2020: A landmark year for the corporate environmental agenda 2020: A landmark year for the corporate environmental agenda
As the next decade approaches, Salterbaxter MD Huw Maggs looks ahead to the three key trends that will define the corporate sustainability agenda in the years to come.
2020 will be a big year for business and sustainability. To understand just how big, let’s take look at where we’re standing now at the tail end of 2019, and how we got to this point.
Today, the frequency, speed and depth at which many companies are having to adapt to rising societal concerns is unprecedented. This pressure is increasing as more consumers, employees and NGOs – fed by the media and fuelled by an increasingly mainstream activist movement – wake up to the scale of the challenges we face and the role of business in both their creation and resolution.
At the centre of this change is a powerful group of young people born after the mid-nineties. According to research carried out by McKinsey, millennials and Generation Z will account for 40% of global consumers by 2020. Not only do these younger consumers believe strongly that companies have a responsibility to address social and environmental issues, but they’re prepared to back up their beliefs with their shopping habits, seeking out brands and products that align with their values and avoiding those that don’t.
But this isn’t just about consumer choice and reputation. Interrelated issues such as the climate emergency, land degradation and resource scarcity pose very real operational risks for companies and sectors. As these crises escalate, they will exert an increasingly profound influence.
And investors are taking notice.
Today, the assets of investors who have committed to divesting from fossil fuels totals $6.24 trillion – an increase of 11,900% in just four years. Meanwhile the issuance of green bonds in the first half of 2019 hit a record $117 billion, and as far back as 2016 sustainable investing assets under professional management totalled a staggering $23tn.
The last few years have also seen a growing number of companies across a range of industries – and in particular apparel, food and beverage, transportation, and consumer goods – setting ambitious corporate growth agendas in the face of big global challenges.
So from where we stand at the end of 2019, we can see two things clearly. First, that significant momentum has built up behind the sustainable development agenda, and that this momentum is accelerating thanks to an unprecedented level of mainstream interest and a resurgent activist movement. And second, that this is resulting in new levels of ambition and innovation around sustainability across the business world.
So what does 2020 have in store?
2020 is likely to be a pivotal year for sustainability. Major events such as the upcoming COP in Madrid, and the 2020 UN Climate Change Conference next November, will highlight the urgency of the global challenges we face even more starkly.
Against this backdrop, it will be vital that business is seen to be living up to its responsibilities. So the fact that many businesses will fail to meet their 2020 sustainability commitments is cause for concern. Companies will have a lot of explaining to do to avoid draining the well of credibility that they have begun to build up over recent years.
From 2020, three big issues are likely to come into even sharper focus.
Up to now, the business response to plastic pollution can be summed up broadly as “plastics are not the problem, plastics in the environment are the problem”. In other words, the focus has largely been on developing a circular economy, where plastics are collected, reused and recycled or recreated as virgin pellets
However, critics are increasingly challenging the idea that we can clean up the problem without addressing its root causes. These systemic drivers include linear, high-growth, low-responsibility business models and regulation, a wider mindset of disposability, and a lack of public or private incentives to invest at scale in the infrastructure required.
We’ve seen a frenzy of activity to try to tackle the issue within the current system, including packaging innovation to make plastics easier to recycle, distribution innovations, and some collective efforts to improve recycling infrastructure. However, these efforts – at least at their current levels – are not likely to fundamentally shift the way we produce, consume and manage end-of-life in plastics. As a result, we are not seeing change on the scale necessary to fully address the challenge.
2020 is likely to see renewed calls to address the root causes of the plastics problem, and questions about how we can restructure the whole system. Keeping on top of this fast moving landscape will be more important than ever next year – and those operating in Europe and in the UK in particular should brace themselves for a far heavier push on producer responsibility.
2. Climate change
The need to rapidly cut carbon emissions has become widely accepted across the business world. Many companies have begun the transition away from fossil-based energy systems and towards renewables, electrified transport and circular production models (which can not only reduce waste but eliminate huge volumes of carbon). However, this transition is not yet happening fast enough.
In this context, science-based targets (SBT) are probably not going to cut it for much longer as a measure of leadership. Part of the problem, critics argue, is that SBT puts too much emphasis on creating the targets, and not enough on how companies will actually achieve them. Perhaps more importantly, the concept itself assumes that every business on the planet will reduce their fair share of emissions in line with the Paris Agreement – an assumption that looks increasingly flawed as time goes on.
So what’s next? From 2020, we believe the big focus will be on tackling emissions in the supply chain. For most companies, the supply chain accounts for 60% of the total carbon footprint. With this in mind, it’s not surprising that addressing supply chain emissions has been the topic de jour in most of the discussions we have had with businesses and stakeholders over the last 18 months.
Fixing this problem is a challenge, considering that most companies’ supply chains are often comprised of many businesses that are either too small to have the emissions, capabilities or CAPEX budgets required to achieve significant reduction, or mid-cap B2B businesses hidden away from view. What’s more emissions arising from activities such as agriculture can also be significant, diffuse and challenging to address.
