Feeling the heat? Companies are under pressure to act on climate change and need to do more - Deloitte
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FEATURE Feeling the heat? Companies are under pressure to act on climate change and need to do more Dr. Michela Coppola, Thomas Krick and Dr. Julian Blohmke THE DELOITTE SUSTAINABILITY SERVICES
Feeling the heat?: Companies are under pressure on climate change and need to do more
In the latest edition of the European CFO Survey, close to 1,200 CFOs
were asked about their company’s measures against climate change. The
results reveal a mixed picture with measures mainly focusing on short-term
cost-savings.
2
019 MAY BE remembered as the year when
climate change activism went mainstream. At Deloitte asked 1,168 CFOs what their
the end of September, in a series of rallies companies are doing on climate change.
Their responses reveal:
timed to coincide with the United Nations climate
summit, an estimated six million people in more • there is an increasing pressure to act from
than 180 countries took to the streets to demand far a broad range of stakeholders
more action to cut greenhouse emissions. This was
• companies’ climate responses focus
probably the biggest climate protest in history.1
primarily on measures that have a short-
Protests in the form of school walkouts had taken
term cost-saving effect
place throughout the world for a whole year. The
‘Extinction Rebellion’ initiative has added a further • a thorough understanding of climate risks
edge by seeking to demonstrate the potentially cata- is rare
strophic consequences of inaction. • few companies have a governance and
steering mechanism in place to develop
The build-up to this high level of awareness and implement comprehensive climate
and activism has been slow. Government action strategies
began more than 30 years ago when the Inter-
• targets for carbon emission reductions
governmental Panel on Climate Change (IPCC)
are usually not aligned with the
was established, in 1988. The first global climate Paris Agreement.
treaty was reached at the Rio Earth Summit in
1992. The Kyoto Protocol was adopted in 1997.
The 2015 Paris Agreement to limit temperature with enhancing the quality of climate-related
increase and thereby substantially reduce the risks awareness, risk management and transparency.
and impacts of climate change is a more recent
effort to curb carbon emissions and has been Investors, too, are making the climate more central
ratified by 187 countries to date.2 Over the last to their activities. As of 2018, more than US$30
two years, mounting public awareness, fanned by trillion in funds were held in sustainable or green
widespread perception that extreme weather events investments in the five major markets tracked
are becoming more frequent, and by the growing by the Global Sustainable Investment Alliance, a
weight of scientific evidence on changing weather rise of 34 per cent in just two years.4 Almost 400
patterns,3 has added further urgency to the debate. investors representing more than US$35 trillion in
The result is that a wide range of actors are now assets under management (AUM) have signed the
evaluating the implications of climate change. Climate Action 100+ initiative, which is committed
to pressurising the largest corporate greenhouse
Central banks and other supervisory author- gas emitters to “curb emissions, improve gover-
ities are now considering climate change as a nance and strengthen climate-related financial
risk to financial stability. This has led to the disclosures.”5 At the recent UN climate summit, a
establishment of the Task Force on Climate-re- group of the world’s largest investors, with more
lated Financial Disclosures (TCFD) in 2015, than US$2 trillion in AUM, initiated the Net-Zero
and the Network for Greening the Financial Asset Owner Alliance, committing themselves to
System (NGFS) in 2017. Both are concerned reaching carbon-neutral portfolios by 2050.6
2
Feeling the heat?: Companies are under pressure on climate change and need to do more
Heads of states and cities are also increasing
their focus on climate change. To support the
achievement of the Paris Agreement, the EU
in 2017 launched its Action Plan for Financing
Sustainable Growth, aimed at – among other
things - channelling more money towards cli-
mate-friendly business activities. More than 60
countries and 100 cities around the world have
adopted net-zero carbon emission targets – with
the UK and France recently joining Sweden
and Norway among the group of countries that
have enshrined the targets into national law.7
1. W
hat is the impact of 2.Do companies feel
climate change on business? the pressure to act on
climate change?
