Corporate Climate Stocktake 2023

Our key takeaway: The 2023 Corporate Climate Stocktake lays out the business challenges facing governments as they come together for the first UNFCCC Global Stocktake of progress on greenhouse gas emissions at COP28 this fall. A top finding: “We do not need more grand alliances around the goals of net zero nor necessarily big-ticket multilateral diplomacy; instead what we need is the painstaking pragmatism of smaller groups of governments and businesses willing and able to advance change.” The report highlights the need for companies and governments to stop talking at cross purposes and work together on sector-specific collaborative action that increases market incentives for the net-zero transition, reduces barriers to adopting and developing clean technology and facilitates action by businesses that are both leading and struggling in the transition. While governments have a big job ahead of them, companies can continue to push for the significant change needed by advocating for effective, aligned policies and regulations that provide the carrots and sticks for climate action; collaborating both within their own sectors and in adjacent sectors to drive innovation; and look to their supply chains to tackle the biggest contributors to climate change, like deforestation and reliance on fossil fuels.

The We Mean Business Coalition, supported by the UN Climate Champions team and Bain & Company, has published the Corporate Climate Stocktake 2023 (October 2023):

• “Accelerating pace” of clean energy transition is limited by “system constraints”: The report indicates that clean energy technology uptake is progressing, albeit at different rates in different parts of the economy. At the forefront are the sectors with the right building blocks in place: mature technologies and alignment between the market and societal demands. However, for other companies, progress isn’t accelerating quickly enough: “Under current conditions, over 30% of those surveyed conclude that their company will still be reliant on fossil fuels into the 2050s … In every sector, business leaders point to a range of transition barriers which are holding them back – from the availability of infrastructure to the realities of commercial incentives.”
  

• Incentives from government are facing off with commercial realities: The report finds that “[o]ver 70% of companies surveyed identified government regulation as being the most important driver for accelerating the energy transition, ranking it significantly higher than consumer pressure at 37% and investor pressure at 25%.” Businesses are also ready to welcome new regulations that level the playing field and bring the entire market along on the net-zero transition. At the same time, some business leaders feel that ”regulatory intervention, particularly the legal burden imposed by circularity, supply chain and disclosure regulations in the EU” is putting too much strain on companies to comply. One business leader, expressed concern over “the risk that sustainability was being turned from a leadership opportunity to a compliance issue, which risked sapping business innovation.” What’s more, even those companies leading the charge on innovative technologies and business models are not meeting their science-based targets. The report points out two key factors of the commercial reality facing businesses. First, “[f]or many, accelerating clean energy investment runs up against market fundamentals – there is a limit to the scale and size of the green premium available for low carbon steel, cement, and sustainable aviation fuel.” Second, some companies “simply cannot transition absent wider changes to their market environment – even large companies can have limited leverage over their suppliers when they are minority players in hard to abate value chains.”
  

• Government needs to lay the foundations for corporate action: The report highlights key changes that need to happen for the net-zero transition to meet the 1.5 degree goal of the Paris Agreement. For one, different sectors require unique focus by governments in international climate coordination. Specifically, “[b]usinesses, investors, NGOs, and governments need to work together intensively, sector by sector, to define rapid and realistic decarbonization pathways that leverage demand signals.” We Mean Business calls on governments to “directly support the development and deployment of clean technologies.” Another key change is the need for “systematic collaboration between business and government to overcome transition barriers.” While companies in some sectors are already collaborating to move towards a net-zero transition, “[f]or the transition to happen at the scale and pace required, both public and private sectors need to invest in the transition.” This should happen systematically, so that governments and companies work together in “[t]he process of understanding where technology development is headed, identifying the barriers, and setting out what will enable business to direct capital flows where they are most needed.” Finally, international coordination needs to be more nuanced and targeted at sectors where the barriers to debcarbonisation are the highest. This includes addressing market challenges that are slowing investment and keeping the costs of clean technology high. Governments should be coordinating on this front; “When learning is shared, and when actions are coordinated to accelerate innovation and the diffusion of technologies through global markets, including through common international standards, industries can move rapidly.”