It has been heartening to see major organisations doing the right thing when it comes to dealing with the coronavirus: Follow the science. Although the COVID and climate crises are profoundly different, the parallels are obvious — and the key to surviving both is to use data-driven strategies to improve resilience to future shocks.
The COVID-19 pandemic has, for many of us, brought home the grim reality of a world that is susceptible to rapid and drastic change — one in which businesses and institutions need to be experts at adapting to and surviving shocks and disruptions.
Whilst primarily and tragically a public health crisis, the economic and social fallout deepens with every passing week. Yet both COVID-19 and climate change are what economists call exogenous shocks — factors that re-shape a system — so, it is heartening to see an underlying propensity by major organisations to do the right thing when it comes to dealing with the virus: Follow the science. Although the crises are profoundly different, the parallels are obvious; and the key to surviving both is to use data-driven strategies to improve resilience to future shocks.
The transparent sharing of reliable data is essential to managing global challenges. As the COVID-19 pandemic demonstrates, successful risk management relies on accurate measuring and reporting.
When it comes to the environment, achieving this requires comprehensive disclosure of data from companies on their impacts, risks, opportunities and strategies for tackling climate change and other environmental damage such as deforestation and water insecurity.
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It’s easy to assume that in the current crisis-driven situation, corporate sustainability might take a backseat — but in fact, evidence shows the opposite: Larry Fink and BlackRock doubled down on their commitment to pressuring CEOs over climate change last month; and whilst data is scarce, there are signs that 2020 will remain a growth year for renewables, despite companies being especially cost-conscious.
Disclosure provides a roadmap towards adaptation and ultimately survival in uncertain times. But its value is certainly not limited to just surviving — in fact, disclosure brings tangible benefits to businesses, from saving money to improving their reputation.
Nowhere are these effects clearer than in the results of studies such as this one, from Canadian ESG consultancy Millani, that demonstrated how companies that disclose through CDP ranked 19 percentiles better than the average firm in their ability to access capital. Investors and companies are looking at environmental data in their investment decisions and procurement across their supply chains, with 515 investors (holding US$106tn in assets) and 147 large purchasers (with over US$4 trillion in buying power) requesting disclosure through CDP in 2020. What’s more, over a third of companies that disclosed environmental data through CDP in 2019 and answered a survey said they believed that the process helped them save money (up from a fifth the previous year). Those that disclose are seeing concrete financial benefits.
But it’s not all about the cash. For many companies, the decision to disclose is closely tied to a host of equally important factors — such as risk management — that also impact the bottom line in the mid to long term. In light of the current crisis, this should be a pillar that businesses are leaning on more and more heavily.
A group of the world’s biggest companies by market cap have valued the climate risks to their businesses at almost US$1 trillion — with many likely to hit within the next 5 years. The current global health crisis shows that resiliency in supply chains and business models — the ability to adapt to and survive shocks and disruptions — is more essential than ever, not least because the climate crisis is a ‘threat multiplier’ and makes future economic shocks more likely. Measuring and managing environmental risks through disclosure helps companies to build resiliency and plan for the future.
That future can be bright. If companies are willing to make strong choices on transitioning to low-carbon alternatives, the opportunities abound: The same group of companies reported climate-related opportunities to be even higher than the risks, totalling over US$2.1 trillion, mostly related to the demand for new low-carbon products and services. So far, the effects on businesses from the COVID-19 pandemic (and their responses) have been wildly varied, but those that are willing and able to incorporate forward-looking disclosure into their planning will be among those better prepared to thrive in the changed economic environment.
Companies that make transparent disclosure one of the pillars of their business model also stand to gain in another way — by improving and protecting their reputation, whether that’s with consumers, other businesses, investors, or regulators. Environmental disclosure builds trust through transparency and helps businesses position their brands as environmentally conscious among their key stakeholders.
Similarly, as governments and regulators take steps to respond to the climate crisis and related environmental challenges such as deforestation and water insecurity, more environmental legislation is likely to be on the horizon in jurisdictions around the world. Those able to stay ahead of the curve by accurately measuring their impact and acting to mitigate it will see the least disruption to their business.
Navigating this unpredictable time is extremely hard for many businesses — we have seen untold levels of disruption globally, as supply chains and business models buckle (and in some cases, break) under the strain of the pandemic and its economic fallout. Yet by placing an emphasis on transparency and resilience, companies can protect themselves against future disruptions and help build a sustainable future that works in the best interests of people and planet.