The international response to climate change could lead to regulations prompting the C-suite to reconsider sustainability plans.
That's a likely outcome of the United Nations Climate Change Conference (COP26), underway in Glasgow, Scotland, policy experts said. The rules will likely stress the use of renewable and green energy and environmentally sound sourcing of materials. Businesses may have to change how they operate and document those changes for governments. The impact will be felt internationally throughout the supply chain.
"We can expect more promises from governments, more regulations in place, more push, more investments, more backing for investments by governments after that conference," said Abhijit Sunil, a Forrester analyst.
The regulatory buzz related to sustainability and climate change began even before COP26, as President Joe Biden announced a domestic agenda focused on increasing spending for sustainable technology, such as electric vehicle charging stations. Biden is aiming to make half of all vehicles sold in the U.S. electric by 2030. On the regulation front, the U.S. Securities and Exchange Commission, responding to concerns from investors and Biden, is considering requiring firms to disclose their climate risk in public filings.
"Investors across the spectrum are asking about this," Sunil said. "I've been on numerous investor calls where there were targeted questions for the leadership on sustainability, what kind of investments are you making, how are you making the business future-fit."
Investors, regulators push for sustainability progress
Indeed, David Hart, director of the Information Technology and Innovation Foundation (ITIF) Center for Clean Energy Innovation and a public policy professor at George Mason University, said investors screen companies according to sustainability and climate plans.
Hart said those plans could include what type of buildings people are working in, how production processes are organized and where a company is sourcing key supplies.
"More and more, it's not just about sentiments and statements, but actually changing operations and documentation of reductions in greenhouse gas emissions," Hart said. "So yes, a piece of it is going to be investor pressure."
The regulatory and reporting demands will grow more complex following COP26, according to analysts.
Ali Fenn, president of ITRenew, which specializes in the lifecycle of IT products, believes the biggest challenge to sustainability progress will be the supply chain. She said that large global IT firms might have to assess the carbon impact of their global IT deployments.
For retail companies like Walmart, companies may have to account for the environmental impact and energy demands of not only their buildings and internal IT, but for the supply chain of everything they sell, she said.
"You can only force supply chain decarbonization among manufacturers in all parts of the world to a certain degree," Fenn said. "We don't have data transparency; we don't have the same motivations; we don't have the same opportunities. And so the picture becomes much more complex in terms of thinking about what else can we do, where can we avoid new emissions."
The U.S. climate change effort will be a combination of regulation and investment. Biden's "Build Back Better" initiative calls on the nation to reduce its carbon emissions to about 50% by 2030. The U.S. House of Representatives has yet to approve the legislation, which allots roughly $500 billion toward combating climate change. The legislation needs to pass both the House and the Senate before it becomes law.
The House did pass Biden's $1 trillion infrastructure bill Friday, which will now go before Biden to be signed into law. The infrastructure bill funds sustainability efforts such as electric cars and low carbon emission buses and ferries.
Although a significant motivator, federal efforts and government regulations are one of four major driving forces behind getting businesses on board with sustainability.
While investors are the first driving force behind business investments in sustainability, customers -- from enterprises to consumers -- are the second driving force.
Forrester's Sunil said the growing discussion around climate change is heightening consumer awareness. As a result, many C-suite executives outline supplier codes of conduct, which ensure that the businesses they work with employ good sustainability strategies such as having environmentally friendly production processes.
Government regulations and employees are the third and fourth driving forces behind business sustainability. According to Forrester research, Sunil said employees tend to rate workplaces higher if they can see a "clear sustainability strategy."
Government regulation is particularly important to standardize sustainability approaches for small to medium-sized companies, ITIF's Hart said. Oftentimes, larger companies are ahead of federal initiatives in pioneering sustainability. Within the last year, large IT companies like Google and Microsoft with sprawling data centers have shifted to completely renewable energy, Hart said.
"They're leading the pack, but ultimately, everybody needs to join," Hart said. "That usually requires some kind of regulatory move to bring the laggards up to the level of the leaders."
Cost can be a barrier to businesses to adopt sustainable practices, but over time, growing demand will lower costs, Hart said.
Renewable energy is an example of this pattern, Hart said. Renewable energy options are often competitive and sometimes cheaper than fossil fuels for businesses, partly due to the fact that large companies are willing to pay higher prices as first movers and businesses following behind benefit from that.
ITRenew's Fenn pointed to government policies as a driving force behind making sustainability achievable. She cited former President Barack Obama and his clean energy policies as an example.
Ali FennPresident, ITRenew
"The Obama administration's policy on clean energy wasn't exactly the first time anybody was talking about solar and wind power," she said. "But what changed is that because there was policy and incentives, suddenly the prices dropped sufficiently such that it could be more broadly adopted and accelerated. I think the same is true in each kind of frontier -- we are seeing the economics of clean energy work because there has been a push."
But what businesses have to do is prioritize sustainability, Sunil said.
Actions an organization can take fall into three main buckets: procurement, internal operations and end-of-lifecycle.
Renewable, green energy is the main procurement option, but green sourcing of raw materials such as water for consumption also falls into this category, Sunil said.
Fenn said renewable energy is one of the easiest options businesses can go for on the path to sustainability. Companies should be procuring as much renewable energy as they can to run their operations, she said.
Internal operations are the second area C-suites can focus on to address a business's carbon footprint, such as reducing employee travel, Sunil said.
Another area for businesses to examine is how they manage, recycle and repair products used internally, as well as how to manage e-waste responsibly, Sunil said.
Sustainability, climate change action benefits businesses
Government action can also lead to incentives, such as tax credits.
ITIF's Hart said incentives already exist for different kinds of low-carbon technologies and initiatives.
"Essentially, companies that owe large tax bills can get a credit by investing in those kinds of projects," he said. "There are also incentives for buying energy-efficient equipment in some areas."
Hart said every business should have a sustainability strategy not only for incentives, but also for risks. A climate plan should play a significant role in the larger sustainability picture due to the risks climate change presents to businesses.
Sunil echoed Hart, noting that if an organization is not prepared for climate risks from flooding, storms, droughts, fires and anything else that may disrupt the business or supply chain, it will not be "a strategy that will be looked kindly on."
"The key thing here is to be aware of the risks that may come and being prepared for it," he said.
But risks aren't just weather-related. They include tighter government regulations, the cost of business relocations, shifts in investment and environmentally-driven changes in the buying habits of customers, experts like Sunil said.
Businesses will need to identify "what these risks are and the source of these risks," Sunil said.
Another challenge facing sustainability efforts is the limitations of technologies themselves, Sunil said. A majority of technologies needed for businesses to reach milestones such as net-zero emissions remain in the innovation stage.
Battery technologies, for example, are unable to shoulder the demand for long-term energy storage. Sunil said it's "nearly impossible" to electrify trucks for long-haul shipments.
Biden has committed to achieving a net-zero economy by 2050. Increased interest from federal and local governments means more dollars for research, Sunil said.
"We need a lot more innovative technologies," he said. "The good thing about more conversations around this and some initiatives from the government is there will be more backing for research, and for startups and other ecosystems that are trying to look into this as a viable business option."
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.