We are at a critical tipping point. As the global economy rapidly embarks on a low-carbon transformation, corporations increasingly face significant issues accessing capital, and small- and medium-sized enterprises may be disproportionately impacted. Meanwhile, the movement of capital is increasingly driven by factors related to environmental, social and governance (ESG) concerns. In this context, a stark contrast in potential scenarios is possible.
On the one hand, some believe that unprecedented economic transformation will occur within the next decade. Key to this belief is the conviction that increases in global temperatures must be kept below 2 degrees Celsius, in keeping with the United Nations' Sustainable Development Goals. Individual nations will collaborate sufficiently to put in place mechanisms to achieve "net zero" greenhouse gas emissions (i.e., decarbonization), ideally by 2030.
The competing scenario is that globally consistent government policy will take decades to establish, and that net zero, if it's achievable at all, won't be possible before 2070.
It goes without saying that these two scenarios are incompatible.
KPMG takes ESG matters very seriously. KPMG International recently announced an investment of US $1.5 billion over the next three years to advance ESG skills, accelerate new technologies, and encourage action. I engage these objectives in my daily work and know that the challenges of climate change are complex and difficult, and that, as yet, there are answers but no easy solutions. I do, however, see two areas where gains can be most readily made: technology and talent.
Technology: How we'll get it done
First of all, it's critical to recognize that decarbonization is dependent on unprecedented deployment of new technologies, such as carbon capture and storage, and alternative/renewable energy sources. However, most of the most promising technologies don't currently exist at commercial scale. Because of this, they will face constraints related both to basic financing as well as finding the raw materials need to scale them up.
As the Science Based Targets Initiative highlights, over 90 per cent of decarbonization must occur within business and personal activities, rather than through carbon capture and geoengineering. Meanwhile, traditional measures of return on capital could significantly limit the necessary investments in R&D and deployment.
Development and deployment of new technologies will rely on unprecedented levels of coordination and information sharing across sectors and value chains, but these could be constrained by current competition laws, as well as individual organizations and nations guarding their IP. This means private sector investment alone will not get us to net zero, even though businesses are currently outpacing governments.
For these reasons especially, complex medium-term public policy decisions and investments will need to be made, such as facilitating innovation and deployment of clean fuels and setting standards for managing and reporting climate risks. Strong collaboration between governments and the business sector will be needed with a distinct opportunity for business leaders to provide leadership.
Talent: Who will do it
More generally, a dramatic and growing shortfall exists in the specialized skills required to decarbonize the economy. There is already an order of magnitude gap between demand and supply for this talent. Traditional educational and training channels are struggling to respond quickly enough: new programs take years to establish while new demands continue to materialize in a matter of months.
Unfortunately, upskilling and reskilling will probably only be possible in limited fields. As it happens, this is a critical blind spot for executives—a recent KPMG survey reported that 74 per cent of global executives believe they already have the necessary talent to deliver their decarbonization plans. This might be overly optimistic.
Technology neither invents nor deploys itself. Therefore, we have to ensure that the next generations can pursue non-traditional educational and career paths in as many fields as humanly possible. Indeed, ESG is increasingly top of mind for young people, who also want to build careers that are purposeful and make a real and lasting difference on the world. This opportunity couldn't be more perfectly aligned.
Decisions are made by those who show up
Ultimately, I believe physical climate risks are unavoidable. They are also materializing decades sooner than expected, and therefore represent a major systemic risk to the stability of global capital markets—and our world. The transition risks alone are very real and could be very disruptive, which is why CEO leadership will also be required to fully recognize and aggressively mitigate these risks.
As with other mega-trends of the past, good advice for organization would be engage now: recruit talent, work with your stakeholders to understand their views, and start measuring and running scenarios of climate change impacts on your business (even at a high level). The next steps may require more hard dollar investments to invest in technology and business transformation.
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