Climate Change: Business Risks and Strategies

• Course aims to provide real-world understanding of business risks from climate change.
• Aims to provide strategic opportunities arising from climate change sensitive business models.
• Focus to equip students with practical insights with examples of real-world business initiatives, which allow for innovative business models.
• Focus on long-term resilience and profitability in an uncertain future.

Session 1: Introduction

• Six greenhouse gases include water vapor, CO2, ozone, nitrous oxide, and methane.

Session 2

• The first World Climate Conference was in Geneva in 1979, and led to the World Climate Research Program and panel on climate change in the UN,.
• The Intergovernmental Panel on Climate Change (IPCC) was co-created in 1988 by UNEP and WMO.
• The IPCC is the UN body for assessing climate change science.
• The IPCC published its first assessment report in 1990, calling climate change "A challenge with global consequences

1992: The Rio Earth Summit

• Main outcomes of the UN Conference on Environment and Development:
• Agenda of the 21st Century: This agenda was agreed upon by 178 governments.
• Rio Declaration: Contains 27 principles.
• UN Convention on Biological Diversity.
• UN Framework Convention on Climate Change (UNFCCC): There are 154 countries (Parties) involved.
• The UNFCCC aims to stabilize GHG concentrations in the atmosphere to prevent dangerous anthropogenic interference with the climate system.
• The key principles to be followed by the Parties to the convention:
  • Principle of common but differentiated responsibilities.
  • Precautionary principle.
  • Principle of the link between climate change and development.
• Commitments vary depending on the level of economic development as stated in Article 4 of the Convention.
• The Parties should protect the climate system based on equity, common but differentiated responsibilities, and respective capabilities.
• Developed country Parties should lead in combating climate change.
• Special consideration is given to developing country Parties, especially those vulnerable to the adverse effects of climate change or those bearing a disproportionate burden under the Convention.
• The Parties should take precautionary measures to anticipate, prevent, or minimize the causes of climate change.
• Lack of full scientific certainty should not postpone measures, and policies should be cost-effective to ensure global benefits at the lowest possible cost.
• The Parties can promote sustainable development.
• Policies should be appropriate for each Party's conditions and integrated with national development programs.
• Economic development is essential for adopting measures to address climate change.
• The Parties should cooperate to promote a supportive international economic system that leads to sustainable growth, enabling all Parties to address climate change problems.

COP: Conference of the Parties

• The COP is the supreme decision making body of the convention
• The COP is a legally binding international agreement between countries, established under the United Nations.
• Formal UNFCCC meetings assess progress and negotiate agreements to reduce GHG emissions.
• Meetings include government representatives (Parties) and non-party 'observer' organizations.
• The first COP was held in Berlin, Germany in 1995.
• Three groups of Parties to the Convention:
  • Annex I: Includes industrialized countries from the OECD in 1992 plus countries with economies in transition (EIT Parties).
  • Annex II: Includes OECD members of Annex I, not including the EIT Parties.
  • Non-Annex I: Includes mostly developing countries like China and India.
• The Kyoto Protocol of 1997 was the first international treaty that implemented the UNFCCC's objective to reduce global warming.
• The goal was to limit and reduce GHG emissions in accordance with agreed individual targets, which came into effect in 2005.
• Annex B Parties had a duty to reduce GHG emissions, while Non-Annex B Parties had a duty of reporting GHG emissions.
• New tools introduced:
  • Clean Development Mechanism (CDM)
  • Joint Implementation
  • Emissions Trading (Cap and Trade)
  • Climate Adaptation Fund
• COP21 and the Paris Agreement of 2015 superseded the Kyoto Protocol as the principal regulatory instrument for global climate change response.
• The overarching goal is to hold the increase in the global average temperature to well below 2°C above pre-industrial levels" and pursue efforts "to limit the temperature increase to 1.5°C above pre-industrial levels."
• The long-term goal is to achieve "a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century" (Net Zero).
• There are five-year cycles and updated National Determined Contributions (NDC) for each country.

Key Challenges Faced by Climate Change Governance

• Challenges include coordination of organizations and actors, political support and consistency, divergence of interests, difficulties in terminology across sectors, and measurement harmonization.

