Companies are no longer hiding their heads in the sand on climate change, but regulatory uncertainty is leading to inaction

There is a reason that businesses endlessly talk about the need for a progressive regulatory framework to provide the necessary confidence for long-term investment in sustainability.

The simple fact is that companies are not prepared to take risks, whatever the moral case, if they cannot justify it first of all to their finance director and their shareholders.

A good example of this comes today with the launch of the latest supply chain report from international NGO CDP and Accenture.

While the study shows that companies are no longer hiding their heads in the sand when it comes to understanding the threat from climate change, nine out of 10 of those that recognise the current or future risk cited regulatory risk as a barrier to investment.

The impacts of this uncertainty should make politicians sit up and take note. In the past year, when you would have expected companies to be upping their game, given the latest IPCC report and multitude of extreme weather-related events across the world, the average monetary savings from emissions reductions efforts actually fell by nearly half.

Overall, seven out of 10 sectors report investment declining from earlier years with the average sum invested per reporting company falling by just over a fifth.

Get stuck into the detail and you see that the picture becomes even more depressing when considering the types of investment being made. Projects involving shorter pay-back initiatives of fewer than three years - in other words those that give only incremental benefits - almost doubled between 2011 and 2013, which means a steep fall in more transformative long-term initiatives.

The research, based on information from 2,868 companies, representing 14% of 2013's global industrial emissions, also shows an "ever widening gap" between measures taken by large corporates, which are members of CDP's supply chain programme, and their suppliers.

The report, Collaborative Action on Climate Risk, suggests that the regulatory situation is not going to improve anytime soon, given that governments are showing little appetite in putting pressure on companies to act while the global economic recovery is still so fragile.

While there has been some tightening of regulations in countries such as the US and China, other governments are retreating from environmental regulations they had in place. The report specifically points to Australia promising to scrap carbon pricing legislation, Japan reversing its pledge to cut carbon emissions and Europe in danger of sacrificing climate leadership on the alter of competitiveness.

To counter this, the report calls on companies to lobby policymakers and points out that those that already do, tend to deliver better emissions reduction performance and potentially higher financial returns.

Speak to any expert in the sustainability field and they will unanimously say that the reality is that little will change without a realistic price being put on carbon.

Paul Simpson, CEO of CDP, rammed this message home by stating that "when governments introduce a more realistic global price on carbon we expect significantly more investment in emissions reductions from corporates."

One more piece of bad news in the report. Those companies that are taking action, often are not investing in areas where they can have most impact, due to a lack of knowledge, and there is a bit of a battle going on between major corporates and their suppliers on priorities.

While suppliers identified process emission reduction and product design as the most promising collaborative approaches, multinationals favour behavioural change initiatives and transportation and fleet investments.

To address this, a new CDP supply chain initiative has been launched to incentivise suppliers. Action Exchange will seek to identify the most cost-effective emissions reductions. Companies that have already joined the initiative and are asking their suppliers to participate include Bank of America, L'Oreal, Philips and Walmart.

The CDP report suggests that the corporate response to climate change is "plateauing", which gives added credence to last year's survey of 1,712 corporate members of the United Nations Global Compact, which showed that while increasing numbers of chief executives recognise the need to change, they are not following through with concrete actions.

There are a few points of light in the report. Major corporates are starting to embed sustainability into the heart of their procurement functions, and collaboration is on the rise. The report says: "There is enormous scope for more collaboration: programme participants identified 2,186 customer-supplier collaborative opportunities that have not yet been implemented.

"Collaboration can work. Those companies that engage with two or more suppliers, consumers or other partners are more than twice as likely to see a financial return from their emissions reductions investments, and almost twice as likely to reduce emissions than those who don't engage with their value chain."

Accenture points out that while regulation may be stuck in the mire, there are myriad opportunities starting to flow from digital innovation. "New technologies, pressure on resources and new operational models promise to help transform supply chain sustainability. Next-generation digital technologies, for example, can be applied to help deliver emissions reductions across extended supply chains. Sensors and mobile devices can help revolutionize the flow of information within companies and throughout supply chains, possibly leading to efficiencies and energy, cost and carbon reductions."

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