Why Climate Goals Are Falling Short?

Why Climate Goals Are Falling Short

In a recent address to investors, former BP chief executive Lord John Browne highlighted the risks of companies pulling back on climate action, likening it to a soldier neglecting to feed his horse in peacetime only to find it lame in wartime. This analogy underscores the long-term risks associated with short-term inaction on climate issues.

Despite high-profile commitments, many corporations, including Unilever, Bank of America, and Shell, have recently admitted they cannot meet their previously set greenhouse gas emissions targets. These admissions reveal a broader issue: the ambitious climate targets set post-Paris Agreement were often made without a full grasp of the complexities and challenges involved in achieving them.

Key Factors Behind Missed Climate Goals

Regulatory and Political Uncertainties: Companies often cite external factors, such as inconsistent regulatory standards and insufficient government support, as significant hurdles. This includes a lack of clear and consistent regulations to guide corporate climate action, making it difficult for companies to plan and execute their strategies effectively.

Technological Barriers: For many industries, the necessary technology to achieve clean energy transitions is not yet fully developed or commercially viable. For example, heating buildings and powering manufacturing processes in a clean way remains a challenge for companies like Roche. Additionally, the global rollout of renewable energy is hindered by policy uncertainties and investment gaps in grid infrastructure. Reports from the International Energy Agency (IEA) highlight significant gaps in renewable energy investment and infrastructure development. Issues like grid capacity, policy uncertainty, and high costs of new technologies impede the swift transition to clean energy.

Measurement Challenges: The methods for measuring carbon footprints and tracking emissions reductions are still evolving and often imprecise. This makes it difficult for companies to accurately report progress and hold themselves accountable. The IPCC points out that accurate measurement of emissions and progress is complex, often leading to overestimation of achievements. Companies and governments face difficulties in consistently tracking and reporting emissions, which undermines accountability.

Financial Pressures: Financial institutions and corporations face pressures from different stakeholders, including investors and politicians. For example, Bank of America adjusted its climate policies after facing criticism from Republican politicians. Moreover, companies are wary of the legal risks associated with making environmental claims that might not hold up under scrutiny, as highlighted by the UK’s competition regulator investigating Unilever’s environmental claims.

Geopolitical and Market Dynamics: Global market shifts, such as the surge in electric vehicle exports from China, affect corporate strategies. The recent geopolitical tensions, such as the war in Ukraine, and economic disruptions from the COVID-19 pandemic have exacerbated energy security concerns. These events have led to a temporary resurgence in fossil fuel use, slowing down the shift to renewable energy​. Volkswagen’s shift in emissions targets illustrates how market dynamics can force companies to reassess and delay their climate goals.

Case Study: Unilever’s Sustainability Challenges

Overview: Unilever, a global consumer goods company, has been a prominent advocate for corporate sustainability, with ambitious targets to reduce its environmental impact. However, recent developments have highlighted the complexities and challenges of meeting these goals.

Challenges:

1. Plastic Pollution and Biodiversity Targets:

1. • Initial Commitment: Unilever pledged to significantly reduce plastic waste and enhance biodiversity across its operations.
   • Current Status: In April, Unilever announced it would scrap these flagship goals. New CEO Hein Schumacher cited the underestimation of the initiatives’ complexity and scale as key reasons for this decision.

2. Regulatory and Market Pressures:

1. • External Pressures: The UK competition regulator launched an investigation into whether Unilever’s environmental claims met reality. This regulatory scrutiny has added pressure on the company to reassess its sustainability commitments.
   • Market Dynamics: Unilever’s operations in regions like Brazil, which is a key source of soybeans, have been impacted by extreme weather events, complicating the company’s efforts to maintain sustainable supply chains.

3. Technological and Logistical Barriers:

1. • Supply Chain Issues: The company has faced logistical challenges in its supply chain, exacerbated by climate-induced disruptions such as floods, which further complicate its sustainability efforts.

Outcomes:

• Despite scaling back on some targets, Unilever still aims for net zero emissions across its value chain by 2039.
• The company continues to emphasize sustainability in its investor communications, acknowledging the need for more realistic and scalable approaches to achieve long-term environmental goals.

Conclusion: Unilever’s experience underscores the difficulties many corporations face in balancing ambitious climate goals with practical, operational realities. The need for regulatory clarity, technological advancements, and realistic goal-setting is crucial for achieving meaningful progress in corporate sustainability efforts. This case study illustrates that while the intent and commitment to sustainability are strong, execution remains a complex and challenging endeavour.

Learnings:

Unilever’s challenges reflect broader issues faced by many companies in aligning their sustainability goals with operational and market realities. Companies need to set realistic targets, invest in new technologies, and navigate regulatory landscapes to make meaningful progress.

Case Study: Shell’s Revised Climate Targets

Overview: Shell, a global energy company, has faced significant challenges in meeting its climate goals amidst evolving regulatory and market conditions.

Challenges:

1. Ambitious Initial Targets:
   • Initial Commitment: Shell committed to reducing its greenhouse gas emissions by 2035.
   • Revised Goals: In March, Shell’s CEO Wael Sawan announced the abandonment of the 2035 target due to uncertainties about the energy transition and different paces of evolution in various countries.
2. Geopolitical and Economic Factors:
   • Market Pressures: Shell’s operations are heavily influenced by global energy demands and geopolitical factors. The company’s transition to cleaner energy is complicated by fluctuating oil prices and competition from emerging markets like China.
   • Regulatory Uncertainty: Varying regulations across countries add complexity to Shell’s global operations, making it difficult to adhere to a single, unified strategy.
3. Technological Barriers:
   • Clean Energy Transition: The company is exploring alternatives like biogas and biomass but faces technological and logistical challenges in integrating these into its existing infrastructure.

Outcomes:

• New Strategy: Shell has shifted to a more flexible approach, setting a new goal to cut emissions by 30% between 2018 and 2030, without relying on carbon offsets.
• Operational Adjustments: The company is focusing on incremental improvements and adjusting its targets based on practical, achievable benchmarks.

Conclusion: Shell’s case illustrates the complexities that large corporations face in aligning ambitious climate goals with practical, operational realities. The company’s experience highlights the need for flexible strategies, technological innovation, and adaptive regulatory frameworks to achieve meaningful progress in reducing emissions.

Moving Forward

Despite these challenges, some companies continue to push towards net zero targets. However, achieving meaningful progress requires a more pragmatic and collaborative approach. Companies must balance ambition with realistic assessments of what is achievable, given the technological, regulatory, and market constraints. Clearer regulations, better measurement tools, and stronger government support will be crucial in helping companies meet their climate commitments.

In conclusion, the journey towards achieving climate goals is complex and fraught with challenges. Companies need to navigate regulatory uncertainties, technological barriers, and financial pressures while maintaining transparency and accountability in their climate actions. Only through a coordinated effort between corporations, governments, and other stakeholders can we hope to make significant progress in combating climate change.