With continued calls from numerous stakeholders and the evolving regulatory environment, companies have a sizeable opportunity to create and implement effective climate transition plans.
At last year’s COP26 climate conference, the U.K. government released a requirement for all listed companies, asset managers and regulated asset owners to publish climate transition plans by 2030. Meanwhile, the U.N.’s Net-zero Asset Owner Alliance membership, a group of institutional investors pledging an active role in the climate transition, has grown to 74 members and totaled $10.6 trillion in assets under management (AUM). But while the adoption of climate transition plans is progressing, creating a verifiable climate plan remains expensive and difficult to measure.
Not all companies are created alike. For example, while both Pepsi Co. (PEP) and Google (GOOG) have a carbon footprint, the ways and means by which they measure it are vastly different. Pepsi Co., as a food and beverage manufacturer, may be concerned with its footprint related to the transportation of goods, storage and manufacturing, while Google may be concerned with the footprint of its data centers and facilities, which require large amounts of energy to maintain its services.
These two companies operate in different industries, with different stakeholders and different expectations. When it comes to their climate transition plan, each will have unique needs while balancing different expectations of growth and long-term value creation for investors and other stakeholders.
All these factors need to be considered when thinking of a climate transition plan, making it important for companies to understand what “right” means for them, and consequently articulate the plan to relevant stakeholders. Nasdaq has compiled three foundational pillars to help companies begin their climate journey:
- Illuminate Climate Impacts
- Instill Trust with Transparency
- Impact the Transition
Illuminate Climate Risks
The first step of a company’s climate journey is securing buy-in from the top by educating the Senior Executive team and the Board on the risks and opportunities of climate change. Then, leadership should implement an assessment of the company’s current operations and a measurement of its carbon footprint.
While this step is well understood by many companies, Nasdaq estimates that 78% of companies in developed markets have yet to measure their carbon emissions and publicly report those figures.
The lack of public climate emissions data stems from a lack of climate expertise at many companies. Organizations do not know where to start when educating their teams on the technical nature of climate topics, collecting climate data and measuring their carbon footprint.
A credible carbon footprint is essential to any climate journey covering Scope 1, Scope 2 and Scope 3 emissions as outlined by the Greenhouse Gas Emissions (GHG) protocol, a global standard framework started in 1998. Ability to measure and track that overall footprint and benchmark how it is improving is foundational to developing credibility.
Armed with an understanding of a company’s carbon footprint, companies should then assess the climate risks to which their business is exposed. Due to the increasing frequency and severity of weather events, investors and other stakeholders are asking companies to identify and disclose how those weather events will affect a company’s operations today and into the future.
Furthermore, as the world transitions to a lower-carbon economy, that transition brings both risk and opportunity for companies, such as the evolution of customer buying preferences toward sustainable products, the risk of exposure to litigation and the shifts in supply and demand for certain commodities.
Continue reading on our website to learn about the two remaining foundational pillars of an impactful climate journey.