Impact Of Paris Agreement On Global Business

In January 2007, when companies in the United States Climate Action Partnership (USCAP) – companies such as GE, Alcoa, DuPont and PG-E – announced their request for federal greenhouse gas emission standards, the Wall Street Journal blasted these “green giants” who are acting in their own interest for a regulatory program designed to financially reward companies that reduce CO2 emissions. and punish those who don`t. But the search for advantage is what companies do. All companies that can provide business opportunities to influence the regulation of CO2 emissions practice what is expected of leaders — capitalism. While real estate insurers` own CO2 emissions may be low, companies that insure or resurfac coastal real estate threatened by rising sea levels may be highly exposed. Similarly, most oil-related carbon emissions come not from oil companies, but from their customers. Emissions restrictions will limit the demand for these companies` products. Or think of the multiple external effects on a food company like Nestlé. Climate change will change the relative productivity of different regions where the company buys agricultural raw materials, which will affect input costs. At the same time, regulatory responses to climate change will increase the cost of energy used for ice cream cold in retail stores, which will affect demand conditions. And so on. Recent announcements, such as the 2030 Sustainable Development Program and the American Business Act on Climate Pledge, have propelled climate change and corporate sustainability into mainstream news channels. In most years, these agreements alone would be a benchmark year for climate policy, but 2015 was hardly a conventional year according to most accounts.

These measures have been important, but they have faded in relation to the hype, scale and media attention of the Paris Agreement, a comprehensive climate agreement signed by 195 countries at the end of the Conference of Parties 21 (COP21) in December. The agreement was the culmination of years of negotiations between governments, the private sector, NGOs, UN agencies and intergovernmental organizations – but the real undertaking, especially for business, is still in its infancy. While some companies had not yet understood the inevitable transition from the business world to a more sustainable, low-carbon environment, the Paris Agreement should at least encourage high-level leaders to discuss long-term sustainability. Although the climate pact is not available for signature until 22 April 2016 and will come into force at a later date, companies are at risk of falling behind if they do not take into account the impact of the agreement on their sustainable development strategy. What measures should the private sector consider to align business strategies with The Paris legislation? The primary responsibility of the Board of Directors and the CEO is to determine and mitigate the effects of the company`s future climate risks. Companies are adept at assessing their financial performance, but too many people are afraid to look in the mirror and face potential risks that could harm their business. Managers want to know that a company will be as competitive in time as it is in the short term. To do this, we need to look beyond the quarterly results.

Financial information naturally allows you to understand only a certain portion of a company`s actual market capitalization. Think of Coca-Cola: 20% of its market capitalization can be attributed to its book value, i.e. its hard assets. 80 per cent of its value is invested in intangible values – brand, research and development, risk management, innovation capacity in a globalized and resource-limited world – all things that are not accounted for in a financial statement. Sustainability reports focus entirely on areas that traditionally did not understand well and did not manage businesses well.