Can ‘The Paris Effect’ Take Companies, Governments Beyond Flagship Initiatives?

This April 22, world leaders will convene to sign the Paris Climate Agreement. The international regulatory environment and national policies to curb emissions are reshaping global markets. Decarbonization could define the 21st century economy. But what do these changes mean for businesses?

Experts from the We Mean Business Coalition’s seven business-facing networks (which include BSR, CDP, Ceres, The B Team, The Climate Group, WBCSD, and The Prince of Wales’ Corporate Leaders Group) analyzed the Paris Agreement to identify the policies relevant to global business and released their findings today in an aptly-named report, “The Paris Agreement: What It Means for Business.”

Through initiatives such as those led by We Mean Business – from publicly disclosing emissions, to setting Science-Based Targets to reduce them, and collaborating to share best practices – many companies expressed their support for the Agreement and are rallying to action. The latest examples of this were provided this week.

Yesterday, organisations that collectively represent more than 400 institutional investors with US $24 trillion of assets under management urged world leaders to sign and accede to the Paris Agreement and implement it into national law. CDP CEO Paul Simpson called the letter a “rallying cry that shows an unequivocal business and financial imperative for governments to take concrete action.”

“The Paris Agreement provides the framework to trigger the pace and scale of investment – at least $1 trillion per year, four-fold higher than current levels – needed to decarbonise the global economy while limiting global warming to two degrees Celsius or less. It’s vital therefore that world leaders sustain the political momentum captured in Paris Agreement,” said Ceres President Mindy Lubber, who is also the Director of the Investor Network on Climate Risk (INCR, North America).

Today, Ceres released a statement on behalf of 110 companies, called “Business Backs Low-Carbon U.S.A.” In the statement, the signatories “pledge to do [their] part” to limit global temperature rise to “well below 2 degrees Celsius,” and call for “swift implementation” of the U.S. Environmental Protection Agency (EPA)’s Clean Power Plan and investment in the low carbon economy to give financial decision-makers clarity and boost the confidence of investors worldwide.

The signatories include companies such as adidas, Avery Dennison, Ben & Jerry’s, Clif Bar, Colgate-Palmolive, DuPont, ebay, General Mills, Hewlett Packard, IKEA, Johnson & Johnson, Kellogg Company, L’Oreal, Levi Strauss & Co., Mars Incorporated, Nestle, Nike, Patagonia, Philips, REI Co-op, Sealed Air, SolarCity, Starbucks, The North Face, Timberland, and Unilever.

Ceres organized a similar letter in July 2015, in which 365 corporate and investor group signatories voiced their support for the Clean Power Plan.

“Now it is time to translate this framework into clear policies and actions,” IKEA's Chief Sustainability Officer Steve Howard said of the Paris Agreement, which he believes represents a turning point for business. “At IKEA, we are committed to do our part. We will continue to invest in renewable energy and to transform our business. By 2020 we will produce as much renewable energy as the energy we consume in our own operations.”

In a press call, Howard said that IKEA is “right on track” to meet its renewable energy target, with 29 wind farms and more than 700,000 solar panels installed on its stores and distribution centers. He estimates IKEA currently generates about 70% of its electricity with renewables.

Regarding what COP21 meant for the company, Howard said “it strongly validated” that IKEA needs to innovate with its products and services, completely decarbonize its operations and supply chain, and that “the clock was ticking.”

“We put renewed urgency into setting a science-based target, we’re looking deep into our supply chain for how we can chase out every single ton of carbon, and we’ve said that this is for every part of our business, so it’s not just about flagship initiatives, but it’s about root and branch change across the organization,” he explained.

“You can almost always construct a business case to take carbon out,” Howard added. “It’s about driving energy efficiency, saving money; it’s about innovating with products and services.”

Michael Terrell, Senior Policy Counsel for Energy and Sustainability at Google, and Anirban Ghosh, Chief Sustainability Officer at Mahindra & Mahindra, one of India’s largest technology conglomerates, were also on the call to discuss how they expect climate change will affect their businesses and how the Paris Agreement to influence investments in clean technologies. Ghosh described some of the effects climate change is already having in India, such as flooding in areas where water shortage has historically been an issue. Terrell noted the risks that natural disasters pose to Google’s data centers, offices and employees.

“To date, we’ve signed contracts to purchase over 2 Gigawatts of renewable energy, which we believe makes us the largest corporate renewable energy purchaser in the world,” Terrell said of Google’s energy initiatives, adding that they’ve also committed over $2.5 billion of capital in investments in renewable energy projects. Such investments, he said, help the company manage climate risks such as by avoiding unexpected costs caused by energy price fluctuation.

The Head of Policy at We Mean Business and Managing Director at BSR, Edward Cameron, noted that managing climate risk is a huge aspect that companies need to consider. “It’s really important to bear in mind that before the Paris Agreement was signed, we were on the course for unmanageable climate risks,” he said. He described that global temperature increase would mean we would experience increases in extreme weather events and temperatures unsuitable for agriculture which would lead to “the breaking down” of economic sectors and peoples’ livelihoods.

Howard added that IKEA is already feeling the effects of extreme weather events, from floods in Asia and supply chain disruptions to Hurricane Sandy causing an estimated $9 million dollar impact on its business in addition to the social impacts on its employees and their communities.

Cameron asserted that the Paris Agreement is only the beginning since it stipulates that countries’ commitments will become more ambitious in the future, and suggested that this provides long-term certainty for businesses that there is opportunity in decarbonization. As noted in What Paris Means for Business, he believes that the Agreement will minimize competitive imbalances between economies and help harmonize global standards for low-carbon technologies.