Climate transition efforts over ESG: A new imperative for businesses

14 Jun, 2024 - 00:06 0 Views
Climate transition efforts over ESG: A new imperative for businesses

eBusiness Weekly

In recent years, environmental, social, and governance (ESG) criteria have gained prominence as a framework for evaluating corporate sustainability practices.

However, despite its widespread adoption, ESG has faced criticism for its lack of specificity in addressing the challenge of climate change.

As the climate crisis escalates, I believe businesses need to focus on more directly targeting climate transition efforts over traditional ESG strategies.

Critics of ESG argue that the lack of standardisation and transparency, as well as inconsistent regulations, undermine its effectiveness as a tool for driving meaningful change, making it susceptible to manipulation and greenwashing.

Further, research published in the Harvard Dash Repository indicates that the sheer variety and inconsistency of the data, measurement and reporting techniques should raise questions about the reliability and comparability of ESG ratings.

In contrast to ESG, which encompasses a broad array of environmental, social and governance considerations, climate transition is specifically focused on implementing comprehensive decarbonisation and adaptation measures to combat climate change.

Climate transition involves transitioning to renewable energy sources, reducing greenhouse gas emissions and building resilience to climate impacts.

I believe that these targeted efforts from business leaders can better address climate change. We can look to implement concrete measures that reduce emissions and mitigate environmental risks.

An urgent need for climate action

The urgency of implementing climate transition efforts is well documented. For example, according to the Intergovernmental Panel on Climate Change (IPCC), global temperatures have risen by approximately 1.1 degrees Celsius above pre-industrial levels, with devastating impacts on ecosystems, economies and communities worldwide.

Without rapid and substantial reductions in greenhouse gas emissions, the world is on track to exceed the critical threshold of 1,5 degrees Celsius of warming, leading to catastrophic consequences.

Further, the amount of “heat-trapping greenhouse gases in the atmosphere once again reached a new record” in 2022, according to a 2023 report from the World Meteorological Organisation with averaged concentrations of carbon dioxide a full 150 percent above the pre-industrial era and continuing to grow in 2023.

Seize opportunities for innovation and growth

The opportunities for companies to innovate and grow through climate transition efforts are manifold.

According to the International Renewable Energy Agency (IRENA), renewable energy accounted for 81 percent of all new power capacity additions globally in 2021.

The rapid growth of the renewable energy sector presents significant opportunities for businesses to invest in clean technologies and decarbonise their operations.

In addition, research by the McKinsey Global Institute estimates that the transition to a low-carbon economy could lead to a reallocation of labour, with about 10 million net jobs gained 2050, driven by investments in renewable energy, energy efficiency and sustainable infrastructure.

Thus, climate transition efforts have an important role to play in both mitigating climate risks and spurring economic growth and job creation.

How companies can incorporate climate transition efforts into their plans

Addressing climate change requires collaborative action across sectors and industries.

While ESG initiatives play a role in promoting responsible business practices, I believe climate transition efforts have the potential to catalyse systemic change and ultimately drive the transition to a more sustainable economy.

By prioritising climate transition action, businesses can address critiques of ESG, align with stakeholder expectations and seize opportunities for innovation and growth. Executives can take the following steps to implement climate transition efforts at their company:

Set ambitious emission reduction targets

Companies can incorporate climate transition efforts by setting ambitious targets to reduce their greenhouse gas emissions.

This may involve adopting science-based targets aligned with the goals of the Paris Agreement, committing to net-zero emissions and implementing strategies to achieve these targets across their operations.

Invest in renewable energy and energy efficiency

Making the switch to renewable energy sources, including wind and solar power, can drastically cut the carbon emissions brought on by energy use.

Companies can invest in renewable energy projects, install on-site renewable energy systems and prioritise energy efficiency measures to minimise their carbon footprint.

Adopt sustainable practices across supply chains

Businesses can work with suppliers to promote sustainable practices and reduce emissions throughout the supply chain, such as sourcing materials from environmentally responsible suppliers, optimising transportation and logistics to reduce emissions and implementing circular economy principles to reduce waste.

Build resilience to climate risks

Companies must build resilience to the impact of climate change, like “extreme weather events, sea-level rise and water scarcity.” Risk assessments can be used to identify climate-related vulnerabilities, develop adaptation strategies to mitigate risks and define business continuity planning.

Engage stakeholders and advocate for policy action

Engage with stakeholders including investors, customers and policymakers to advocate for ambitious climate policies and support the transition to a low-carbon economy.

An important part of advocacy is leading by example. Look to build sustainability into your core business strategy rather than viewing it as a separate initiative.

This approach helps ensure that every project you undertake supports a net-zero future. Through my experience, I’ve seen how there is a strong market demand for projects focused on sustainable infrastructure.

Addressing the urgent challenge of climate change requires businesses to prioritise climate transition efforts over traditional ESG strategies.

While I think ESG remains an important framework for assessing corporate sustainability performance, its broad focus and lack of specificity tend to limit its effectiveness in driving meaningful change.

By targeting climate transition, businesses can align with stakeholder expectations, mitigate climate risks, enhance resilience and seize opportunities for innovation and growth while contributing to a more sustainable future. — forbes

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