. Mike Hayes says, “Businesses who don’t appreciate the scale of new policies and regulations coming down the tracks run a real risk of being left out in the cold”.
Meanwhile the most immediate pressure is coming from investors who are quite often managing other people’s money. “They are under pressure for those people and the regulators to invest in sustainable activities. At the core of what is facing us is a massive push to redirect capital into a more sustainable business world.”
Government stimulus required
CEOs in Ireland and worldwide indicate that a multifaceted approach will be required to address climate change. Over three quarters of leaders surveyed globally (77 percent) believe that government stimulus is required to turbocharge their goals of reaching net zero. This figure is even higher in both the Republic of Ireland (80 percent) and in Northern Ireland (82 percent).
Mike Hayes believes that the fact that many CEOs say Government stimulus and assistance will be required to assist their organisations in reaching climate targets is highly interesting and says that “there is a clear message there that the majority of corporates believe they will not get to net zero alone.” He says no one should be under any illusions about how difficult it’s going to be.
What can business do?
The same KPMG research showed that 84 percent of business leaders in the Republic of Ireland and 76 percent of their counterparts in Northern Ireland are focused on locking in their sustainability and climate change gains made during the pandemic.
Russell Smyth heads up KPMG’s Sustainable Futures team in Ireland and isn’t surprised at the outcome. “These findings are wholly consistent with our own experience on the ground with clients. These issues have moved from niche CSR activities to strategic reporting items for CEOs, and that shift is continuing to accelerate.” Smyth believes that COVID highlighted the potential for unexpected major external events to disrupt businesses. “Companies with huge air miles prior to the pandemic simply stopped flying with resulting cost savings and environmental gains. COVID provided a unique test bed for accelerating and testing new ways of working and it’s hard to see how we could revert completely to where we were beforehand. Furthermore, a lot of organisations will be consciously working to ensure that they don’t slip back to the old ways of working.”
KPIs essential in measuring the gains
According to Smyth, companies who wish to hold onto gains made during COVID need to know what it is they want to lock in. “They need to set out clear KPIs and metrics for those gains. A lot of companies have implemented some really good ad hoc climate initiatives during COVID. But the absence of a structured framework or programme means many of the gains made are unlikely to persist.”
Creating frameworks and programmes now will help them bed down those gains and build on them in the future. However, it should be noted that gains from climate action tend predominantly to be long term in nature. “Organisations should therefore put governance structures in place to recognise long term gains. KPMG carried out research last year showed that 87 percent of executives felt pressure to deliver returns on investment inside a two-year timeframe. Smyth says, “If you move to a 15-year timeframe, that aligns with long term sustainability thinking and organisations with that outlook outperformed those which took a short-term view.”
Get in touch
At KPMG we understand the pressures business leaders are under to get it right on the climate agenda. Our Sustainable Futures team have helped more than 40 clients to develop and act on sustainability, decarbonisation, ESG and circular economy strategies. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please contact Russell Smyth of our Sustainable Futures team. We’d be delighted to hear from you.