World Economic Forum: How CEOs Should Navigate Climate Risk

Sustainability and business success have a symbiotic relationship, with the success of one needed to secure the success of the other.

The two go hand-in-hand, with modern-day businesses needing climate-conscious practices to ensure survival. Embracing sustainability is about more than just compliance — it unlocks cost savings, strengthens brand positioning and ensures operational effectiveness in a world where these attributes are imperative.

This has been further emphasised by the World Economic Forum’s (WEF) Alliance of CEO Climate Leaders in its The Cost of Inaction: A CEO Guide to Navigating Climate Risk report.

“Climate risks are no longer a distant threat; they are unfolding now, disrupting industries worldwide,” the WEF says.

“Climate-related disasters have inflicted more than US$3.6tn in damage since 2000, with risks accelerating. 

“For businesses, physical risks like extreme weather events and transition risks such as rising carbon pricing are already transforming markets and reshaping business models.”

Navigating growing climate risks

In collaboration with Boston Consulting Group (BCG), WEF takes a deep dive into the impact of growing corporate climate risks.

But it’s not all doom and gloom. The report also emphasises the opportunities this creates for businesses — to lead the charge and future-proof themselves and chart a new way forward.

The report aims to help CEOs lead their businesses through this uncertain time with its practical guidebook, aiming to arm leaders so they can navigate risks and seize opportunities in what it dubs “a rapidly transforming world”.

The guidebook is broken up into the following steps and enablers:

• Step 1: Conduct a comprehensive climate risk assessment
• Step 2: Manage risks in the current business portfolio
• Step 3: Pivot your business to unlock opportunities
• Step 4: Monitor risks and report on progress
• Enabler 1: Upgrade climate risk governance
• Enabler 2: Integrate climate risk into business-as-usual
• Enabler 3: Develop effective climate risk systems

What are the key findings of WEF’s climate risk report?

The report makes the following key points:

• Businesses that fail to adapt to climate risks could lose up to 7% of annual earnings by 2035
• Extreme heat and other climate hazards are expected to cause US$560bn to US$610bn in annual fixed asset losses for listed companies by 2035
• Telecommunications, utilities and energy companies are most vulnerable to climate risks
• Companies that fail to decarbonise face mounting transition risks, with up to 50% of profits at risk by 2030 in heavy-emitting sectors
• For the average listed company, climate-driven losses could lead to a drop in earnings of 8.1% to 10.1% per year by 2045
• Companies likely underestimate the financial impact of these climate risks
• Businesses investing in adaptation, resilience and decarbonisation are seeing up to US$19 in avoided losses for every dollar spent
• Green markets are projected to expand from US$5tn to US$14tn by 2030, presenting significant growth opportunities
• With the planet facing irreversible tipping points, business leaders are at a “decisive moment” to act

“This is a decisive moment for leaders to act boldly and collaboratively, ensuring their organisations can adapt in a rapidly changing world,” Gim Huay, Managing Director and Head, Centre for Nature and Climate at the World Economic Forum, says.

A CEOs role

Here’s what CEOs can do.

First, the report suggests CEOs conduct comprehensive climate risk assessments to understand the potential impacts on their business operations and supply chains. This lends itself to the idea that you cannot change what you cannot measure.

And while setting ambitious sustainability goals is essential, these goals should be embedded into corporate strategies to ensure alignment with overall business objectives and to guarantee they are executed effectively.

“To achieve our net-zero target by 2040, it is essential to reduce suppliers’ emissions,” Shiro Kambe, Senior Executive Vice President, Corporate Executive Officer at Sony Group Corporation says.

“We are starting to ask major suppliers to aim for net zero Scope 2 emissions by 2030 and plan to support their capacity building.”

WEF adds that allocating resources to sustainability initiatives is crucial, including investments in renewable energy, energy efficiency and waste reduction programmes. This is underpinned by promoting a culture of sustainability within the company as it will help ensure that environmental considerations are central to decision-making processes — from the bottom up.

R&D is another area that WEF advises CEOs ensure is working optimally to secure its sustainability value. It says CEOs should invest in research and development for new climate-friendly technologies and solutions that can enhance their company's sustainability efforts. Collaborating with policymakers also supports this as facilitates the development and implementation of effective climate policies, creating a supportive regulatory environment.

Climate leadership in action

Ignka Group —  the largest IKEA franchisee holding company — exemplifies the balance and harmony between climate action and successful business.

Its CEO Jesper Brodin is Co-Chair of the Alliance of CEO Climate Leaders.

“Climate action does not have to come at the expense of economic performance — being resource smart is cost smart is business smart,” he says.

“Since 2016 we have managed to reduce our climate footprint with 24.3% across Scope 1, 2 and 3, while growing our businesses by 30.9%. 

“Working towards a net zero society is not only the right thing to do — it is the only sustainable business model for generations to come. It’s crucial that businesses start the journey to decarbonise or get the support needed to start their journey. 

“The cost of inaction far outweighs the cost of proactive investments. The transition to a carbon free economy is already here — and it’s unstoppable.”

Karen Pflug, Ingka’s Group’s CSO, adds: “Climate change is now an increasingly visible reality impacting all of us each year, and these new reports reinforce that embedding climate risks and opportunities into a business’ decision-making process is not only the right thing to do but a necessity for a thriving business. 

“We have already seen that moving to plant-based food, electrification of transport and transitioning to renewable energy not only enables us to reduce emissions and costs in the long term but also presents new business opportunities.”

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