The Role of Companies in Achieving Global Goals

As the world committed to limit global warming and achieve net-zero emissions collectively, the climate-related costs of companies' activities will need to be brought down to nothing. Yet current national pledges are grossly insufficient and their implementation is even lagging. Meanwhile, the challenge for countries is to reduce emissions rapidly and cost-efficiently. Scientific analyses, compiled in the IPCC reports, highlight the importance of innovation and regulations (amongst many other elements). Governments need to find the most efficient combination of regulatory measures to reduce emissions, while ensuring society's needs and stimulating green innovation. The competitive nature of companies implies that mere emissions objectives are not sufficient to ensure corporate compliance with the Paris Agreement (du Pont et al., 2024).

Red-lines to guide innovation

Translating global objectives into company specific objectives is limited, but other approaches exist. As companies have the ability to provide rapid green innovation, sustainability indicators can draw red-lines that clearly rule out activities assessed as unsustainable. In this perspective, assessing the negative impacts of corporate activities is key. Yet, as such negative impacts are still unavoidable for key economic activities, the question of what are acceptable, or rather unacceptable, levels for individual companies remain. This is where EcoMap brings key insights by putting in perspective the economic contribution of companies with the negative externalities these have on the world.

How can EcoMap be used as a sustainability indicator?

Ecomap exposes and compares companies' economic reporting to their climate impact reporting, but does define sustainable levels. While it is clear that companies cannot collectively or indefinitely run at loss or at the expense of a finite planet, the question of what are acceptable levels of environmental costs through decarbonisation is ultimately a question for decision makers and corporate actors (Gupta et al., 2024). In practice, the question is also increasingly legally relevant as companies face due diligence and the need to show that their business plans align with global Paris Agreement goals (in Europe under the CSDDD that does not define specific criteria).

A conceptually simple approach is to expect companies to have profit that exceeds their negative environmental impacts (Cohen and Serafeim, 2024). With this approach, companies' profit should not be made entirely, or more than entirely, at the expense of the rest of the world. In practice, the question of how long a company can run at such "absolute loss" before being penalised requires somewhat arbitrary decisions, as companies may already run at loss even without accounting for their climate externalities. Even taken strictly, this possible threshold of unsustainability does not imply that other companies should be seen as sustainable or that it is acceptable to pollute insofar as profit is great. Fundamentally, this approach raises the question of which financial indicator best reflects a company's contribution to society. EcoMap provides data that decision makers, economic actors and observers can use to suggest new standards or regulations.

References

• Yann Robiou du Pont et al. (2024). Corporate emissions targets and the neglect of future innovators. Science 384, 388-390. Retrieved from https://www.science.org/doi/10.1126/science.adl5081

• Gupta, Joyeeta et al. (2024). A just world on a safe planet: a Lancet Planetary Health-Earth Commission report on Earth-system boundaries, translations, and transformations. The Lancet Planetary Health, Volume 8, Issue 10, e813 - e873. Retrieved from https://www.thelancet.com/action/showPdf?pii=S2542-5196%2824%2900042-1

• Ronald Cohen and George Serafeim. (2020). How to Measure a Company's Real Impact. Retrieved from https://hbr.org/2020/09/how-to-measure-a-companys-real-impact