Companies need to back up their climate ambitions with action and assurance – here’s how

Our planet is now warming at a rate unprecedented in at least the past 2,000 years, according to the UN’s Intergovernmental Panel on Climate Change (IPCC) report by over 200 leading climate scientists. Temperatures have risen by roughly 1.1°C and human activity is the unequivocal cause. Without “deep reductions” in greenhouse gas emissions in the coming decades, the Paris goal of 1.5°C, or even the 2°C threshold, will vanish beyond reach. Yet current government policies look set to inflict more like 3°C.

The problem: a yawning gap between ambition and action. Net-zero targets by 2050 are empty promises without policies and actions to back them up. Scientists tell us we need to reduce emissions by 45% (from 2010 levels) by 2030. This requires immediate, urgent action – and the private sector must take the lead.

We are calling on all CEOs to commit without delay to greater climate ambition, action and, crucially, third-party assurance against an agreed set of metrics and disclosures.

The UN Secretary-General described August’s IPCC report as a “code red for humanity”. At just over 1 degree of warming, the floods that ravaged communities this year from the Rhine to Zhengzhou and the heatwaves that broke records from British Columbia to Sicily took forecasters by surprise. At 1.5°C, warn the scientists, expect an increasing number of “extreme events unprecedented in the observational record”.

If 1.5°C leads to unprecedented events, what might 3°C bring?

A flood of companies has set net-zero targets, including over 3,000 through the UN’s Race to Zero Campaign. Investment in ESG (environmental, social and governance) assets surged to $37.8 trillion in 2020 and looks set to account for one-third of all assets under management by 2025.

But how can we be sure these pledges and investments actually contribute to a cleaner planet? Distant net-zero targets simply dump the responsibility to decarbonize on future generations. Climate ambitions and actions need to be measured against clear, universal standards for a 1.5°C pathway, supported by independently audited reporting.

For a healthtech company like Philips, contributing to a sustainable planet and healthy societies is not just core to our purpose, it’s a moral imperative. We achieved net-zero emissions in our operations last year and we’ve targeted an absolute reduction in direct and indirect CO₂ emissions (Scope 1 and 2) of 75% by 2025. But we also need to prove we’re delivering on our targets. Transparency and accountability matter.

That’s why Philips is among more than 100 major companies that are reporting or have pledged to report against a set of core sustainability metrics, collated from existing ESG standards by the International Business Council of the World Economic Forum and the big four accounting firms, including KPMG. ESG metrics have long been an alphabet soup of overlapping, voluntary disclosures, complicating efforts to compare companies’ progress. We hope our learnings help drive convergence around a common, global set of sustainability standards that third-party auditors can sign off as credible.

We are delighted that the highly respected International Financial Reporting Standards Foundation (IFRS), which supervises international financial reporting standards in over 140 jurisdictions, has agreed to take up this challenge to develop an international sustainability reporting framework.

We also welcome the increased involvement regulators are showing when it comes to ESG reporting. The International Organization of Securities Commissions (IOSCO) has warned of a green bubble and strongly supports the IFRS Foundation’s initiative. The US Securities and Exchange Commission (SEC) looks set to recommend mandatory disclosures on climate and human capital as early as year-end. The European Commission is poised to launch a revised corporate sustainability reporting initiative for 50,000 firms. And G20 finance ministers recently backed mandatory corporate reporting against guidelines developed by the Task Force on Climate-Related Financial Disclosures (TCFD).

As CEOs, we welcome efforts to create accountability and a level playing field. Businesses need clarity of purpose and rational reporting requirements as they undertake the transition to a low-carbon economy. Investors demand an ESG reporting system that is credible, comparable and efficient. It’s in everyone’s interests that regulators agree on a single, global set of reporting rules.

At present, we’re a long way from that. But private sector support for initiatives that catalyse convergence is crucial if we are to fashion a common set of sustainability standards that measure up to these momentous times.

Climate change is more than just an environmental emergency. It is a socio-economic and health emergency. Every one of us must play our part to steer our societies towards a more just and low-carbon transition. As business leaders, we feel a personal responsibility to ensure our firms go beyond what is needed to secure a safe future for our children on a healthy planet. We therefore challenge our fellow business leaders to do three things:

1. Raise your climate ambitions. Commit to halving total emissions across your operations and supply chains by 2030.

2. Back up ambitions with action. Deliver on environmental and social targets through your core strategy and operations.

3. Prove you’re delivering. Start reporting against universal sustainability metrics, such as those collated by the World Economic Forum, and back the IFRS Foundation’s work to drive consistency.