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The tide on corporate climate commitments is shifting, with a record number of companies making pledges in 2022. According to research from JUST Capital, nearly half the companies in the Russell 1000 have made some kind of emission reduction commitment, with roughly 130 corporations having made some form of net zero commitment in 2022. Yet the report also showed that far fewer companies have made science-based target commitments. There’s an even more significant gap between pledges made and action taken on those pledges. This gap bodes negatively for the goal set forth in the Paris Climate Agreement to limit the average global temperature increase to 1.5 degrees Celsius.
How can companies begin to make headway on their commitments and transparently share progress toward their goal? At the recent Reuters Next conference in December 2022, Indigo CEO Ron Hovsepian shared his thoughts in a panel discussion alongside other corporate sustainability leaders including Grant Reid, CEO, President and Board Director of Mars Inc.; Virginie Helias, Chief Sustainability Officer at P&G; Jennifer Bisceglie, CEO of Interos; and Martin Whittaker, CEO of JUST Capital, who moderated the discussion.
”We have to look at what's at stake,” remarked Reid. “The global supply chain is broken and we're heading for a three-, four-degree world, not one and a half. So, the basis in net zero – don't forget what we're trying to achieve here. We're talking about the life and viability of some countries and the whole farming and food supply chain.” Mars has committed to achieving net zero emissions across their entire value chain and greenhouse gas (GHG) footprint by 2050. The company has thus far reportedly reduced their emissions by 7.3% since 2015.
With so much at stake, corporations need to work quickly to act on their pledges. The panelists explored three key drivers: profitability, collaboration, and social responsibility.
CLOSING THE GAP WITH PROFITABILITY
One of the biggest hurdles to making progress on corporate climate pledges is the disconnect between a company’s financial performance and their sustainability performance.
“At Mars, the senior leaders' compensation is about equally split between the financial performance and our performance against our social impact and greenhouse gas emissions,” shared Reid. “That's very, very unusual and that gets your attention, and it has to be tied together with an integrated business plan. The two things are intertwined.” Until they’re one and the same, says Reid, there won’t be progress.
Jennifer Bisceglie, CEO of Interos, concurred. “The faster leadership ties this pledge to profitability, the faster you're going to see that culture change. I think the more that we pull that thread, you get very focused and drive it through profitability and global competitiveness, the more we're going to see success.”
Leadership has to be invested in and liable for the outcomes. To that point, the company board must play a crucial role in keeping a company on track to fulfill its pledge, Ron Hovsepian shared. If the average lifecycle of a CEO’s tenure is 4 - 5 years and a company’s climate commitment is 20 years or more, it is the board who will oversee and guide progress on the company’s plan.
CLOSING THE GAP WITH COLLABORATION
Many companies get stuck not just in the gap between pledge and action, but understanding what the action should be, as Jennifer Bisceglie pointed out. Yet everyone is new to this, she explained, and sustainability is a business arena that is being developed in real time as humans live out this unprecedented era of climate change. No one can solve the problem on their own, which means collaboration is crucial, even among competitors.
Things like standardized measurements can only be fostered through the collaboration of coalitions between companies, governments, and other stakeholders, remarked P&G Chief Sustainability Officer Virginie Helias. For example, the World Business Council for Sustainable Development is creating partnerships that enable greater transparency with standardized data for emissions.
Collaboration and transparency are at the root of Indigo’s business model. We’ve chosen to work with organizations like Climate Action Reserve and Verra to audit and certify our carbon credits, ensuring that they meet the highest scientific standards. We’ve also collaborated with farmers and agronomists to build a carbon program that creates a durable revenue stream for farmers. Our carbon program unites farmers and manufacturers in the effort to achieve a standardized, profitable carbon market that reduces carbon emissions at scale.
CLOSING THE GAP WITH SOCIAL RESPONSIBILITY
Another driver of successful corporate climate action is social responsibility. Every business that makes a climate pledge to reduce their emissions is at risk of being accused of greenwashing if they don’t follow through with measurable action. Yet changing company operations to reduce emissions is a 20- to 30-year journey, remarked Virginie Helias, so there’s bound to be uncertainty and adaptation along the way. Adaptability and transparency are crucial to a plan’s success, she explains. “It's a plan that needs to be regularly adjusted as new technologies come to scale. And it's a plan that needs to be communicated to all stakeholders very transparently, communicating your progress and setbacks, your tailwinds and headwinds.”
That social responsibility doesn’t just apply to de-carbonization but to keeping the cost of goods affordable and efficient for the consumer, and communicating the results to all stakeholders involved, Ron Hovsepian explained. Recently, Indigo was able to work with leading consumer brands to grow rice more efficiently. By helping rice farmers in their supply chains implement more sustainable rice production techniques, they were able to save 5.5 billion gallons of water while at the same time keeping the raw material cost to under two cents per pound of rice. The result: consumers can purchase affordable, sustainably sourced rice, and farmers get compensated for practice changes measured with scientific rigor.
Scientific rigor is important to creating transparency and building trust around corporate climate action, says Grant Reid of Mars, Inc.
"It has to start with science-based targets. I think a lot of CEOs are making commitments based on very little hard data," remarked Reid. “Clear metrics, transparency against those metrics and consequences if they don't hit them. Now that consequence could be associate retention and attraction. It could be your market cap, it could be government legislation, but the world is going that way and it has to if we're going to survive.”
Jennifer Bisceglie, CEO of Interos, spoke to the additional pressure that corporations are facing from the talent pool. “People are picking the companies they go work for based on their practices,” she shared.
The urgency and corporate responsibility to address climate change is clearer than ever. Effective corporate action remains top of mind for Indigo as we gathered with fellow leaders at this year’s World Economic Forum in Davos. As Ron remarked in the Reuters panel, "We're balancing the economics and the different stakeholders, but we're also balancing a moral obligation. It's a very big responsibility that the value chain takes on. The value chain owns it, and we all own it as a group."