The toll of climate change on businesses is highlighted by research published in a study by the London School of Economics. The study found that the global economy suffers losses up to USD 24 trillion due to climate change.
As a result, ESG investing is on the rise. Data from the Bank of America Corporation revealed that “ESG investing has grown by more than 97 percent globally [from 1997 to 2017].”
ESG investing is an effective tool to address climate change. ESG investing refers to investments that aim to promote a healthy environment, social responsibility, and good governance, which includes investments that will reduce a company’s greenhouse gas (GHG) emissions―one of the main causes of climate change.
Below are some examples of ESG investments that help tackle climate change:
Traditional energy sources―coal, gas, and oil―emit large amounts of greenhouse gases. In contrast, many renewable energy sources emit little to no greenhouse gases. Hence, renewable energy is an ESG investment that can help to effectively address climate change. Unlike conventional energy sources, renewable energy sources are infinite.
A 2017 report by the International Renewable Energy Agency (IRENA) argued that renewable energy can lessen the carbon dioxide emissions of the world’s energy sector by 70 percent by 2050. The report added that renewable energy has the capacity to completely phase out the global energy industry’s carbon dioxide emissions by 2060. To attain such high levels of decarbonization, one of the report’s recommendations was “[an] additional $29 trillion of energy investment [until] 2050, equivalent to 0.4 percent of global gross domestic product (GDP).” Such a substantial investment will not only tackle climate change but will also bring several other benefits, such as reduced air pollution, better public health, and more job opportunities.
Reporting on Climate Change-Related Risks
Stakeholders are now more aware of the negative effects of climate change. They expect companies to be transparent about their climate change-related risks. Businesses that fail to be transparent about their climate change-related risks may be jeopardizing their profitability along with their corporate reputation. For example, in August 2017, Australia’s Commonwealth Bank was sued by two of its shareholders because of its alleged failure to appropriately state its climate change-related risks.
Before a company can properly disclose its climate change-related risks, it must first be able to accurately measure its climate change-related data. There are now various technology solutions that can help businesses with this task. Such solutions can monitor a company’s carbon emissions, waste management, energy, and water consumption. They can provide real-time information about these aspects, resulting in accurate climate risks reporting and improved corporate reputation. In addition, they can help companies evaluate their operations so that they may be made more resilient against climate change impacts.
ESG Investing: Going Beyond Addressing Climate Change
ESG investing enables companies to address climate change through innovations that lower their GHG emissions. But its benefits go beyond emissions reduction. The establishment of renewable energy facilities, for instance, can lead to the creation of more jobs. Sustainable waste management cuts pollution, making workplaces and communities safer and healthier for people to live and work in. With ESG investing, it is possible for businesses, society, and the environment to be healthy.
ADEC Innovations is a leading provider of ESG solutions, with expertise in delivering fully-integrated consulting, software and data management services. To stay current on global sustainability issues, subscribe to our monthly newsletter, GreenWatch.