When viewed collectively, the combination of stakeholder pressures and the sheer urgency of the climate challenge might seem to suggest an unambiguous way forward for companies. But political and institutional realities are simultaneously creating crosscurrents and placing CEOs in the middle of bigger socioeconomic debates.
Striving for a “just transition”
Carbon pricing is a useful case in point. Research conducted by the World Economic Forum and PwC found that an international carbon price floor could reduce greenhouse gas emissions by up to 12% over business-as-usual projections, and at a cost of less than 1% of global GDP (much, if not all, of which would be offset over the longer term by reducing the economic losses caused by global warming).
Although a 1% contraction in GDP is relatively small, lower-income countries that rely on coal could be disproportionately hit. Only by redistributing the revenues as a “carbon dividend” could these adverse effects be avoided.
How should a CEO’s business decisions reflect the uncertainties around tensions such as these, and balance the needs of people today against the needs of future generations? Business leaders will increasingly be called to answer uncomfortable questions — and shareholders, customers and employees will be listening closely.
Bringing investors along
Another challenge is the fact that investors and other stakeholders may be more interested in the short term than the long run. Better ESG performance can drive superior returns, but that takes time. And even though the financial system will realign around a low-carbon world, it won’t happen overnight.