Tackling climate change and its impacts is a monumental task that requires a profound upgrade of our economic system, highly dependent on fossil energy sources, to one that organically delivers the necessary incentives to rapidly transition to a new green economy.
Yes, the climate is changing rapidly and dramatically. 2023 is the hottest year on record, producing not only heat waves, fires and droughts, but also hurricanes, storms and floods that destroy everything in their path.
What is climate action (SDG 13)?
Climate action is one of the UN’s Sustainable Development Goals (SDG 13) and involves taking urgent action to combat climate change and its impacts in line with the Paris Agreement, which was adopted in 2015 by the vast majority of countries, which pledged to actively work on limiting global temperatures below 2ᵒC compared to pre-industrial times, and making every effort to keep them below 1.5ᵒC. The measures needed to achieve SDG 13 involve reducing greenhouse gases (climate mitigation) and/or taking action to prepare for and adjust to the current and future effects of climate change (climate adaptation).
Compliance
In this context, most of the world’s governments have committed to climate transition plans that will progressively permeate regional and global regulatory and legal frameworks that will have important consequences for companies, such as market, legal, technological and reputational risks, the financial impacts of which investors and shareholders increasingly demand to know. Thus, some financial market regulatory agencies, such as the Securities Exchange Commission (SEC) in the United States, as well as the European Parliament and the United Kingdom have published new regulatory frameworks – some in the process of finalizing their final version – that allow investors and shareholders to know the current and future climate mitigation and adaptation measures of publicly traded companies, which is causing a domino effect in the companies that are part of their value chain.
In simple terms, regulated companies must openly disclose in their annual financial report what the material climate risks are, how they identify them, what potential impact they could have, what measures the company is taking to mitigate them, what governance structure is in place to develop, drive and monitor the progress of the climate strategy, what the decarbonization targets are and what progress is being made towards meeting them.
In short, stakeholders want to know how prepared is the company for the effects of climate change. These elements are increasingly a priority for long-term investors and shareholders, such as pension funds, capital managers and other relevant actors, who recognize the impact that climate change has on their investment portfolio, and who have the necessary resources and influence to facilitate the transition to a green economy.
Thus, companies in all economic sectors are subject to multiple compliance requirements, either directly or indirectly, which requires them to have an effective and robust climate action strategy that enables them to meet the expectations of their customers, investors, employees and other stakeholders.
Designing a climate action plan (SDG 13)
When designing a climate action plan (SDG 13) for the short, medium and long term, it is crucial to take into consideration what the requirements of key stakeholders are, along with identifying the company’s state of maturity in terms of governance, strategy and climate management.
For example, a client may be requesting that their suppliers calculate their upstream carbon emissions annually, and report back to them by the middle of the following year, in order to use that information as part of their value chain carbon footprint. Other constituents may request that your company incorporate other aspects of climate action (SDG 13), such as calculating the carbon footprint of your products, or setting science-based reduction targets (SBTs) for corporate carbon emissions.
To ensure an organic progression in the SDG 13 mitigation and adaptation efforts expected by your stakeholders, your company should design and implement a climate action plan. This includes conducting an initial climate assessment, calculating your carbon footprint annually, preparing a decarbonization plan, managing climate risks and opportunities, and disclosing your climate performance to stakeholders periodically.