Adapting to Uncertainty

The greatest complexity derived from climate change is the implicit requirement it brings with it, which demands we learn to act and prepare for uncertainty. How to prepare for changes, transitions and a world we are yet to grasp? This question impinges amongst all actors in different ways and proportions. However, one thing is certain, and that is that acting in the face of uncertainty demands for innovative, resilient and flexible pathways. In the midst of this regulatory uncertainty, the business sector has adopted science based targets as a concrete way to respond to the challenge.

 

As a global community, we agreed through the Paris climate agreement to join efforts to keep global temperatures under 2 °C compared with pre-industrial levels. In order to do so, the first step for action is to reduce GHG emissions. Countries committed via INDCs (Intended National Determined Contributions) to do so, and these INDCs were drafted into national plans that are now expected to be transposed into concrete laws. There is a considerable amount of uncertainty in regards to the forms these laws will take; however, one thing is clear: these laws will come into being. As they will have a direct impact on businesses, incorporating uncertainty amounts to potentially mitigating regulatory risk and is bound to have direct effect on their capacity to adapt to a new reality before it’s too late.

 

In regards to the expected directions that laws will take for the purpose of reaching appropriate GHG emission reductions, there are two likely approaches: the first, the proposition of carbon taxation, the second, exclusive mandates limiting emissions expenditures[1]. Regardless of which route is taken by national laws, the intention is the same: to discourage companies from emitting GHG.

 

Leading companies are aware of this situation, for which they have wisely chosen to prepare in the absence of regulations. They are doing so by calculating and setting their emission targets with parameters that will systematically and sustainably reduce their emissions in a way that allows them, considering all intrinsic uncertainty, to operate once climate laws enter into force. The method referred to is known as science-based targets and is increasingly being adopted by business as a pathway to be on the safe side. While acknowledging that it may take some time until climate regulations come into force, an increasing number of businesses has decided to adopt SBT to ensure that their emission reduction plans will allow them to comply with expected requirements derived from the laws that are yet to come. This tendency is expected to increase, the links of science and the need for business to be able to rely on solid information is growing and with all the uncertainty surrounding regulations and the future of investments, business have understood the business case in science based targets for the mid and long term.

 

This attitude from business is a clear signal that paradigms are shifting in regards to the way corporations have usually acted in regards to climate change regulations: waiting for laws to enter into force, then requiring from the state time to adapt and posteriorly trying their best to lobby themselves out of regulation, is no longer an option. The business sector has understood the problem brought on by climate change, it understands that action is urgent, and that traditional economic dynamics do not offer an effective solution.

 

Even if the first concern derives from concrete risks that future regulations may bring to individual companies, it is the coordinated action and effort from the business sector that must be applauded. Since, at the end of the day, concrete and substantial changes are being made; changes that may derive a concrete possibility of reaching our global goal of keeping temperatures under 2 °C.

 

[1] University of Cambridge, Institute for Sustainability Leadership (CISL) 2016, Feeling the heat - An investor´s guide to measuring business risk from carbon and energy regulation, Cambridge, UK.

Marcela Scarpellini is in charge of Business Development within right. and the legal aspects regarding 2 °C-compatibility.

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