Across every sector, businesses are coming under increased pressure from regulators, investors and customers to think more seriously about their exposure to climate risk—both the physical risks of climate change, but also the transition risks associated with the shift to a low carbon economy.
In this interview, Source Global Research spoke with Nick Martin, former Sustainability Practice Leader at Antea Group, in order to better understand how clients are approaching the challenge of mitigating climate risk. This interview is part of Source Global Research's recently published emerging trends report "Sustainable Future: A Climate Transformed."
How much has interest in climate and environmental sustainability increased among your clients over the last few years?
Client interest in sustainability and climate scenario modelling has increased dramatically over the last year or two. New disclosure standards like TCFD (Task Force on Climate-related Financial Disclosures) have played a key role in accelerating that shift. Previously, clients were looking at individual risks—like flooding, food shortages, fires, and so on—but TCFD compelled them to bring those all together and think about those physical and transition risks under a single umbrella. And when the big investment funds like Blackrock started coming out and saying that they would be factoring in TCFD reporting into their investment decisions, that really forced businesses to start taking these questions and associated disclosures more seriously.
In response to the uptick in client interest in sustainability reporting, a wide variety of specialist service providers in this space have started to emerge. It feels like new tools and new technologies for this purpose are constantly hitting the market right now. Tools and data platforms are an important piece of the puzzle, but human interpretation of business relevance differentiates leaders from laggards.
Along with that increase in awareness and interest, has there been a change in the way your clients think about these issues?
One of the areas we specialise in is water security. In the past, clients would come to us for help with individual risks or challenges they wanted support with. But now, they're thinking more holistically about how those risks intersect with other types of risk—and they want us to help them figure out what to prioritise based upon understanding the local context around their operations. This is critical as facilities cannot be insulated from their surroundings and must understand both their impacts and their dependencies (e.g. infrastructure, governance, shared challenges). It’s about making informed decisions, especially across hundreds or thousands of locations.
We often talk about climate change as a global challenge. While that's true, at the end of the day the effects of it will be felt at a local level by businesses. Nothing is going to happen at the same speed across the whole world—and that means that your ability to respond to climate risk is dependent on your ability to manage down to the hyper-local level. Your organisation might have a brilliant global sustainability strategy, but that's meaningless if it falls apart when you try to apply it at ground level. One of the big challenges for companies, moving forward, is going to be maintaining capacity across local teams to monitor and prepare for dynamic conditions and building relationships with local partners and communities in order to facilitate an effective response to climate risk.
And where specifically within client organisations is interest in these topics coming from?
There's a lot of variation in terms of what drives clients to come to us. If they're looking for help implementing a sustainability strategy, then they'll normally have their sustainability director reach out to us. But often, a company comes to us because their investors are putting pressure on them to improve their climate reporting. Or sometimes it's because one of their major customers has given them an ultimatum that they need to respond to.
Are there particularly common obstacles that you see clients running into as they try to tackle these challenges?
Anytime you're trying to become a more sustainable organisation, you're going to run up against complex topics—the sorts of things where it's very difficult to make meaningful progress in a single year. So, there's a huge mindset hurdle that companies have to overcome. Most businesses, especially in the US, are so used to annual reporting cycles and annual plans. If you care about issues like climate change, you have to break that mould, and start thinking in terms of multi-year or even multi-decade cycles.
Prioritisation is one of the biggest challenges right now for clients who want to make their organisations more sustainable. Companies today are getting constantly bombarded by different perspectives on what issues should be most important to them; what's important to your customers might be very different from what's important to your investors or to your employees. I often tell clients that even though everything feels important, you can't treat it all as equally important; you have to learn how to pick and choose what to focus on and be increasingly strategic or surgical with investments. That's why we do a lot of materiality assessments with our clients. We might start with a list of 40 or so ESG topics, all of which you could make a case for being a business imperative. Then we'll figure out with the client where they want to be seriously ambitious, and where they want to just maintain their existing performance. There is no one sustainability journey that works for everyone. You can't push all your clients down the same path; you have to figure out what they have the capacity and the willpower to achieve.
For any business, there are going to be various different levers you can pull to become more sustainable. A lot of those will be technology-dependent; they might not be available right now, but you can expect them to come online five or ten years down the line. Our first task with any client is to help them understand what those levers are. Then, we can help them decide how to sequence things and what milestones they should be trying to hit. And we can help them figure out how they're going to accurately assess their progress towards each of those milestones as well as recalibrate their strategy due to changed conditions.
You mentioned technology; what specific role do you see for green tech in helping clients address their sustainability challenges?
Technology is going to be critical in enabling the transition to a low carbon economy. But good tech on its own isn't enough. You might have a truly ground-breaking technological innovation, but if it doesn't fit with your organisational culture, or if the timing isn't right, or it doesn't line up perfectly with your exact needs, then you're going to struggle to get any value out of it. And the sheer volume of new technologies in this space can feel overwhelming at times; we can see our clients are really struggling to keep abreast of the latest new tech, and what applications it could have for their organisations.
A core part of our value proposition is that we're vendor neutral; we take pride in the fact that when we're working with a client, we're not there to sell a particular piece of equipment or try to drive a particular framework or platform into their organisation. Ultimately, our aim is to help our clients avoid risks, save money and/or become more competitive. Everything we do should support one of those three ambitions, if not all three. I love the reaction from a client when we tell them not to invest in or buy something!
How important has regulation been in pushing clients to think about their environmental sustainability?
Here in the US, regulation has played a very minor role in driving client investment in sustainability. If anything, the last four years have seen a lot of federal environmental regulations rolled back. Often, it's regulation at the state-level that has a much bigger impact on businesses. Any business looking to build a new factory in California, for example, will expect that they're going to have to take into account local regulations around water usage, waste disposal, emissions, and so on.
What impact has COVID-19 had on clients’ willingness to invest in environmental sustainability?
In the first few months of the crisis, COVID-19 was a distraction from the issue of climate change and decarbonisation; most businesses were simply too preoccupied with their own survival to think about those issues. But now that many have adapted, I think it's had an amplifying effect on sustainability investment. Companies are realising now the extent to which global crises can disrupt their operations; they're more conscious than ever of the need for organisational resilience and agility. The challenge right now—the thing that investors really care about—is figuring out how to come out of this pandemic as a stronger company, better equipped to deal with the challenges of the future. This has really been the ultimate Environment, Social, and Governance (ESG) stress test on corporations.
I'm starting to hear people talk about the idea of a 'green recovery' from COVID, but I don't think the topic has gained nearly as much traction here in the US as it has in the UK and Europe. In the EU, you can already see a robust and tangible commitment to fighting climate change in the terms of their bailout fund; I think it's unlikely we'll get anything like that sort of public sector commitment over here for the foreseeable future.
To not end on a negative sentiment, I will leave you with what I believe are the three most important determinants to achieving necessary pace and scale with corporate sustainability:
- We need less talk, more action.
- Collaboration is key as these are shared challenges.
- Let’s reach beyond the leaders as we need all industry on the journey.
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