There are multiple impacts of climate change on
companies. On the one hand, it creates a series To gain a better understanding of how companies
of new business risks. Besides the most obvious perceive the issue of climate change, the latest
physical risks (for example, the operational impacts edition of the European CFO survey asked close to
of extreme weather events, or supply shortages 1,200 financial executives across Europe to what
caused by water scarcity), companies are exposed to extent their companies are feeling the pressure
transition risks which arise from society’s response to act and what precisely they are doing.10 The
to climate change, such as changes in technologies, survey shows that most companies are feeling the
markets and regulation that can increase business pressure from various stakeholders. Clients and
costs, undermine the viability of existing prod- customers are most often named as sources of
ucts or services, or affect asset values. Another
8
significant pressure, but employees, regulators, civil
climate-related risk for companies is the potential society and investors are not far behind (figure 1).
liability for emitting greenhouse gases (GHG).
An increasing number of legal cases have been The degree to which companies are feeling external
brought directly against fossil fuel companies and pressure varies greatly. About 30 per cent do not
utilities in recent years, holding them accountable perceive significant pressure from anyone, while
for the damaging effects of climate change. 9
for 19 per cent the pressure comes from only one
or two stakeholders – usually from regulators
But climate change also offers business oppor- and civil society. Larger companies (defined as
tunities. Firstly, companies can aim to improve those with annual revenues of €1 billion or more)
their resource productivity (for example by are more likely to feel the pressure from several
increasing energy efficiency), thereby reducing sides, with almost two-thirds (61 per cent) of
their costs. Secondly, climate change can spur CFOs reporting that they feel the pressure to
innovation, inspiring new products and services act from three or more stakeholders and almost
which are less carbon intensive or which enable 70 per cent feeling under pressure from clients.
carbon reduction by others. Thirdly, companies By contrast, the regulator is the main source of
can enhance the resilience of their supply chains, pressure on smaller companies (that is, with
for example by reducing reliance on price-volatile annual revenues of up to €100 million).
fossil fuels by shifting towards renewable energy.
Together, these actions can foster competitive-
ness and unlock new market opportunities.
3Feeling the heat?: Companies are under pressure on climate change and need to do more
FIGURE 1
Pressure to act on climate change felt by companies from different
stakeholders
To what extent does your company feel pressure to act on climate change from the following
stakeholders?
To a large extent To a moderate extent To a small extent Not at all
Clients/customers
Board members/ management
Employees
Regulators/government
Civil society (e.g. activists, media)
Shareholders/investors
Competitors
Banks/lenders
0 20 40 60 80 100
Source: Deloitte European CFO survey autumn 2019.
Deloitte Insights | deloitte.com/insights
The pressure felt from different stakeholders also given stakeholder, except their own employees, in
varies across industries. In tourism, automotive, part because the sector’s emissions are relatively
consumer goods and energy and utilities, the share low. But there is scope for TMT to do more to
of executives reporting pressure to act is among the help tackle climate change. A joint study by the
highest for each stakeholder group. There are some Global Enabling Sustainability Initiative (GeSi)
differences between these sectors, however, in the and Deloitte shows that the digital capabilities
degree of influence coming from the various stake- of information and communications technology
holders. For example, in tourism, consumer goods (ICT) can help deliver solutions to a broad range of
and automotive, pressure from clients is felt more sustainability challenges – and especially to climate
strongly. In energy and utilities the pressure comes change.11 Digital technologies can, for example,
more from investors and regulators (figure 2). help decouple economic growth from resource
consumption, enhance transparency and account-
At the other end of the spectrum, the technology, ability on environmental impacts, and help to
media and telecommunications (TMT) industry analyse and predict climate change developments.
seems at present to be flying under the radar when
it comes to climate change. TMT executives do
not feel particularly pressured to act from any
4Feeling the heat?: Companies are under pressure on climate change and need to do more
FIGURE 2
Share of CFOs feeling the pressure to act on climate change coming from their
clients, from investors and from regulators, by industries.
