Climate change is one of the top issues for the policymakers, investors and chief executives gathered in Davos for the 50th World Economic Forum. Acting on climate is no longer just a political imperative, but defines business leadership in today’s carbon-constrained world.

As studies have consistently found, ambitious climate action is an enabler of better financial performance and thus makes business sense. Bloated costs from resource-intensive operations are unnecessary and make businesses vulnerable to economic shocks. Improving efficiencies and adopting best practices deliver a significant competitive advantage while reducing emissions.

Extreme weather events and flooding impose physical and price risks on doing business. These may be from damages incurred on infrastructure, assets and factories, or from increased resource cost volatility and supply chain disruptions. In fact, more than 90% of companies in the S&P Global 100 Index view extreme weather and climate impacts as risks. Assessing business vulnerabilities, strategic planning and timely action can enable businesses to better manage climate-related physical, resource and supply chain risks.

Since the Industrial Revolution, emitting greenhouse gases has come at no cost. However, governments across the world are increasingly implementing ambitious climate policies which will make emitting costly. Businesses that proactively manage their climate impacts would be much better prepared to meet regulatory changes across regions of operation. Climate change also presents immense economic opportunities for companies willing to innovate. It has the potential to generate over 65 million new jobs in 2030, says The New Climate Economy report. International Finance Corp. finds that 21 emerging economies alone offer $23 trillion in climate-related investment opportunities by 2030. These include investments in clean energy, smarter urban development, water management, energy efficiency, real estate and transport. Climate action also complements other aspects of human well-being such as improved air quality and health. Air pollution is now India’s third highest cause of death.

Finally, boardrooms can no longer elude climate issues. Investors, insurers, shareholders and consumers increasingly expect companies to disclose their climate risks and vulnerabilities, and improve operational sustainability and products. Poor climate performance can have a deep impact on the financing, revenues and reputation of a company.

Businesses are engines of economic growth, creating jobs and meeting public demand for goods and services. They can drive innovation in technologies and business models, efficiently scale up transformative solutions and influence consumption choices. This places businesses in a unique position to meaningfully support national targets and complement government efforts. An ongoing World Resources Institute and Confederation of Indian Industry study shows that voluntary initiatives by just 50 Indian companies are projected to reduce India’s expected emissions in 2030 by almost 1.5%.

Today’s climate crisis presents an opportunity for the private sector to step up as leaders at the forefront of the climate movement. The first step for companies, both large and small, is to develop a clear understanding of their climate impacts by measuring emissions from business activities. This helps identify areas of intervention and associated costs. In addition, firms must also evaluate their vulnerability to climate and resource risks, including energy and water dependence, and supply chain exposures.

This understanding lends itself to the next step of developing climate strategies. These include defining an overarching company policy, setting energy efficiency or clean energy targets, and identifying initiatives to achieve these goals. While short-term, low-ambition targets allow incremental improvement and room to grow, ambitious science-based targets (SBTs) help businesses align themselves with the global goal of containing our planet’s temperature rise to just 1.5-2 degrees above pre-industrial levels . A total of 778 businesses abroad and 38 Indian companies have already committed to setting SBTs. Putting a price on carbon is a key tool to achieve ambitious targets. It internalizes the costs of regulatory or climate risks, improves decision-making on low-carbon investments, and helps manage concerns of competitiveness. At least 40 companies in India are pricing carbon or planning to do so.

Value chains are critical to business operations and represent the majority of a company’s risks. Effective climate strategies must also include meaningful and regular engagement with supply chains to build capacity, mitigate such risks and improve procurement strategies. Companies should also set up systems to consistently track emission trends and progress on climate goals, and report these transparently to shareholders. Sustained engagement on climate change over time can help businesses go beyond operational improvements toward developing strategic portfolios and tapping new opportunities and markets.

Given the climate crisis, companies that strategically align their businesses towards climate-smart practices, products and portfolios are poised to take market leadership and offer us the prospect of a liveable, prosperous and profitable future.

Jamshyd N. Godrej & Ashwini Hingne are, respectively, chairman and managing director, Godrej & Boyce, and manager with the climate programme of WRI, India

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