Seventeen of the world’s leading automakers sent a letter to US President Donald Trump on Wednesday, asking him to stop the rollback of stricter vehicle emissions standards that were drafted under former President Barack Obama.
The rollback of the rule, known as the Corporate Average Fuel Economy (CAFE) standards, is meant to benefit automakers by allowing them to avoid investments in costly technology upgrades — so why the resistance?
In a turn of events, the companies argue that getting rid of the rule would hurt their bottom lines. Many state governments are joining countries around the world in advocating for lower emissions. As a result, automakers would have to cater to two different markets, which would cause extensive operational disruptions.
In recent years, a paradigm shift has started in the business world. Major companies are becoming less likely to regard efforts to mitigate and adapt to climate change as burdensome and financially ruinous. Instead, corporate leaders increasingly recognize that failing to address climate change would be disastrous, while at the same time they see opportunities in the transition to clean energy economies.
“It’s similar to those who really saw the internet early on, and didn’t resist and drag their feet, who embraced its disruptive nature as a transformative force for business,” Bruno Sarda, the North America president for CDP, formerly known as the Carbon Disclosure Project, told Global Citizen.
“This transition to a clean energy economy is of the same magnitude,” he said. “Sustainable business is better business — no doubt.”
For the past 20 years, CDP has called on companies to submit reports on their environmental footprints. This past year, they asked companies to calculate and detail the risks they face from climate change, and the opportunities that may arise in the years ahead.
Of the biggest 500 corporations in the world, 215 submitted detailed reports on climate risks and opportunities, and their self-reflections are a startling look into the changing nature of global business.
The companies estimate that $970 billion worth of assets are at risk because of climate change, primarily within the next five years.
Sarda said that the financial liabilities are likely far greater because the companies that submitted reports were often conservative in their estimates, there’s a general lack of reporting from other top 500 companies, and millions of other companies that face risks around the world are not considered.
“One of the first big findings is the scale of what’s already been reported and knowing it’s just a fraction,” Sarda said. “That trillion is just a fraction of the risk.”
CDP categorized risks as either physical or transitional.
Physical risks involve things like extreme storms, sea level rise, and changing precipitation patterns. For example, if a company’s supply chain depends on suppliers in a region highly vulnerable to extreme weather or climate events, it may be regarded as a risk. Pacific Gas and Electric, California’s largest electric utility, underestimated its vulnerability to wildfires by tens of billions of dollars and recently declared bankruptcy because of last year’s fires in the state, the New York Times notes.
“You see companies like Walmart that have been really strong on this front for many years,” Sarda said. “Not just for their own operations, but they realized early on that their biggest environmental impact is what they buy, which leads to what they sell, and so they’ve taken leadership in driving transparency in supply chains.”
Transitional risks involve changes in regulations and public opinion that force companies to shift how they do business. For example, if a country enacts stronger emissions standards on power plants, an energy company might have to retire coal facilities. As public opinion has grown against fossil fuels, many companies have pursued 100% renewable energy mandates to reduce their carbon footprints.
While CDP’s report shows how climate change will cause major business upheavals the world over, it also shows how opportunities are emerging for those pursuing sustainability.
“The second big surprise of the report is that these same organizations, as much as they see a huge risk in inaction, they see a lot of value in action,” Sarda said. “They’ve estimated the value of business opportunities for taking climate action at $2.1 trillion.”
The report shows that the companies plan to invest $311 billion in areas like new infrastructure and increased efficiency to achieve this $2.1 trillion, which is a seven-fold return on investment.
Sarda said that large-scale disclosures like this help to generate shifts across entire markets. As regulators, financial bodies, and trade organizations take note of the environmental priorities of the world’s leading companies, they’ll also begin to advocate for reform and sustainability.
A few years ago, Sarda said that companies believed climate change would affect their bottoms lines in 2030 or 2050. Now, risks have been identified as emerging within the next five years and this shrinking time scale could accelerate the shift toward sustainability.
“Staying put is a very bad choice, but leaning into this new future we want to create is a great business decision,” Sarda said. “All throughout, we need to stress the importance of disclosure and transparency and visibility even if governments and regulators don’t make that mandatory, because of the value of the insights it helps to generate.”