To what extent does your company feel pressure to act on climate change from the following
stakeholders? (% ‘to a moderate/large extent’)
CLIENTS/CUSTOMERS INVESTORS/SHAREHOLDERS REGULATORS/GOVERNMENT
Tourism & travel Energy, utilities, mining Tourism & travel
76% 54% 64%
Consumer goods Tourism & travel Transport & logistics
64% 52% 61%
Automotive Transport & logistics Automotive
58% 48% 58%
Retail Life sciences Energy, utilities, mining
56% 45% 55%
Construction Construction Consumer goods
55% 45% 55%
Transport & logistics Financial services Business & professional services
52% 44% 51%
Industrial products & services Consumer goods Industrial products & services
52% 42% 48%
Financial services Retail Construction
50% 42% 48%
Energy, utilities, mining Automotive Financial services
47% 42% 47%
Technology, media & telecoms Business & professional services Retail
47% 34% 40%
Business & professional services Industrial products & services Technology, media & telecoms
46% 31% 31%
Life sciences Technology, media & telecoms Life sciences
46% 29% 31%
Source: Deloitte European CFO survey autumn 2019.
Deloitte Insights | deloitte.com/insights
5Feeling the heat?: Companies are under pressure on climate change and need to do more
3. How should corporate 3).12 Enhanced disclosure in these areas will
management respond? help investors and other stakeholders assess a
company’s exposure to climate-related risks,
The TCFD defines four key management disci- and the quality of its response to them.
plines through which companies are expected to
address climate change: governance, strategy, The TCFD’s recommendations are broadly appli-
risk management, metrics and targets (figure cable but have a particular focus on high-impact
FIGURE 3
TCFD recommendations
RISK METRICS
GOVERNANCE STRATEGY MANAGEMENT AND TARGETS
Disclose the Disclose the actual Disclose how the Disclose the metrics
organisation’s and potential organisation and targets used to
governance around impacts of identifies, assesses, assess and manage
climate-related risks climate-related risks and manages relevant climate-
and opportunities. and opportunities climate-related risks. related risks and
on the organisation’s opportunities.
businesses, strategy,
and financial
planning.
RECOMMENDED DISCLOSURES
A. Describe the A. Describe the A. Describe the A. Disclose the
board’s oversight climate-related organisation’s metrics used by
of climate-related risks and processes for the orgainisation
risks and opportunities the identifying and to assess climate-
opportunities organisation has assessing climate- related risks and
identified over the related risks. opportunities in
short, medium line with its
and long term. stragegy and risk
management
process.
B. Describe B. Describe the B. Describe the B. Disclose scope 1,
management’s impact of climate- organisation’s scope 2, and if
role in assessing related risks and processes for appropriate,
and managing opportunities on managing scope 3
climate-related the organisation’s climate-related greenhouse gas
risks and business, strategy risks. (GHG) emissions,
opportunities. and financial and the related
planning. risks.
C. Describe the C. Describe how C. Describe the
potential impact processes for targets used by
of different identifying, organisation to
scenarios, assessing and manage climate-
including a 2°C managing related risks and
scenario, on the climate-related opprtunities and
organisation’s risks are performance
businesses, integrated into the against targets.
strategy, and organisation’s
financial planning. overall risk
management.
Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, TCFD, 2017.
Deloitte Insights | deloitte.com/insights
6Feeling the heat?: Companies are under pressure on climate change and need to do more
industries. These include banks, insurance 4. S
tart climate action
companies and asset managers, who will need by setting emission
to deal with climate change-related risks in their
reduction targets
portfolios. In the real economy, the sectors on
which the TCFD focuses include energy, transport, When it comes to defining a company’s response
agriculture and forestry. Companies in these to climate change, it is helpful to be clear on
industries are particularly exposed and can expect what needs to be achieved. This could be done
to face increasing pressure to disclose how they by setting targets for future carbon emissions,
view and deal with the impacts of climate change taking account of national and international
on their business models and value chains. emission reduction commitments, such as the Paris
Agreement. While the agreement requires each
The willingness of companies to disclose climate country to outline and communicate emissions
change-related management activities and targets at the national level, companies can now
greenhouse gas emissions has grown rapidly in derive scientifically their individual CO2 reduction
recent years. To date, more than 800 companies targets, and bring them into line with the objec-
have signed up to the TCFD, thereby providing tives set out in the IPCC climate scenarios.14 Thus,
support to the idea of enhanced management good practice means setting targets that define
and disclosures, although so far very few have the company’s ‘fair share’ to the achievement
actually delivered. Reporting of actual carbon of the Paris commitments and the pace of the
emissions performance, however, has already transformation required to achieve these goals.
