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Green Business After COP26

New global agreements notwithstanding, the world remains woefully behind in reducing greenhouse-gas emissions at the rate necessary to prevent catastrophic climate-change scenarios. Businesses are increasingly embracing the green challenge, but they need policymakers to meet them halfway.

POTSDAM – What is next on the global climate agenda? This year’s United Nations Climate Change Conference (COP26) in Glasgow certainly did not fail, but nor was it much of a success. While world leaders entered into some promising new agreements on targets, global greenhouse-gas emissions so far are not being reduced at the pace we need. And while some countries’ climate pledges have been strengthened, the lack of concrete measures for achieving them is a real worry. We still see a yawning policy gap.

Climate science clearly shows that future prosperity and equity lies in only one direction: toward a nature-positive, zero-carbon global economy. Between this year’s extreme weather events and the razor-sharp, science-based messages in the Intergovernmental Panel on Climate Change’s sixth assessment report, we do not need any more confirmation of the facts. The world is facing massive threats to biodiversity and nature. To remain on track to achieve carbon neutrality by 2050, we must reduce emissions significantly before 2030.

Many policymakers continue to drag their feet, voicing concerns that climate action will burden businesses. But many top business leaders are increasingly putting their companies on a more sustainability-minded course. The vast majority of them have accepted the findings of climate science and moved beyond the phase of doubt and hesitation. This broader trend was clear to see in Glasgow, where senior executives from many of the world’s largest corporations were in attendance.

In the run-up to COP26, we interviewed business leaders from more than 20 top German companies (including BASF, Daimler, Deutsche Bank, Deutsche Telekom, Lufthansa, and Siemens), and examined their respective sustainability strategies. Among our main findings were that nine out of ten German CEOs consider sustainability to be at least as important as digitalization over the next five years.

This represents a striking change, and it is not just cheap words. On average, the companies participating in the study aim to achieve climate neutrality by as early as 2035, not only on their factory premises but across their global value chains. German corporate leaders are under no illusions that this will be easy; most recognize that their actions have yet to catch up to their attitudes. Nonetheless, sustainability has clearly moved to the top of the CEO agenda, supplanting COVID-19 as the number one topic.

Our survey suggests that a new narrative has emerged in German business. Companies now consider a robust sustainability strategy necessary for maintaining their “license to operate.” More are coming to realize that there are business opportunities in sustainability. And more CEOs are taking personal responsibility, establishing new corporate governance mechanisms and incorporating sustainability targets into executive board compensation.

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In the context of the broader climate challenge, Germany makes for a particularly interesting case study. With its highly industrialized economy, Germany wants to become a pioneer in decarbonization without losing its international competitiveness. From the average German CEO’s perspective, progress is being held back not by a lack of green technologies or support from key stakeholders, but by still-high up-front costs. For 60% of those surveyed, sustainability and profitability remain at odds. Still, many existing sustainability projects are already paying off, and costs will continue to fall as the opportunities for increasing sales of sustainable products increase.

Transforming companies’ modes of operation requires three kinds of action. First, they urgently need to reduce their negative footprint on the planet and society, by stopping their overuse and destruction of natural resources. Second, they need to increase their positive handprint through system-wide purpose-oriented (rather than solely profit-driven) business strategies to build resilience and contribute to the Sustainable Development Goals.

And, third, they need to create a heartprint, winning the support of all stakeholders. Here, we can all have an impact, by changing our behavior as consumers, supporting bold policies as voters, creating new knowledge as scientists, and setting meaningful incentives and frameworks as policymakers.

The German companies we surveyed offer good examples for sustainable corporate action. Some of them use “green digital twins” in product development to quantify a product’s climate effects even before a prototype is built. Others report on their “product carbon footprint” to provide suppliers and customers transparency about emissions and enable informed choices between alternatives. Many businesses cooperate across sectors to operate and finance sustainable projects. And several large German companies are training employees to become “sustainability ambassadors” who will show others how to pursue similar strategies.

Such models need to spread quickly, because the transition to a safer, healthier, sustainable world is not proceeding smoothly. The global economy is still shaped by misaligned incentives that make it profitable to pollute, destroy, and destabilize the climate and biosphere. We urgently need climate science-aligned policies that provide a new framework for business. COP26 did not deliver this – and it probably never could. Additional formats will be needed, starting with the 2022 G7 summit in Germany. The EU could sign on to the US-China declaration in Glasgow, even forming a science-based “climate G3.”

But we also need more companies to take it upon themselves to adopt science-based targets. This applies not only to cutting carbon-dioxide emissions but also to conserving other limited resources, especially water, biodiversity, food, and soil.

The challenges ahead are immense, but so are the opportunities. We are currently in a phase of acceleration, having only just realized the urgency of the issue. The carbon budget for remaining aligned with 1.5° Celsius of warming will last (at current emissions rates) until the end of this decade – at most. We must start reducing emissions now, across all sectors and at all levels.

As our study shows, business leaders are aligning behind the science and showing a willingness to transform their operations. The question now is whether policymakers will provide the necessary framework to ensure a safe future for everyone.