The CEOs’ role in climate action
Studies have shown that climate-friendly investments by businesses reduce costs while increasing profits. CEOs should focus on greater climate-friendly investments to get ahead of the curve
CEOs across the world are constantly trying to align with the continuously changing nature of doing business in order to capture value creation opportunities for their businesses. Some of them are reinventing their business models, and many of them are transforming their businesses through digital initiatives and the adoption of GenAI. At the same time, they have been considering investing in climate-friendly initiatives to reduce their carbon footprints.
Over the last five years, most of the investments made towards climate-friendly initiatives were undertaken without enough clarity on how the returns on investments (RoI) would be measured. This left the CEOs wondering about how shareholders and other stakeholders would assess their performance with respect to such initiatives. However, even with limited understanding, many CEOs of leading business organisations committed substantial investments towards such initiatives.
PwC's 28th Annual Global CEO Survey sought to understand how those climate-friendly initiatives are doing today in terms of RoI. The survey was taken by 4,701 CEOs in 109 countries. About 33% of these respondents stated that their revenue from the sales of products and services increased due to climate-friendly investments. Furthermore, about 18% of the CEOs stated that their costs of business operations decreased due to climate-friendly investments.
Therefore, it's evident that climate actions can improve financial results for businesses, in addition to reducing their carbon footprint. As doing business in a low-carbon economy becomes the new normal, these businesses will emerge as leaders in their respective sectors—not just in terms of topline and bottomline, but also by remaining ahead of the compliance curve. However, whether their climate-related actions are sufficient with respect to the overall business goals is yet to be determined.
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The overarching goal of the Paris Agreement is to contain the increase of the global average temperature to well below 2°C above the pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.
According to the first estimate published by the UN Emissions Gap Report 2019, containment within 1.5°C would require 7.6% annual reductions of emissions between 2020 and 2030.
The 2024 report also presents an optimistic outlook, stating that it is still technically possible to get on track for containment within 1.5°C. However, it also highlights that the goals are increasingly becoming more challenging by the day. According to their revised estimates in 2024, the world must cut down carbon emissions by 42% by 2030 and 57% by 2035 to reach the target of 1.5°C.
With an increasingly industrialised economy, business leaders have more responsibility to contribute to this global goal. Business leaders must start rethinking their investments and business models for incremental climate-friendly initiatives as well as delivering significant outcomes for their climate actions.
The questions should be reframed to analyse what businesses can potentially do by mobilising all resources within their control—financial capital, human capital, the brand, and social capital. The goal should be recalibrated from incremental reduction of waste and carbon to the elimination of waste and carbon from their business ecosystem.
The need for climate actions has also opened up disruptive opportunities for startups. While established, large businesses take incremental steps with calculated risks; startup companies can embrace climate-friendly initiatives fully and start delivering superior financial outcomes to investors with a zero-carbon footprint. This will enable these startups to lead their sector as they scale and grow faster.
In each business, climate action should be initiated by the CEO to mobilise the business functions to come together to develop climate-friendly products and services. CEOs must take a hard look at their carbon footprint contributors, such as energy sources. Additionally, they should implement a data strategy for climate actions to monitor their business in the short and long term. Therefore, by taking collaborative and proactive climate actions, CEOs will be able to redefine their roles in business and society.
The writer is a partner with PwC. The views expressed here are his own.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
