Climate change is already shaping not only our physical world, but also political and business worlds. Last month, the Governors of the Banks of England and France wrote an open letter warning that companies and industries that do not adjust to a net-zero world by 2050 “will fail to exist”. Extinction Rebellion recently held weeks of protests in London, calling out “criminal” inaction from global governments. Greta Thunberg has continued to inspire both the young and old to take action on climate change. And the UK Parliament has been the first nation to declare a national climate emergency.
In the business world, climate is now being integrated into core strategy and investment decision-making. Legal & General Investment Management (LGIM), the UK’s largest money manager, has placed climate at the top of its list of concerns for corporations, and has divested millions on the grounds of climate inaction. In South-East Asia, Singapore’s three largest banks (DBS, OCBC and UOB) have all committed to removing coal power lending. Last year, Royal Dutch Shell aligned executive pay to carbon reduction targets. In a recent survey on global risk perceptions (published in the World Economic Forum’s Global Risk Report 2019, 14th Edition), environment-related risks were by far the most dominant in terms of likelihood and impact.
Climate change raises tough questions for business leaders. It needs planning further into the future than analysts have previously demanded. It involves grappling with important, yet very uncertain, trends. The scale and timeframe of the climate challenge require fundamental and honest reflections on the sustainability of “business as usual”.
A well-thought-through, inclusive and collaborative scenario analysis exercise can help. Scenarios present a picture of possible future worlds. For businesses, two extremes of these possible worlds can be considered: a “business as usual” scenario, where the world warms by some 4ºC, bringing about major changes to climate and weather patterns. The second is an “aggressive mitigation” scenario. Here there are rapid developments to policies and technologies that limit global warming to well below 2ºC.
Different climate scenarios bring climate change risks and opportunities to life. They stimulate a deeper reflection on the need for resilient strategies to operate in a future increasingly shaped by a changing climate. The key to leveraging scenario analysis into substantive strategic thinking, is to identify the right people across the business and engage them in the process early on. This builds the capacity, understanding and buy-in that organisations must have, if they are to develop a meaningful response to the climate challenge. Not only does this help build organisational resilience into operational models, it also brings about the real changes in mindset needed for companies to play their role in transitioning to a low-carbon world.
Climate change is the reality we face today. The IPCC has warned that, as of today, there are 11 years left to act if we are to avoid the worst impacts. Across the world, governments, businesses and citizens are rising to the challenge. If companies are to survive, let alone thrive, the time has come for a deep reflection on whether business models are fit to weather the storms and changes ahead. This needs fresh thinking and practical action now.