- The private sector has a key role to play in achieving net-zero targets by 2030.
- Chief Financial Officers are well positioned to advance corporate sustainability.
- Here are five key ways financial leaders can take action on the climate crisis.
Looking ahead in 2023, economic uncertainty looms large, as ongoing and overlapping global crises – from the COVID-19 pandemic to the war in Ukraine to the relentless effects of climate change – risk paralyzing progress. In times of such upheaval, maintaining the status quo can seem like the sure path. But it is in these moments that we need boldness more than ever.
Reaching net-zero by the end of the decade requires ambitious commitments and dedicated follow-through. The private sector has a critical role to play, and Chief Financial Officers (CFOs) are in a unique position to shift the conversation on corporate sustainability from high-level thinking to practical changes to the balance sheet.
Consider the immediate need for climate change adaptation. Almost half the world’s population, about 3.3 billion people, live in areas that are highly vulnerable to climate change, and recent extreme weather events show that we are all exposed to global warming’s effects on our lives, businesses and supply chains. The costs of meeting climate change adaptation needs are on track to rise to as high as $340 billion by 2030. It’s clear that inaction is not fiscally responsible.
Yet overcoming a natural aversion to risk during troubling times is no easy task. There is immense pressure to deliver both short-term security and long-term sustainability, a task that at times feels like threading a needle in the dark. Many CFOs are asking themselves serious questions about how to ensure not only that their company’s bottom line is financially stable but that the world’s bottom line is as well.
According to a recent World Economic Forum paper, in collaboration with PwC, there’s a clear business case for action on climate change adaptation: it allows businesses to avoid economic losses by increasing resilience in their value chains; to increase revenue and cost-savings by capitalizing opportunities for growth, innovation and efficiency; and to gain from mutually benefitial outcomes that come from protecting communities and ecosystems.
There is also increasing pressure from regulators for businesses to be more proactive in addressing the climate crisis. So, where should CFOs start?
1. Embrace humility and acknowledge what we don’t know
The best place to start is by asking questions. These queries can start important journeys to bringing in the necessary expertise and creating processes for impact.
For example, many are asking themselves how to integrate carbon credits into their thinking, or whether there is a more productive means to offset emissions. Other key questions include how to account for biodiversity (how the organization affects nature), as well as for human capital (how the organization supports skilling and reskilling efforts).
2. Provide a safe space to fail
Historically there has been a tendency for CFOs to under-commit and over-deliver – that’s a safe bet, after all. But we don’t have the luxury to play it safe anymore. We must find a way to be comfortable in risking over-committing and under-delivering if we are to create a more resilient, sustainable future.
As the effects of climate change become more pervasive, there will be more and more leniency given to those who try and don’t achieve all their goals than for those who stay on the side-lines. It may soon be that not taking risks is the riskiest option of all.
3. Ensure transparency and accountability
CFOs are already focused on the company’s data and reporting; now we must expand that to include stakeholder metrics, as well.
The Forum’s Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, launched in 2020, enables businesses to track their contributions towards the Sustainable Development Goals (SDGs) on a consistent basis. At the Forum, we deliver an annual Stakeholder Capitalism Report that shares metrics developed in collaboration with the Big Four accounting firms and through consultations with more than 200 companies.
As of the end of 2022, more than 121 companies have already included these metrics in their mainstream reporting materials. We are committed to continuing to develop and refine these metrics as we explore new, more granular ways to measure impact and hold ourselves accountable.
4. Pursue a just transition
Ensuring the transition to net-zero is just and inclusive is critical. How can we ensure that those developing countries that have least contributed to the problem have the necessary resources to be part of net-zero efforts?
CFOs of global companies will need to carefully consider how they measure success in varying local contexts with this in mind.
5. Acknowledge that we cannot do it alone
True impact requires a monumental shift in the market – and that requires a coordinated approach by the private sector.
For example, the Sustainable Markets Initiative, launched by HRH King Charles III at the Forum’s 2020 Annual Meeting, sets out a global effort to enable the private sector to accelerate the net-zero transition. The goal is to bring businesses together to encourage a shift in corporate strategies and operations, reform the global financial system and create an enabling environment that attracts investment and incentives action.