How Climate change forced businesses to evolve from CSR to ESG?

Revolutionary CEOs

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Climate Change

Climate change requires a new approach

While companies appear to grasp the magnitude of the climate crisis, they have been trying to address it mainly in a sustainability-as-usual fashion – one ketchup bottle cap at a time.

Consider emissions reductions. Companies have been slow to commit to reducing their emissions to zero no later than mid-century, a target that the Intergovernmental Panel on Climate Change considers necessary to limit global warming to 1.5 degrees Celsius – roughly 2.7 degrees Fahrenheit – and avoid the worst effects of climate change. Only about one-fifth of the major companies have 2030 goals that are in line with reaching net-zero goals by 2050 at the latest.

The companies that do set net-zero targets often do so in ways that lack the necessary robustness and allow them to continue emitting greenhouse gases, as recent reports point out. One concern, for example, is their dependence on carbon offsets, which allow them to pay for potential carbon reductions elsewhere without making any real changes in their own value chain.

Businesses tend to value profit over people and planet. Climate change is forcing them to evolve.

How to transform business sustainability

Companies have tried to rebrand their efforts in ways that sound more sophisticated, moving from terms like “corporate social responsibility (CSR)” to “environmental, social and governance (ESG),” “purposeful companies” and “carbon-neutral products.”

But when companies don’t put actions with their words, they increasingly meet resistance from activistsinvestors and governmental and regulatory bodies. One example is the growing scrutiny of companies that promote themselves as climate leaders but at the same time donate money to politicians opposing climate policies. Public relations and advertising employees called out their own industry in a report exposing 90 agencies working with fossil fuel companies.

Business is at a strategic inflection point, which Andy Grove, the former CEO of computer chip-maker Intel, described as “a time in the life of a business when its fundamentals are about to change.”

This transformation could evolve in different ways, but as I suggest in my book, fighting climate change effectively requires a new mindset that shifts the relationships between profit maximization and sustainability to prioritize sustainability over profit.

Early signs of evolution

There are early signs of evolution, both within companies and from the forces that shape the environment in which companies operate.

One example is how other industries are reassessing their relationship with fossil fuel companies. Some newspapers, including The Guardian, have banned advertising from fossil fuel companies. A growing number of insurance companies and banks have stopped financing coal projects. The French bank Crédit Mutuel said it saw the impact of climate change on its customers and was willing to lose money “in the short term” to respond to the risk.

Another example is changes in companies’ relationships with suppliers – for example, the business software company Salesforce added a sustainability clause to its contracts requiring suppliers to set carbon reduction goals.

And investors are moving for the first time from just urging companies to take bolder action on climate change to using sticks. Fidelity announced that it would vote against corporate directors whose companies don’t disclose their emissions or have a policy on climate change.

Add to these bright spots changes in regulation and policy worldwide that aim to put in place key sustainability principles and push to cut emissions at a faster pace, plus the changing expectations of young job seekers when it comes to environmental and social issues, such as inclusion and diversity, and you can start to see how the end of sustainability-as-usual may be closer than many people think. Due to climate change, the question is more “when” than “if” it will happen.

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