MFC108 Climate Basics - Six Key Takeaways Blog Image V1

Climate Basics: Six Key Takeaways

May 17, 2022

This blog is based on a Manifest Climate webinar that was moderated by our CEO and co-founder Laura Zizzo and in conversation with climate strategists Adam Rochwerg and Peter Coxford.

1. Climate change is the greatest economic risk to society

The risks of climate change have become so severe, influencing everything from natural ecosystems, to food chains and biodiversity, to communities, and places of work. Science confirms this is happening because of current GHG emissions, and the situation is expected to get worse.

The World Economic Forum tracks the biggest economic risks in society, and climate has consistently been at the top of the list as the most likely and impactful risk to the global economy.

Changing climate patterns and extreme weather can interrupt food production and supply and prompt migration or civil unrest in communities. Climate change also has wide-ranging effects on businesses, both in the immediate and long-term. When we see more frequent and severe extreme weather events, these have ripple effects on the economy. If emissions aren’t curbed soon, these events could have devastating impacts.

2. Having a foundational understanding of climate basics is important

In today’s landscape, it’s essential for businesses to have an understanding of climate basics in order to innovate and take action amid the current and upcoming climate transformation.

The transformation is currently moving from sustainability to viability, meaning the climate is no longer something that’s dealt with outside of businesses’ core operations. It’s now fundamental for companies to understand the climate transition in order to move toward a viable, thriving, and economically sustainable future.

3. The past is no longer a good predictor of the future

Climate change affects everything. In today’s climate landscape, we need to consider a multitude of factors to accomplish two major goals: halving emissions within this decade and achieving net-zero emissions as soon as possible. 

Businesses need to start thinking about how they can plan for climate disruption and create more sustainable economies going forward. The only thing that is certain is this: The past is no longer a good predictor of the future. As a result, businesses need to look at and evaluate the best available science to understand what they can expect. They also must try to reduce emissions as quickly as possible and adapt to the quickly-changing climate.

4. Scope 1, 2, and 3 GHG emissions should be calculated with caution

Scope 1, 2, and 3 emissions refer to GHGs with different emissions sources for each of the three scopes. Scope 1 GHG emissions directly occur through sources that are owned or controlled by a company. Meanwhile, Scope 2 emissions account for GHG emissions that originate from the generation of purchased electricity that’s consumed by companies. Lastly, Scope 3 emissions are a consequence of a firm’s activities, though they occur from sources not owned or controlled by the company. Some examples of this include business travel, the transportation and distribution of goods, and leased assets. 

While this concept may seem straightforward, tracking specific emission streams can be incredibly difficult. For example, Scope 3 emissions may be counted by numerous companies, inflating their actual value. One example is cars —  if a company manufactures wheels and another makes engines, both might track the emissions from “use of sold products,” meaning the cars’ emissions would be double-counted. 

Additionally, it can be difficult to determine where to lay blame for a specific emission. Let’s explore the example of a tobacco company — Is the tobacco producer responsible for people smoking? Or does that responsibility lie on the individual who’s smoking? Questions like this are difficult to answer, and situations like these often occur when tracking Scope 3 emissions, making it hard to determine who to attribute the emissions to. In conclusion, scopes are a useful tool for segmenting and tracking specific emissions, but the system is not infallible. This means people should be careful when looking at emissions results, especially those within Scope 3.

5. Businesses should recognize and manage physical and transition risks with similar levels of commitment

In order for businesses to respond effectively to climate change, they must target both physical and transition risks, while identifying and taking advantage of climate-related opportunities. Managing climate risks generally involves reducing emissions and adapting to climate change’s impacts, which requires mitigation and adaptation. 

A mix of both actions is central to an effective climate change response. Businesses cannot reasonably “adapt” their way out of climate change or “mitigate” the impact of all climate risks. This is because some changes that require adaptation are already happening, and there are others that are inevitable and will shift the effectiveness of some adaptation actions that have already been implemented. Mitigation and adaptation require businesses to rethink their long-term visions, procurement strategies, and operational standards. Businesses also need to address the potential for liability associated with decisions that have a negative climate impact.

6. The TCFD can help businesses on their climate journeys

The Task Force on Climate-related Financial Disclosures (TCFD) provides a framework that organizations can use to publicly disclose their climate-related risks and opportunities. As of October 2021, more than 2,600 organizations and governments have publicly committed to reporting in alignment with the TCFD. But how did the framework come about?

It all began in 2015 when the G20 finance ministers and central bank governors requested that the Financial Stability Board (FSB) review how the financial sector considers climate-related issues. The FSB identified the need for a deeper understanding of the impact of climate-related risks and better climate-related information to support informed investing, lending, and insurance underwriting decisions. 

In December 2015, the FSB launched the TCFD to increase consistency in the reporting of climate-related financial information, enhance market transparency, and make it easier for stakeholders to understand their exposure to climate risks. Over time, its founders also intended that TCFD reporting would help financial markets optimize capital allocation and lead to a better understanding of where climate-related risks are in the financial system.

The task force produced 11 recommended disclosures grouped around four thematic pillars: governance, strategy, risk management, and metrics and targets. Together, they are intended to guide investor decision-making and paint a picture of how organizations should identify, assess, and manage climate-related issues.

However, businesses need to recognize that understanding, managing, and discussing climate-related risks and opportunities through the TCFD is a journey. It’s not one and done. The TCFD is very clear that companies are expected to evolve and enhance their disclosures over time, which means that businesses need to be prepared to do the work. Still, if companies put in the effort and time, the results are transformative and can lead to companies being prepared for the upcoming climate disruption.

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