come a long way. In 2019, almost 7,000 companies
reported their emissions to the Carbon Disclosure According to the results of the European CFO
Project (CDP), twice as many as in 2011.13 survey, however, a little less than 10 per cent
of companies say they have set targets in line
Yet, enhancing management and disclosures, and with the Paris Agreement. 27 per cent of com-
establishing risk assessments and targets will panies have set autonomous carbon emission
not by themselves suffice. More crucial are the reduction targets. One in two companies have
actual actions companies undertake to reduce not set any target at all. Although the propor-
emissions and mitigate risks. This may include tion of companies with some kind of emission
reorientation towards renewable energies and raw targets in place rises when there is pressure from
materials, a reduction in their reliance on scarce stakeholders, it remains below 50 per cent.
water resources or the protection of production
sites from extreme weather by building dams or Commitment also varies across industries.
installing heat insulation. Seizing opportunities The energy, utilities and mining sector is the
to deliver marketable solutions to climate change only one in which a majority of CFOs report
is another area of concrete, necessary, but also that they have targets in place (figure 4).
worthwhile action. This might include the devel-
opment of less carbon-intensive products or of
services that help people and economies sustain
themselves in a world affected by climate change.
7Feeling the heat?: Companies are under pressure on climate change and need to do more
FIGURE 4
Share of respondents reporting to have emissions targets in place by industry
Has your company put in place emissions reduction targets in line with the Paris Agreement?
Targets in line with Paris Agreement Our own emissions targets
Energy, utilities, mining
17% 42%
Tourism & travel
16% 32%
Transport & logistics
10% 38%
Automotive
10% 33%
Industrial products & services
10% 27%
Consumer goods
6% 29%
Life sciences
8% 25%
Construction
4% 28%
Financial services
11% 19%
Business & professional services
27%
Technology, media & telecoms
5% 22%
Retail
5% 56% 22%
Source: Deloitte European CFO survey autumn 2019.
Deloitte Insights | deloitte.com/insights
8Feeling the heat?: Companies are under pressure on climate change and need to do more
FIGURE 5 FIGURE 6
Share of companies taking no measures Measures taken to manage, mitigate
to manage, mitigate or adapt to climate or adapt to climate change
change in relation to the number of Is your company taking or about to take any of the
following measures to manage, mitigate and/or
stakeholders they feel pressured by adapt to climate change?
Number of stakeholders companies Manage Mitigate Adapt
feel pressured by to act
Increase the efficiency of energy use
0 1-2 3+ (e.g. energy efficiency in buildings)
34% 70%
Use energy-efficient or climate-friendly
machinery, technologies and equipment
47%
Shift operational energy usage towards
renewable energy sources
9%
40%
3%
Develop new climate-friendly products
Share of companies taking no measures
and services
Source: Deloitte European CFO survey autumn 2019. 31%
Deloitte Insights | deloitte.com/insights Reduce carbon emissions in the upstream
supply chain and/or in logistics
5. W
hat are companies doing 28%
Assess the risks of climate change for
to combat climate change? the business
27%
Stakeholder pressure leads to action. One-third
Include management and monitoring of climate
of the companies that are not under significant
risks in corporate governance processes
pressure from any particular stakeholder say they
25%
are not taking any action to manage, mitigate or
Renew facilities to make them resistant
adapt to climate change. But in companies that feel to extreme weather events
pressurised by three or more stakeholders, only
14%
three per cent are failing to take action (figure 5).
Offset carbon emissions, e.g. by buying
carbon credits
From what finance executives report, however, 11%
companies’ climate responses focus primarily Purchase insurance coverage against
on measures that have a short-term cost-saving extreme weather risks
effect. When it comes to the specific actions 11%
taken, most companies resort to increasing their Relocate plants and machineries in areas
energy efficiency and using more climate-friendly less prone to extreme weather events
equipment (figure 6). These measures often 2%
benefit from government incentives and help None of the above
to reduce corporate costs. Thus, companies 10%
are plucking the low-hanging fruit and reaping
immediate cost benefits. Less prominent are Source: Deloitte European CFO survey autumn 2019.
Deloitte Insights | deloitte.com/insights
longer-term measures that would generate
revenues and more resilient growth by devel-
oping climate-friendly products and services.
