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Sustainability as a topic is not going away, and how we deal with it as individuals, businesses and countries is more crucial now than it has ever been. Business responses to climate change will be critical to the future survival of economies and wider society.
The stark warning by London Business School Associate Professor Ioannis Ioannou came during the most recent think ahead event at London Business School, ‘The Road to COP28 – Aligning Expectations with Actions’.
Every business leader is having to manage the tensions of climate change. Providing the knowledge and awareness and mindset so they have the tools to do what is needed next is our goal at London Business School, said Vice Dean Julian Birkinshaw. “Our job as a business school is to essentially provide our students with the ability to solve the problems of people and the planet,” he said.
Here are some of the key takeaways from our daylong event at London Business School, with links to videos packed with an array of insights on how to steer businesses in the right direction for reaching a more sustainable future.
Recent assessments conclude that for a 50% chance of keeping global warming to 1.5°C, the remaining carbon budget needed is around 250 GtCO₂, equivalent to around six years of current CO₂ emissions, said Ioannis. This quantification is a sobering reminder of the narrow window of opportunity we have to enact meaningful change. 2023 has been the hottest year on record, with temperatures 1.4°C above industrial levels. We must now turn commitments into action, and the business world must overhaul their operating business models and shift to create value, manage risk and ecosystems, and really redesign entire infrastructures of how we currently operate. Some companies are talking about becoming net negative, and over one hundred CEOs have issued letters to accelerate decarbonisation, Ioannis said.
There is only one way going forward, said Martha Vasquez, Partner and Associate Director, Upstream Oil & Gas at BCG, and that is for a decline in the demand of oil and gas. There is a huge pressure on the tax front, which will help, but economic growth with a net zero mindset is extremely hard. “We need to create the context for people to make the right choices every day,” she said. To transform these companies takes time, not weeks, but months and years. It is not realistic to say that by 2030 we will be net zero. Longer term, what we need to bet on, is to lean on renewable energy and carbon capture. Forty percent of the emissions in the oil and gas industry are from methane – which is about 80 times as detrimental as carbon dioxide in terms of emissions – which is worrying, but we have viable solutions to address this. A lot of this can be solved by better operational performance. Road fuel demand will peak sometime this decade, said Albert Cheung, Bloomberg NEF’s Deputy CEO, Head of Global Transition Analysis. Depending on where you are in the world, electric vehicles will become cheaper to buy from 2026-2030, said Albert.
Drawing on several findings from his research, London Business School Professor of Finance Alex Edmans highlighted the complexity of climate trade-offs and the need for improved literacy on the subject. There are a variety of trade-offs where, if we pursue the climate agenda (too strongly), there might be some other types of costs to society and we need to be mindful of them. “This is absolutely not to downplay the scale, the magnitude, the urgency of the climate crisis,” Alex said. “But, number one, recognise there are other considerations and, number two, if we don't recognise those considerations then any strategy that we have to address the climate issue may run into problems and resistance.”
The business sector's commitment to renewable energy has also seen a significant surge, said Ioannis. In 2022, global investment in energy transition technologies, including renewables, reached a record high of $1.3 trillion. This investment, however, still falls short of the average annual investment needed to remain on track to achieve the 1.5°C scenario outlined. The IEA estimates that around $2.8 trillion will be invested in energy in 2023, with over $1.7 trillion directed towards clean energy, including renewable power, nuclear, grids, storage, and low-emission fuels. This amount represents a significant increase in clean energy investment compared to fossil fuels (24% vs 15% since 2021) and demonstrates a decisive shift in investment priorities.
Companies that proactively embrace sustainable energy solutions may benefit from government incentives, tap into new markets, and enhance their brand reputation. To effectively manage this transition though, it's crucial for businesses to optimise their energy usage, expand their reliance on clean energy sources, and prepare for upcoming policy shifts that favour environmentally friendly alternatives. Navigating these changes successfully is becoming increasingly vital for businesses that want to maintain their competitive edge in a dynamic and rapidly shifting corporate landscape.
It's not just climate change, there are all sorts of other things happening which are linked to climate change but are every bit as complicated in their own way, said Julian Birkinshaw. Markets and systems have failed to fully capture the cost that business has created in the world, and as a result the marketplace solutions – from carbon credits to targets we’re setting for ourselves – are helpful but not helping quite enough. So what do we do? “We need corporations to step up and take responsibility,” Julian said. “To exercise vision to see what is possible, to exercise good judgement, be innovative, and find ways for reconciling the problems. Go out there and try to create solutions.”
“Our first job is giving people a better understanding about what’s really happening in the world,” continued Julian. High-quality research helps us to cut through and get to the bottom of what’s really happening. We need to educate the world, and we need to inspire generations of future leaders to be agents of change. The good news? According to Ioannis: “Today, students want and expect change, so there is hope that their voices can speed up the change needed.”
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