According to results from a new initiative created during COP21 in Paris by CDP and ADEME — the French Environment and Energy Management Agency — business-as-usual is no longer an option. By looking at the future implications of a company’s current business activity in order to accurately assess its readiness for the transition to a low-carbon economy, the Assessing Low-Carbon Transition (ACT) pilot project has revealed stark differences between companies, that on the surface, may look very similar today.
The ACT initiative completed a successful pilot over the last year to develop methodologies which measure how prepared companies are to make the low-carbon transition and provide them with the tools they need to decarbonize their business by transforming their business models.
The trial ranked companies — including Decathalon, Enel, Renault, SSE and Toyota — on their abilities to respond to five questions, which serve as the basis of a framework to steer the development of ACT methodologies:
- What is the company planning to do?
- How is the company planning on getting there?
- What is the company doing at present?
- What has the company done in the recent past?
- How do all of these plans and actions fit together
By relating these five questions to the information available on a company’s investments, actions and strategy, a set of indicators were developed for each sector to benchmark a state of alignment with low-carbon transition and measure how far away companies are from that state.
“The creation of strong plans to transition to the low-carbon economy can no longer be delayed,” said Pedro Faria, technical director CDP**.** “Given the long lead times to shift strategy and make low-carbon investments, companies need to start moving to develop a long-term vision coupled with a clear step-by-step trajectory that ensures they are on the right path to the low-carbon economy in 5, 10 and ultimately 33 years from now.”
The report focuses largely on three sectors with a heavy environmental impact — electric utilities, automotive and retail.
For the electric utilities sector, which accounts for approximately one-quarter of global emissions, the report underlined that with the continuation of a business-as-usual approach to emissions reductions and use of fossil fuels, companies would not meet their 2050 carbon budget within 5 to 15 years. ACT has strongly recommended a step-by-step phase out of fossil fuels, along with the adoption of ambitious transition plans.
To achieve near total decarbonization by 2050, the report indicates that the transport sector — which constitutes approximately 14 percent of fossil fuel emissions according to the IPCC — must undergo significant transformation within the next 15 years (such as the widespread adoption of low-carbon vehicles).
The report points to retailers as being a critical actor in the development of a circular, low-carbon economy, with their ability to exert influence throughout complex supply chains, and thereby shifting both supplier and consumer choices and behavior. The success of this lies largely in the sector’s ability to collaborate — an area within which the report notes needs improvement.
Other key findings from the report include:
- Making public commitments such as setting science-based targets are a good first step to aid the transition to a more efficient and renewably powered low-carbon economy that is compatible with long-term growth, by driving innovation, reducing costs and enhancing profitability;
- Public commitments need to be supported by real actions at level of R&D investments in new technology and low-carbon products; investment in low-carbon infrastructure avoiding future stranded assets; engagement with supply chain to promote its decarbonization; and re-thinking business models.
“According to the Paris Agreement, the private sector is part of the journey to a low-carbon economy, and lots of commitments are already taken by companies,” said Marie-Christine Premartin, programs executive director at ADEME. “Things are moving forward. That is why stakeholders should have access to assessment of the credibility of such commitments. By developing robust and transparent methodologies, the ACT initiative gives the opportunity to transform commitments from companies into real accountability.”
With rising global emissions and more international consensus to tackle the problem than ever before, it is clear that efforts to mitigate climate change will transform the global economy. The ACT indicates that there will be “winners and losers” from these transformations, but measures can be taken to equip companies for the future and enhance low-carbon growth during the transition. Renault is one such example. The automaker was praised for its strong science-based targets and its rapidly increasing electric vehicle sales.
The sector methodologies developed by ACT have undergone a robust quality assurance process and ensure that investors are able to identify which companies are ready for the low-carbon transition; they will allow companies to benchmark their own progress and identify which actions they need to take; and they enable the identification of those companies worthy of recognition for their emissions reduction activity as the world focuses on the implementation of the Paris Agreement.