So how do we resolve this? New initiatives like Walmart’s Project Gigaton, which encourages suppliers to set emissions goals and gives incentives for achieving them, may provide part of the answer. And in the last few weeks, other companies have followed suit, with a number of CEOs announcing similarly ambitious supply chain schemes.
For example, in November, Gucci CEO Marco Bizzarri announced that the luxury retailer had become carbon neutral through the use of offsets, and challenged other CEOs to roll out offset schemes at scale to rapidly address supply chain emissions. In the same week, Mars CEO Grant Reid publicly stated that the global supply chain system is “broken” and pledged $1 billion to fix supply chain sustainability challenges. Both of these examples point to a shift in rhetoric and approach from business leaders towards supply chain emissions, and we expect to see more of this next year.
As the pressure to act intensifies, nature-based solutions will also play an increasingly vital role in companies’ climate reduction strategies. Protecting, restoring and managing the world’s ecosystems more sustainably could provide around 30% of the mitigation needed by 2030 to stabilise global warming to below 2ºC, according to a report published by the International Union for Conservation of Nature and the University of Oxford. As Bizzarri argues, there’s a clear commercial case for adopting such strategies, given the world is now entering a "new decade of corporate accountability".
In an article published in late 2018, William Paddock of WAP Sustainability warned that most organisations are going to fall short of their 2020 carbon goals. If and when this happens, companies will need to do more than simply committing to a new set of long-term targets if they want to retain credibility in the eyes of the global community. The pressure for companies to demonstrate exactly how they will achieve these targets will intensify in a way that hasn’t been felt up to now. Initiatives like those outlined above show a possible route forward. For that reason, we believe 2020 will be the year when we will begin to see holistic climate strategies announced, explained to investors and scrutinised on a much wider scale.
Although the idea that we should operate in environmentally sustainable safe limits has been around for at least three decades, we expect to see a huge upsurge of mainstream interest over the next three years in the critical role that healthy terrestrial, marine and freshwater ecosystems play in safeguarding our societies and economies.
While SBT models have a number of flaws (as I pointed out earlier), science is still likely to play an important role in corporate sustainability strategies into 2020 and beyond. Next year, the newly formed science-based targets network will introduce methodologies to help companies set SBTs not only on climate but across all earth systems – land, oceans, freshwater and nature. This will shift biodiversity to the forefront of the business sustainability agenda in a way we haven’t seen before.
Another driver for the increasing interest in biodiversity is growing public awareness and concern. The widespread public outrage around plastics is really focused on its impact on animals and ecosystems – and to some extent, this is also true for climate change.
As with climate change, biodiversity is another area where business commitments are likely to fail to match up to delivery. In 2010, the Consumer Goods Forum agreed a target to end net deforestation by 2020 (to address both climate and biodiversity impacts). In the last few weeks the Carbon Disclosure Project has publicly stated that this goal will be impossible to meet, and that the companies “are guilty of veering far off-track towards meeting longer term sustainable development goals for their supply chains.” This again risks damaging business credibility in this area, and will increase the level of scrutiny over how companies will achieve their biodiversity goals.
Along with the intensifying focus on climate and nature in general, the next few years will also see more specific attention paid to the field of conservation. The conservation movement has gained momentum as research has emerged connecting economic and ecosystem health. At the same time, practical tools have been developed to help governments and businesses integrate these factors into decision making. Recent years have also seen increasing interest in conservation investment – the idea that investment can return principal or generate profit while also resulting in a positive impact on natural resources and ecosystems. The subject of conservation will be firmly on the agenda in October next year, when the Convention on Biological Diversity (representing 195 nation states) convenes to agree a post-2020 global biodiversity framework.
As we approach 2020, the stars are aligning for biodiversity to become more of a standalone theme for business accountability and action.
Of course, all three of these big macro topics are fundamental themes within the UN’s sustainable development goals (SDGs). And that’s where I want to finish – what’s next for business and the SDGs?
Firstly, we expect to see renewed pressure for companies to move beyond using the SDGs as a communications tool or organising framework for sustainability, and to genuinely use them in a systematic and integrated way to drive innovation, investment and collaboration.
Secondly, we think we’ll see a shift in how companies use the SDGs to frame their sustainability performance. Up until now, the SDGs have provided companies with a useful platform for accentuating the positive outcomes of their sustainability efforts. From 2020, we expect businesses to be challenged to focus not only on the positive contribution they make to the SDGs, but also on the steps they must take to reduce their negative cumulative impacts, even if it means a hit to the bottom line in the short term.
Finally, we also think it’s possible that the global community resets its approach to the SDGs, elevating a select number as key priorities – a sort of global materiality exercise. This may well be welcomed by some businesses, but they will also be expected to evolve their priorities and ambitions in line with this shift if it does occur.
Whatever happens in 2020 and beyond, one thing is certain: businesses will need to demonstrate insight, ambition and agility to adapt to the changes ahead.
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