Posted: 22 Sep. 2020 4 min. read

Climate Change Defines the Next Normal

In the six months since the World Health Organization declared COVID-19 a pandemic, the issues of climate change, sustainability and resilience have moved to the top of many boardroom agendas (if they weren’t there already). The pandemic has dramatically accelerated the need to rethink and reinvent the global economy, because the “old normal” has been disrupted and is not coming back. Instead, the world is heading into a Next Normal where businesses need to establish new levels of resilience and will be expected by all stakeholder groups to meet higher standards of sustainability and responsibility.

In this way, the COVID-19 pandemic has served a useful purpose, because it has intensified the business world’s focus on resilience and sustainability. And this focus is necessary, because against the backdrop of the climate change crisis, businesses will need to make fundamental investments and operational changes as the world moves toward a low-carbon and circular economy (defined by reuse, not waste).  

This represents both a historic challenge and opportunity. It’s a challenge because moving to a responsible business model requires effort, planning and vision. It also requires the creation of transparent and ethical supply chains, broad stakeholder engagement, and a means to measure, evaluate and assure progress against sustainability goals. It’s an opportunity because organizations that can effectively meet these challenges stand to create a pronounced competitive advantage in the Next Normal.

An Old Problem Demands New Economic Models

Climate change has been a known problem for more than 100 years. In 1896, Swedish scientist Svante Arrhenius published his findings on the impact of human activities on global warming. Over the ensuing century, issues around deforestation, biodiversity loss, degradation of soil, water and air quality, ocean acidification and environmental overexploitation have been a consistent topic among international bodies. Some countries put programs in place to at least partially address these issues, but there was no meaningful, consolidated global effort. And, the business world largely viewed environmental and social issues as a cost of doing business, not a core purpose.

During this same time, the world saw unprecedented economic and technological progress. Standards of living improved across the globe. Poverty and famine rates declined, life expectancy and overall health improved, and even the scope of human conflict declined over time through better communications, understanding and mobility among countries.

Today, inaction on climate change threatens to reverse these socioeconomic gains. Doing nothing was an option in the 20th century, because there was no immediate price to pay. The world, in effect, took “loans” from the environment to “finance” its massive socioeconomic improvement. Those loans have matured today, and if the world fails to act, science tells us the penalties for nonpayment will be a continued intensification of catastrophic droughts, wildfires, floods and loss of biodiversity.

Solving the climate change problem is not a zero-sum game, however. The world does not need to sacrifice its socioeconomic gains in service of its debt to the environment. It is not only possible, but readily achievable to continue and even accelerate socioeconomic progress, while simultaneously reducing carbon emissions and environmental harm. What’s needed are new economic models – ones that are regenerative, with very low environmental impact, and that more effectively redistribute the value produced by economic activity to benefit low-income populations and provide incentive for innovation and entrepreneurship. What’s needed is sustainable development.

These new economic models will not be the product of any single person, company or even country. Rather, they will be the result of “leaps of innovation” driven by diverse groups of people with differing interests from across the world. All companies and organizations, no matter their size, are capable of contributing to these new economic models, creating their own leaps of innovation that serve the greater calling of sustainable development.

The Paris Agreement Sets the Agenda

The United Nations Intergovernmental Panel on Climate Change (IPCC) issued its first Assessment Report in 1990, warning against the potential dire consequences of climate change. This report sparked the modern conversation around climate change. The IPCC’s 2018 special report, developed in conjunction with the Paris Agreement, ratcheted up the alarm, declaring that CO2 emissions must decline by 45 percent by 2030 (based on 2010 levels), and reach net zero in the 2050 timeframe, if the world is to avoid calamitous drought, famine, ecosystem destruction and other disasters.

As mentioned earlier, achieving these goals requires the development of new economic models built on sustainable development. This is an unprecedented undertaking, but there is an emerging global consensus that, over the long term, the cost of inaction will be higher than the investments required to meet the parameters of the Paris Agreement. And, business stakeholders are increasingly looking for real commitment to decarbonization and sustainability. In the Next Normal, customers will not want to do business with “dirty” companies, employees will not want to work for them, and financiers will not want to invest in them.

As part of this evolution in the global discussion, new coalitions are forming to address the challenges of climate change. One example of this occurred last month when a group of 70 global investors, managing more than $16 trillion in assets, released the “Net Zero Investment Framework.” This is a roadmap to help investment firms align their funds with the Paris Agreement. This framework, and other sustainability-focused investment strategies, sends a clear message to the global business ecosystem: future access to capital may very well depend on corporate commitment to sustainability and responsible business.