Long-Standing Discussions on the Relationship Between Economic Growth

• Adam Smith's The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776) are key texts.
• Thomas Malthus' theory is outlined in An Essay on the Principle of Population, 1789.
• Environment seen as an 'economic externality' by Pigou in 1920.
• The Brundtland Report in 1987 called for a new era of economic growth: growth that is forceful and at the same time socially and environmentally sustainable.
• The Rio Earth Summit in 1992 established the concept of sustainable development as an attainable goal for all people, regardless of level.

Elkington's Triple Bottom Line

• Elkington's model states businesses should focus on People, Profit, and the Planet to measure sustainability in the 21st century.
• The UN Sustainable Development Goals (SDG) provide a roadmap for global development from 2016-2030.
• SDG goals are not exclusively about climate, but nearly half of them address climate-related issues.
  • The main emissions sources are: Electricity, Food & Land Use, Industry, Transportation, and Buildings.
  • The main natural sinks are: Land Sinks and Coastal & Ocean Sinks.

Climate Change Mitigation vs. Climate Change Adaptation

• Mitigation reduces climate change, while adaptation adjusts to its effects.
• Two main types of climate change policies. These are: Mitigation and Adaptation
• Climate Change Mitigation Policies include:
  • Market-Based Mechanisms
  • Regulatory Instruments
  • Voluntary Agreements
  • Direct Government Expenditure on R&D

Market-Based Mechanisms

• Include environmental taxation, taxes on energy, vehicle taxation and carbon tax.
• "Cap and Trade" Systems like the EU Emissions Trading System (ETS).
• Subsidies: Removal of perverse incentives and allocation of subsidies for climate solutions.

Regulatory Instruments

• Include Prohibition of production or technologies (ex: France ban on PFAs 2024; EU ban of sale of new petrol and diesel cars from 2035), emission permits and the ending of trading permits.
• Reporting and emissions disclosure requirements include:
  • EU: Corporate Sustainability Responsibility Directive (CSRD) - 2022
  • USA: SEC emissions disclosure requirements (RIN 3235-AM87)
  • UK: Streamlined Energy and Carbon Reporting (SECR)
  • IFRS Sustainability Disclosure Standards

Environmental Impact Reporting Requirements

• 50,000 companies are required to disclose, track and measure their Sustainability Performance (ESG).
• Key principles:
  • Double materiality (impact and financial materiality).
  • Targets setting.
  • Vastness of information (breadth)
  • Further standardization (European Sustainability Reporting Standards).

Direct Government Expenditure on Climate R&D

• Global public energy RD&D budget with share of low-carbon, 2015-2023.

Voluntary Agreements and Business-Led Initiatives

• Include UK Climate Change agreements and Roundtable on Sustainable Palm Oil
• Climate Voluntary Agreements
• There are several International networks that promote voluntary agreements, such as: The world Business Council for Sustainable Development (WBCSD), and The Climate Group:
• Include Climate voluntary agreements, UK Climate Change agreements, and Roundtable on Sustainable Palm Oil
• Shareholders and investment firms activism plays an increased role
• The Kyoto protocol enabled more action than the first one

Seeds Companies Can Plant In Their Customer's Mind

• Include care and re-use information featured on clothing care labels.

Seeds Companies Can Plant In Their Employees Mind

• Include employee benefits for those who shun plane travel and staff international mobility.

Seeds Organisations Can Plant In Their Stakeholders Minds

• In the food sector, this includes schemes like Too Good To Go, reusable cup schemes, and development of vegan food alternatives.

Sustainability in Fashion

• Initiatives include vegetal leather from crop waste, efforts to make second-hand clothing more attractive, enhancing recycling, and the emergence of new brands embracing circular and sustainable fashion.

Measuring the Environmental Impact

• Ice cores reveal historic levels of CO2.
• The carbon footprint of a country assesses emissions by sources and removals by sinks.
• The Greenhouse Gas Protocol is a global standardized framework for measuring and managing GHG emissions
  • This protocol, addresses public and private sector activities, value chains and mitigation actions.
  • The Protocol takes into account indirect and direct emissions and are organised into three scopes.
    • Scope 1: Direct Emissions
    • Scope 2: Indirect Emissions
    • Scope 3: All other Indirect Emissions

Session 5

• Carbon Footprint Assessment of an Organisation: Three scopes that include:
  • Scope 1: Direct
  • Scope 2: Indirect
  • Scope 3: Indirect
• Climate change mitigation vs adaptation: Mitigation is about reducing climate change and adaptation is about adapting to climate change
• Mitigation and Adaptation

