Dear Greta, Go After the CEOs

Dear Greta, Go After the CEOs

A pledge without teeth is just hot air — the world has enough of that already.

In June 2019, the United Nations put forth a call to action for global businesses to address climate change. The Business Ambition for 1.5°C Pledge commits signatories to calibrate their decarbonization plans in an effort to limit global warming. Businesses may choose to align their GHG emission reduction targets consistent with 1.5°C emissions scenarios across relevant scopes (scope 3 applies only if it accounts for 40% or more of total company emissions — read here for a primer on emission scopes), OR set a public goal to reach net-zero emissions by no later than 2050 in line with 1.5°C scenarios along with interim targets in line with the criteria and recommendations of the Science Based Targets Initiative (SBTi).

The key to the effectiveness of the pledge is a requirement to submit all targets for validation to the SBTi. The SBTi is a joint effort of CDP (formerly the Carbon Disclosure Project), the UN Global Compact, the World Resources Institute, and the World Wildlife Fund for Nature (WWF). They have translated the scenarios outlined by the latest UN report on climate change into guidelines and tools for businesses.

It’s Not an Accident that Greta is from Sweden

A serious pledge likely means slower adoption. Immediately prior to the UN Climate Action Summit in late September 2019, only 87 companies had signed on. And I would classify only 70 signers as large businesses. By contrast, a few thousand businesses in the U.S. quickly jumped aboard a declaration that American businesses, governments, and other organizations still support the Paris Agreement despite the U.S. President’s decision to withdraw. Vague declarations to support ‘actions’ are popular when specifics and accountability are absent. 

Despite the small number of commitments, some interesting patterns have emerged. 

The Nordic countries (including Denmark, Finland, Norway and Sweden) account for nearly one fifth of the commitments despite comprising only 1% of the global economy. The leadership of these countries is not surprising given their existing carbon pricing policies — Sweden has the world’s highest carbon tax at approximately $130 per ton.

Other nations in northern Europe exhibit higher levels of cultural commitment to the cause as well. The UK accounts for 13% of pledges so far, with France, the Netherlands and Switzerland at 10%, 7% and 6%, respectively. 

Several countries have company commitments that are more or less consistent with the size of their economies. The United States, which generates 15% of global output (at purchasing power parity), is home to 10% of signers. India accounts for 8% of economic output and 9% of signatures. The figures are 4% and 3% for Japan, and 3% each for Germany. 

The most glaring hole is China — the world’s largest economy (by purchasing power parity) does not yet have a single signatory.

Relative Contribution to Business Ambition for 1.5°C

Climate Commitment

source: United Nations.

The Early Signers are Mostly Consumer Facing Companies

Unsurprisingly, consumer facing businesses dominate the ranks of those who have made pledges so far. These businesses may see pledge making as a reputation enhancing exercise with their customers. Retailers, food and beverage, home and personal care, apparel and footwear companies make up more than one quarter of signatories. Telecom and electric utility companies comprise another 25% of signatures. I estimate that only about 30% of pledges come from companies without significant consumer revenue. A full list of the executives pledging commitments from their companies can be seen here.

The Amazon Case Is Illustrative of Big Business

We presently have only several dozen businesses worldwide that are serious enough about climate change to submit to third party verification of their plans and targets. But there are thousands of global companies taking steps to tackle decarbonization in their supply chains. Why aren’t there more signatures?

Powerful businesses prefer to set their own rules whenever possible. Amazon recently announced it has “co-founded” its own climate pledge. It sets ambitious targets including 100% renewable electricity by 2030 and net zero carbon emissions by 2040. The goals should be applauded, but the method of commitment is suspect. 

Why not just sign on to the UN sponsored pledge? Because Amazon wants to control the measurement of success in fulfilling its pledge. Carbon accounting is a tricky game that is set to get even more complex as businesses decide how much carbon offset credit they get for planting trees and other actions — this ProPublica article suggests the answer is often a lot less than what gets put down on paper.

GHG emissions are a global externality requiring a globally coordinated response. Although businesses should retain control of how they decarbonize, they shouldn’t be trusted to measure their own success. Socially responsible investors should demand their companies sign on to climate pledges with widely supported third-party verification. Anything else is window dressing.

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