Key Questions for Change

 

As businesses seek to forge sustainable success in a world undergoing a massive shift to a low-carbon economy, they will need to reinvent themselves and rewrite the rules of business. As a first step, they need to define the challenges they must overcome to achieve their desired levels of sustainability for this new world. Asking themselves the following questions can help to identify and understand those challenges:

  • Do we fully understand all of the impacts that the climate and biodiversity crisis may have on our business model?
  • What are our priorities on the way to becoming a more resilient organization?
  • How can we connect our business strategy with societal purpose to generate support from stakeholders?
  • Is our governance structure sufficient for tackling all these challenges?
  • Do we have the right tools in place to evaluate our progress against our sustainability goals?
  • Is our workforce ready for this change?

Questions like these no longer belong in the corporate social responsibility (CSR) department, the traditional home of social and environmental programs. They belong in the executive suite, because – as the pandemic has shown us – sustainability has become an existential priority for CEOs, CFOs and boards of directors. In the Next Normal, business leadership and success will be directly linked to the ability to build responsible and resilient business models. In short, responsible action is now at the core of competitiveness.

Moving Forward Into the Next Normal

Meeting the goals of the Paris Agreement is an unprecedented challenge due to the massive cooperation required across countries, economies and populations. And, there is no “one size fits all” formula for businesses to achieve their sustainability goals. Every sector – whether it’s retail, life sciences, financial services, or any other – has different stakeholders, business models and environmental footprints. Industry-specific expertise will be required for companies to successfully transform into new responsible business models built on a foundation of sustainable development. However, all industries will need to establish a common set of core competencies, including:

  • The ability to measure and understand the impact of business operations on sustainability goals. Will that new product line help or hinder progress against those goals? What will the impact of our next acquisition be? How should we deal with that polluting partner in our supply chain? In the Next Normal, sustainability will become a critical lens through which business health is measured.
  • The ability to define new business strategies, which might require ending some long-standing activities that are not aligned with sustainability goals. This will also require the development of new Key Performance Indicators (KPIs) to measure ongoing alignment with those goals.
  • The development of a clear operational roadmap, based on pragmatic steps, to become carbon neutral.
  • Training employees for the Next Normal, where they will need to be agile and innovative in an increasingly complex and unstable world. (The COVID-19 pandemic, obviously, would be the most pronounced recent example of why this is important.)

The post-pandemic period will be an opportunity for the world to rebuild its economy, taking into account one fundamental truth: taking care of the global ecosystem is a non-negotiable priority. This means moving to a low-carbon economy to combat climate change, and to a circular economy to dramatically reduce the impact of human beings on the environment. Companies that embrace this priority - by innovating and reinventing themselves around sustainable development - will open new opportunities to effectively compete, grow and thrive in the Next Normal.

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Key contact

Marc Van Caeneghem

Marc Van Caeneghem

Global Climate & Sustainability Leader

Marc Van Caeneghem has been appointed as Deloitte’s Global Sustainability Leader. With a career spanning over two decades, Marc brings a wide range of experience to Risk Management and Advisory, mostly serving clients in financial services to design and implement operating models that improve risk management practices. Marc has been an active leader within Deloitte France, having served as an Executive Committee member, Chief Strategy and Innovation Officer, as well leading the French risk advisory practice. Marc also serves as the Risk Advisory Leader for Deloitte Central Europe. The imperative is clear for Marc and he strongly voices the need for organizations to act on Climate and meet the Paris agreement. “Today, it’s no longer relevant to just speak of a Climate Emergency, we have to talk of a Business Emergency as companies all around the world are already facing increasing damages.” Furthermore, organizations in multiple industries are experiencing, “exponential pressure for change between consumer consciousness and activism, changing regulations, the need for improved operational resiliency, and meeting climate commitments”. With Sustainability, Marc wants to focus on helping organizations along their “climate driven” transformation journey from awareness to assurance. He believes that “as a Sustainability community, we have the opportunity to make generational impact with our clients as we guide them to a more sustainable future.” Heading a group of leaders from all over the Deloitte network, Marc’s role will be to drive continued elevation of our services among all businesses and geographies, in order for Deloitte to become the partner of choice for organizations facing the challenges of climate change in the years to come.