KPMG ENRich 2021 report – Global Corporations Preparing for a Low Carbon World – EQ Mag Pro

The extensive use and emission of energy in various forms have brought us to the concerns of climate change impacts. As climate change concerns take root, there is all round confusion on how corporates should react.

Without question the future points towards clean energy. Today, as companies and energy providers strive efforts to meet net-zero carbon emission goals, they are still unclear of the pathway to accomplish their goals. In the light of this growing subject, KPMG in India has launched a report titled “Decarbonization and the evolving role of corporate boards” on the sidelines of the 12th edition of its annual energy and natural resources event ‘ENRich 2021’.

The report highlights how corporate boards should up the game to meet the challenges of the carbon constrained world and meet their net-zero targets. It further discusses the imperatives of decarbonization highlighting the requirement of a system perspective that incorporates energy demand management, improves energy efficiency, new reporting standards and increases the share of clean energy in the overall energy mix. The event taking place right within a month of the COP 26, invites larger forum of discussion from industry experts sharing their views, actions and insights.

Sharing his views on the theme of the report, Anish De, Global Sector Head – Power and Utilities, KPMG and National Head – Energy, Natural Resources and Chemicals, KPMG in India said, “For corporates around the world, there are some key takeaways from the developments witnessed over the last year. Climate goals will keep ratcheting up and hence present goals and regulations needs to be altered to achieve decarbonization goals. With accelerated heating being a real prospect, focus of corporates has to shift to adaptation.

In this new and changing normal on climate mitigation and adaptation for corporates, boards carry the principal fiduciary responsibility for making that change happen. Corporate boards across sectors have initiated measures for driving board level governance for climate change. However, the adoption of such measures remain low for Energy and Natural Resources (ENR) companies compared to other sectors. It is time for boards to steer the energy organizations in meeting the demands of climate change.”

Ritesh Tiwari, Partner, KPMG in India comments, “Corporates have a real opportunity to not only make a difference, but utilize the momentum generated by COP26 to take a quantum leap, which will likely assist them being competitive in the future. Corporate leadership, without waiting for legislation, could plan effective transition, as well as protect against the effects of climate change. This will often imply transformation of products, markets, technology, capability, culture, and much more. In carrying their fiduciary responsibilities, Board of Directors could take the lead and ensure that decarbonization and climate change-related risks, and indeed opportunities, are not only included within the board agenda, but also imbibed in the true sense by the executive management.”

According to Manpreet Singh, Partner – ESG, KPMG in India, CEOs across the world have enlarged their ambitions to deliver on ESG goals. Organizations recognize that stakeholders—such as investors, regulators, and customers – expect organisations to deliver a positive impact. The purpose-led CEO follows through and delivers on commitments with a big focus on ESG programmes. CEOs are under pressure to build back better, taking action to mitigate climate change risks and reduce emissions. Organizations need support from Government, to turbocharge climate investments. Moreover, a strong collaboration between business and government is expected to address sustainability issues and decarbonization in the future.

Key Highlights from the report:

Climate responses towards actionable goals have been slow:

· Governments, financing institutions, industry participants are coming together through alliances to collaborate and focus towards taking stronger actions. However, The pace of energy transition has been sluggish

· Globally, investment dynamics in energy sector are changing, and companies need to be better prepared to balance their investments across technology portfolios

· The pathway to achieving 1.5 degrees requires urgent action to halve the current emissions by 2030.

Corporate leadership recognizes climate change as the top risk for business

· Climate change remains top risk for energy CEOs

· The leaders now recognize the opportunity disruption brings:

o 81 per cent of the organizations are actively disrupting the sector in which they operate than waiting to be disrupted by competitors

o 85 per cent see technological disruption as more of an opportunity than threat

· Globally, investors are increasingly committing to integrate Environmental, Social and Governance (ESG) aspects into their investment strategy. This is evidenced by growth in signatories for ‘Principles for Responsible Investment’ (PRI).

· Majority of institutional investors consider climate change to be a key factor influencing their investment decision.

Corporate boards have initiated measures for driving board level governance for climate change. The adoption of such measures, however, remain low for Energy and Natural Resources (ENR) companies compared to other sectors.

New reporting standards set by World Economic Forum in association with key leading professional services firms, have reformed stringent metrics which will support in evaluating SDG’s performance and associated NDCs

10 takeaways post COP 26:

• The 1.5 degrees goal for containment of global heating is hanging by a thread. Global temperature prognosis suggests 2.3 degrees by the end of this century, unless acted upon further
• The energy transition is one of the keys to succeeding in reaching Net Zero.
• Coal phaseout will accelerate. Unabated coal emissions will come under massive pressure despite the lack of alternatives
• Emerging markets are essential for Net Zero. This is where the future global growth is and these are the economies often dependent on coal and other high carbon resources.
• ‘Loss and damage’ will play out as a key dimension.
• Climate goals and the decarbonization bar will keep ratcheting up every year as effects of global warming become more visible and pervasive.
• A large part of the mitigation support will be for corporate decarbonization
• For corporates, the focus has to move to ‘climate proofing’ of businesses, and hardening of systems has to increase substantially, given the limitations of current climate mitigation actions
• Investments have to take into account long term carbon costs and aspects like Carbon Taxes/Carbon Border Adjustment Mechanism (CBAM).
• Despite challenges and uncertainties there is a very significant opportunity in funding the energy transition.

What climate change means for businesses:

• Corporates will likely be the principal delivery agents of decarbonization
• Strategic investment decision should be backed by data driven analysis with a whole system view.
• Corporations will have to tailor the implementation to suit regional priorities in the near term, even as they focus on a global decarbonisation agenda in the long-term.
• Credibility of actions is important rather than announcements. Setting clear goals backed by the right Key Performance Indicators (KPIs) that meet business and regulatory needs is of great importance.
• Technology will be a key enabler in the decarbonization journey for factual and credible reporting on emissions and other ESG related KPIs.
• The road to implementation will be fraught with uncertainties.

Ways corporate boards should approach the challenge:

• Boards have to ensure that sustainability and climate aspects are brought into day-to-day operations by integrating sustainability and non-financial targets into the existing incentive structure
• Organizations need to do more than what the regulation demands and move beyond compliance.
• Boards have to set very clear directions to guide thought and action at every level. To ensure that the guidance is indeed being followed, boards need to find ways to maintain regular dialogue with peers and key stakeholders
• Boards leadership will involve many dimensions:

· Organisational culture and performance metrics

· Maintaining and enhancing climate competence within the board as well as within the organization

· Translating commitments into material changes move beyond tokenism

· Risk and opportunity assessment

· Disclosures and compliance

· Investment planning and technology selection

For more information please see below link: