(First of two parts)
Climate change is an urgent issue and taking action is critically necessary to limit and reduce global carbon emissions. Businesses in particular will need to consider their own carbon footprint. With collective technological capabilities, financial resources, innovative capacity and global reach to search for solutions towards a low-carbon future, many businesses worldwide are setting carbon reduction targets, progressing towards net zero. In fact, just last week EY Global Ltd. (of which SGV is a member firm) announced its plans to achieve negative carbon emissions in 2021 and net zero by 2025.
Combatting climate change is a unique challenge for each organization, but it is clear that a collective effort is crucial to avert disaster. With the ongoing pandemic reinforcing the drive towards a sustainable future, transitioning to decarbonization is more vital than ever to achieve long-term resilience for organizations as well as to aid economic recovery.
THE COSTS AND IMPACT OF CLIMATE CHANGE
The Economist estimates that by 2050, the global economy will be 3% smaller due to a lack of climate resilience, potentially raising the cumulative cost of damages to $8 trillion. Research from the EY Megatrends 2020 report also reveals that many Asian countries face high vulnerability to rapidly rising sea levels, flooding, and heat waves. Without clear action to decarbonize economies, hundreds of millions of people may be victims of coastal flooding by 2050.
Domestically, the increasingly worse effects of climate change directly impact the vulnerable agriculture and fishing industries in the Philippines. The Philippine Statistics Authority (PSA) said in a report that the production costs for crops and fish have increased between 2017 and 2019 compared to the period between 2016 and 2018. This alarming trend resulted in much lower income for farmers and fishermen.
MOUNTING PRESSURES FOR CARBON REDUCTION
Businesses are more cognizant of the significance of both decarbonization strategies and climate-related investments in achieving long-term sustainable growth. A rise in new industries to support clean technologies can be expected, while emission caps and carbon pricing could transform taxation and invert cost structures.
Certain governments in the Asia-Pacific have recognized the need to mitigate the disruptive risks of climate change. For example, Japan committed to achieve carbon neutrality by 2050, and China, the largest carbon emitter in the world, announced its intent to establish peak emissions by 2030 and reach net zero emissions by 2060.
The findings from the 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor survey indicate that investors need to look into long-term value by critically assessing company performance through environmental, social and governance (ESG) factors, including climate change.
In order to meet investor expectations and appear future-proof, companies need to prioritize means of analyzing the opportunities and risks of climate change. They will also need to prioritize how to improve disclosure of their sustainability performance, or else risk the possibility of losing access to capital markets.
The decarbonization of businesses is further accelerated by consumers, particularly Generation Z, who are also increasingly aware of how their choices impact climate change. Gen Z is becoming even more influential as stakeholder capitalism continues to rise. They believe in the essential role business plays in addressing climate change and prioritize businesses that protect the environment and utilize sustainable supply chains.
SEC REQUIREMENT FOR SUSTAINABILITY REPORTING
In a 2019 article, Sustainability reports: fad or for good? SGV Partner Benjamin N. Villacorte had articulated that companies are encouraged not to wait for sustainability reporting standards or a regulatory requirement to be mandatory.
Recall that in 2019, the Securities and Exchange Commission (SEC) required publicly listed companies (PLCs) to submit their Sustainability Report with their 2019 Annual Report in 2020. The issued memorandum detailed that the guidelines will be adopted on a “comply or explain” approach for the first three years upon implementation. By 2023, PLCs are required to comply with Sustainability Reporting Guidelines specified in the memo, or else be penalized for an Incomplete Annual Report (under SEC Memorandum Circular No. 6, Series of 2005).
This pronouncement reiterates the need for structured sustainability reporting and for companies to manage their non-financial performance towards achieving the universal target of improved sustainability. For it to be effective and useful, companies should not only view sustainability as an exercise in compliance, but as their responsibility to earn their social license to operate.
BUILDING A DECARBONIZED FUTURE
Given the foreseeable impact of climate change alongside the mounting pressure from investors, employers, leaders, consumers and policymakers to address it, organizations are encouraged to embrace the decarbonization imperative. Adopting a decarbonization strategy will bring about the goodwill of investors, employees and consumers, and also build long-term, sustainable value.
In the second part of this article, we will discuss how EY, as part of its commitment to sustainability, will tackle the challenge of becoming carbon negative by 2021.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.
Clairma T. Mangangey is the Climate Change and Sustainability Services Leader of SGV & Co.