Climate Adaptation

• Is about responding to climate change present or predicted effects.
  • Includes understanding main impacts on the natural environment and socio-economic main impacts.
  • Soils degradation: erosion, decline in organic matter, salinisation, soil biodiversity loss, landslides, desertification aggravation
  • New business risks and threats (e.g., infrastructure and building risks, energy supply risks, disrupting business operations, property damage, disruption to supply chain)
• Strategies:
  • Proactive vs. reactive adaptation strategies, building flood defenses, adopting drought-resistant crops vs. providing emergency relief.
    • Proactive – you do it to make it not happen, reactive – its already here so we must act on the consequences.
  • Incremental vs. transformational adaptation strategies (deep, systemic change)
  • Eco-system-based adaptation
  • Community-based adaptation (CBA).

Climate Adaptation and Mitigation in Food Security and Agriculture

• Key efforts include introducing drought-resistant crops, improving irrigation practices, and adjusting planting times
• As for water security, you need to consider how to: Improve water storage (e.g., rainwater harvesting) Improving efficiency in water use Enhancing sources to cope with changes in precipitation and Combining soft and hard water technologies

Climate Change in Urban Planning

• Designing cities with climate resilience in mind.
  • increasing the presence of green spaces (e.g., to limit the urban heat island effect; use as rain gardens during heavy precipitation; create shade during heat waves
  • adapting building codes to future climate conditions and extreme weather events (e.g., enhance buildings insulations to reduce the need for cooling in summer & building flood defenses
• Within health, you can strengthen health systems to deal with the spread of vector-borne diseases (malaria, dengue) and heat-related illnesses
• Climate change adaptation can include sea level rise, coastal management and climate change adaptation

Climate Change Adaptation & Migration

• Is a multi-causal phenomenon.
  • Considers:Food supply disruptions, water shortages, droughts and fires decisions that can lead to migration.
  • The concept of "Climate refugee", a discussed sub-category of "environmental refugees.
• Migration can happen within a country or across different countries.

Challenges and Barriers to Climate Adaptation

• Involve financial constraints, political and governance barriers, knowledge and capacity gaps, and social and cultural issues.

Climate Justice

• Climate justice is the principle that the benefits reaped from activities that cause climate change and the burdens of climate change impacts should be distributed fairly
• The movement is that acknowledges climate change can have differing social, economic, public health, and other adverse impacts on underprivileged populations.
• It is framework that addresses the socio-political, ethical dimensions of climate change, focusing on its disproportionate impacts on marginalised communities and less developed countries.
• Climate change impacts are unevenly distributed, affecting indigenous peoples, low-income communities, and people of color disproportionately.
• Climate justice relates to the 'Global North' vs. 'Global South'
  • Industrialised North countries are responsible for most of the GHG accumulated in the atmosphere.
• Requires that you also consider between generations, where, decisions on climate change mitigation made today will substantially impact the lives of future generations
• A good idea is to understand what Equity is different from equality

Key principles can include:

• Equity and Fairness, Recognition of Vulnerability, Intergenerational Justice, and Restorative Justice
• Strategies for achieving climate justice may include policy approach, grassroots movements, climate litigation and ethical consumption

Business and Sustainability

• A sustainable business focus on 3 areas -- the "3Ps" (People, Profit, Planet).
• Following the recommendation of the task force on Climate-related Financial Disclosures that includes looking the the transition risks and the physical risks
• Helps to determine long-term Profitability vs. short- term gains, Risk Management
• In order to support sustainability you can try understand where and how emissions Trading Schemes (ETS) operate and also consider Corporate Reporting Obligations
• Remember, carbon offsetting part of market based. However, it has gotten criticism for companies using It to pay other companies to do good things but still continue to do bad things themselves but hide behind the fact that they send money to good causes.
• An important tool to support business and climate cases relate to The ESG Report, a key reporting tool for an organisation.
• Climate Action Requires Environmental sustainability certifications and that you understand climate solutions in business practices, across the 3 scopes.
  • This all begins with a company's Decarbonizing operations through reduced emissions in business practices and the development of Green innovations & technologies and the development of Circular practices and the development of a sustainable supply chain
• Climate Change relates directly with business , its very important to understand how a business can leverage project drawdown data and focus on nature based solutions