9Feeling the heat?: Companies are under pressure on climate change and need to do more
Moreover, companies appear in general quite re- 6. P
reparing for a hotter
luctant to engage with other companies within their environment
supply chain to reduce carbon emissions. Only 28
per cent of respondents report doing so. Difficulties Taken together, the results reveal that many
coordinating with other companies and probably a companies are increasingly under pressure
lack of any financial incentive may be behind this. from their stakeholders, and are beginning to
react. However, the majority of action to date
Few adopt a more systematic approach and properly seems reactive and focused on short-term
assess climate-related risks or include them in their rewards and quick wins. A longer-term, stra-
governance and management structure. Companies tegic perspective on the risks and opportunities
which report that they feel the pressure coming of climate change is rarely undertaken.
from investors are more likely to have included
the management and monitoring of climate risks The following steps may help companies
in their governance processes. This demonstrates to get to grips with climate change:
that risk-aware investors can help to promote
climate-related transformation in companies. • understand the risks climate change presents to
the business, and the opportunities that may lie
Overall, it seems fair to say that most companies in becoming part of the solution
are not taking into account the already foresee-
able physical effects of climate change, nor are • assess the scale of necessary emission reduc-
they undertaking significant measures to adapt. tions, and the levers that are key to
Companies may believe that climate change will achieving them
have less impact in Europe than elsewhere, but,
in that case, they are likely to be underestimating • calculate how much will emission reduction and
the risks to which they are exposed through adaptation efforts cost?
their global supply chains and markets.
• position the risks and opportunities of climate
change within the governance structure to
ensure a strategic measurable approach.
Climate change is transforming how consumers,
employees and shareholders evaluate companies
and interact with them. In some cases, this can lead
to a real shift, where business models need to be
reevaluated. Companies don’t only need to measure
their exposure to climate-related risks and subse-
quently manage them, but also incorporate climate
change in their strategic plans. Failure to do so will
undermine the sustainability of their business.
10Feeling the heat?: Companies are under pressure on climate change and need to do more
FIGURE 7
The Deloitte European CFO Survey
Since 2015 Deloitte has conducted the European CFO survey, giving voice twice a year to about 1,500
chief financial officers from across Europe. Besides providing an overview of business sentiment in
Europe, each edition focuses on a topical issue. The autumn 2019 edition focused on climate
change. The data were collected in September 2019. Almost 1,200 CFOs in 18 countries and across
17 major industries responded to the questions in this article (see figure). Almost 20 per cent of the
companies represented in the sample have annual revenues of at least €1 billion. Companies with
annual revenues of between €100 million and €999 million represent 44 per cent of the sample, and
37 per cent of the interviewed CFOs represent smaller companies with annual revenues of less than
€100 million.
14%
Industrial products &
11% services
Others
13%
Financial services
2%
Tourism & travel
10%
4% Retail
Business &
professional
services
4% 9%
Automotive Energy,
utilities,
. mining
4%
Life sciences 8%
Construction
5%
Transport & 8%
logistics Consumer goods
8%
Technology, media &
telecommunications
Source: Deloitte European CFO survey autumn 2019.
Deloitte Insights | deloitte.com/insights
11Feeling the heat?: Companies are under pressure on climate change and need to do more
Endnotes
1. Climate crisis: 6 million people join latest wave of global protests, The Guardian, 27 September
2019. See also: https://www.theguardian.com/environment/2019/sep/27/%20climate-crisis-6-
million-people-join-latest-wave-of-worldwide-protests,%20accessed%2014%20November%20
2019
2. Paris Agreement – Status of ratification, United Nations Framework Convention on Climate Change, 5 October
2016. See also: https://unfccc.int/process/the-paris-agreement/status-of-ratification
3. For a summary of generally accepted facts from climate science, please refer to: Series of hot years and
more extreme weather, Munich Re, 8 August 2019. See also: https://www.munichre.com/topics-online/en/
climate-change-and-natural-disasters/climate-change/climate-change-heat-records-and-extreme-weather.html
4. 2018 global sustainable investment review, Global Sustainable Investment Alliance, 28 March 2019. See also:
http://www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf
5. About us, Climate Action 100+, accessed 14 November 2019. See also: https://climateaction100.wordpress.com/
about-us/
6. UN-convened net-zero asset owner alliance, United Nations Environment Programme, accessed 14 November
2019. See also: https://www.unepfi.org/net-zero-alliance/
7. These countries have committed to a net-zero emissions goal - could it solve the climate cri-
sis?, World Economic Forum, 5 July 2019. See also: https://www.weforum.org/agenda/2019/07/
the-growing-list-of-countries-committingto-a-net-zero-emissions-goal/
8. Stranded assets and scenarios, Smith School of Enterprise and the Environment, Oxford University, January
2014. See also: https://www.smithschool.ox.ac.uk/research/sustainablefinance/publications/Stranded-As-
sets-and-Scenarios-Discussion-Paper.pdf
9. Global trends in climate change litigation: 2019 snapshot, LSE, July 2019. See also: http://www.lse.ac.uk/Granth-
amInstitute/wp-content/uploads/2019/07/GRI_Global-trends-in-climate-change-litigation-2019-snapshot-2.pdf
10. Oil majors gear up for wave of climate change liability lawsuits, Financial Times, 9 June 2019. See also: https://
www.ft.com/content/d5fbeae4-869c-11e9-97ea-05ac2431f453
11. European CFO survey – Into the woods, Deloitte, accessed 14 November 2019. See also: www.deloitte.com/
europeancfosurvey
12. Digital with Purpose. Delivering a SMARTer2030, GeSI and Deloitte, accessed 7 December 2019. See also: https://
gesi.org/storage/uploads/DIGITALWITHPURPOSE_FULL_R_WEB.pdf
13. Recommendations of the Task Force on Climate-Related Financial Disclosures, Task Force on Climate Related
Financial Disclosures (TCFD), June 2017. See also: https://www.fsb-tcfd.org/wp-content/uploads/2017/06/
FINAL-TCFD-Report-062817.pdf
14. The A list 2018, Carbon Disclosure Project (CDP), accessed 20 November 2019. See also: https://www.cdp.net/en/
companies/companies-scores
12Feeling the heat?: Companies are under pressure on climate change and need to do more
About the authors
Dr. Michela Coppola | micoppola@deloitte.de
Michela Coppola is a research manager within the EMEA Research Centre specializing in the identifica-
tion, scoping and development of international thought leadership. Michela also leads Deloitte’s
European CFO survey, a biannual study that brings together the opinions of more than 1,600 CFOs
across 20 countries. Before joining Deloitte, Michela developed thought leadership for Allianz Asset
Management. She has a PhD in economics and is based in Munich.
Thomas Krick | tkrick@deloitte.de
Thomas Krick leads the Deloitte Sustainability Services practice in Germany. Thomas helps businesses
become more sustainable, by supporting the integration of environmental, social and governance (ESG-)
considerations into their strategies, management systems, operations and stakeholder relations. He has
worked on challenges such as climate change, biodiversity and human rights with leading blue chip cli-
ents across the world, as well as with sustainability-oriented supranational institutions, think-tanks and
non-profits. Thomas is based in Munich, Germany.
Dr. Julian Blohmke | jblohmke@deloitte.de
Julian Blohmke is a manager for the Sustainability Services practice at Deloitte Germany. He combines
his expertise in innovation systems and sustainability to help both the public and the private sector
tackle social and environmental challenges. He specialises in the fields of climate change, resource effi-
ciency and sustainable resource management, the development of sustainability strategies and the
sustainable use of digital technologies. Julian is based in Hamburg, Germany.
Acknowledgements
The authors would like to thank Eric Dugelay, partner in Deloitte France, and Joep Rinkel, senior
manager in Deloitte Netherlands for their contributions to this article.
13Feeling the heat?: Companies are under pressure on climate change and need to do more
Contact us
Our insights can help you take advantage of change. If you’re looking for fresh ideas to address your
challenges, we should talk.
Thomas Krick
Head of sustainability services | Deloitte DCE
+ 49 151 58071682 | tkrick@deloitte.de
Dr. Julian Blohmke
Sustainability services | Deloitte DCE
+ 49 403 20804422 | jblohmke@deloitte.de
Dr. Michela Coppola
Deloitte research | Deloitte DCE
+ 49 482 90368099 | micoppola@deloitte.de
Leadership contact
Christopher Nürk
Managing partner of Clients & Industries | Deloitte DCE
+ 49 711 165547315 | cnuerk@deloitte.de
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