Companies and investors are beginning to understand the clear financial and material risks that climate change poses affecting businesses and the economy. Investors are taking note of how companies manage these risks in accordance with various agreements, such as the Paris Agreement, which seeks to limit average global temperature rise from pre-industrial levels to below two degrees Celsius and limit warming to 1.5 degrees Celsius. Scientific research continuously finds that limiting global temperature rise to 1.5 degrees Celsius is necessary to avoid catastrophic outcomes including drought, floods, extreme heat and poverty for billions of people.

This paper provides a blueprint on the process which investors and companies can use in order to align themselves with the latest science on climate change to effectively address the systemic nature of the climate crisis. Companies that are able to establish robust governance systems to address climate change and align their direct and indirect lobbying effort to support science-based climate change will be best positioned for resilient growth. Similarly, investors can urge companies to proactively align all elements of their business to support global climate agreements and mitigate the risks of climate change.

The paper outlines three key processes for businesses to positively engage with climate change to support a greener future. The three steps are:

• Assess: the impact of climate change on the company
• Govern: to systematise decision-making on climate change across the company
• Act: align both direct and indirect lobbying with science-based climate policies

Under the assessment step, companies assess the scope and nature of their climate risk exposure by integrating climate change into their enterprise risk management (ERM) process. As companies assess, they need to factor in the latest climate science with data and projections on how the physical and transition risks from climate change could affect its operations and value chain. Similarly, investors expect a focus on what is material to the company asking for useful quantitative and qualitative information.

Companies must also conduct an internal audit of their direct and indirect lobbying position on climate change, publicly disclosing the results of their audit and a plan to address policy misalignment, to assist investors in their investing process.

Next, companies must systematise decision-making on public policy engagement on climate change. Using internal audits, companies can use cross-organisation groups that will bring relevant and important perspectives to the governance of their company. Under the govern step, companies must always engage their board on climate policy as those who have boards explicitly mandated to oversee both climate change and public policy are best positioned to address climate change issues.

Finally, companies need to publicly state that the company supports science-based climate policies and directly lobby for science-based climate policies. This can be done by actively engaging with trade associations so that their lobbying efforts are aligned and where it is misaligned companies need to take corrective action with their trade associations.

1. Science-based climate policy aligns efforts with the latest climate science to limit global average temperature to 1.5 degrees Celsius above pre-industrial levels, halving emissions by 2030 and achieving ‘net-zero’ emissions in the US and other industrialised nations by 2050 at the latest. Science-based climate policy advocacy must be paired with high-level support for climate action with support for specific near-term policies.
2. The We Mean Business coalition has identified some key policies needed to accelerate the transition to net-zero by 2050. Some notable policies are:
   • Zero carbon economies: which advocates for the phasing out of fossil fuels by 2025
   • Zero carbon transport: to end internal combustion engine sales by 2030
   • Zero carbon power: support renewable energy deployment and a full phase out of coal-power globally by 2040.
3. Ceres and other leading non-profit businesses released an open letter to CEOs of America calling all businesses to adopt the ‘AAA Framework’. The framework advocates for policies at all industry levels to be consistent with 1.5 degree path to achieve net zero emissions by 2050, align trade association’s climate policy to be consistent with 2050 goal and allocate advocacy spending to advance climate policies in line with climate science.
4. The risks of climate change to investors are material, thus investors have expectations of corporate climate lobbying to engage with the climate conversation align their lobbying efforts to minimise climate risks. The risks to investors are:
   • Regulatory risk: where a delay in action now will result in the need for stronger regulatory interventions later, leading to higher costs for companies
   • Systemic economic risks: where a delay in the implementation of climate policies aligned with climate science increases the physical risks of climate change and higher volatility in investor portfolios
   • Reputational and legal risks: where companies face backlash from their consumers, investors and stakeholders if they are seen to be delaying or blocking effective climate policy.
5. With these risks in mind, investors are calling for companies to take more action by:
   • Lobbying in favour of cost-effective climate policies in line with the Paris Agreement
   • Undertake policy engagement in all geographic regions
   • Establish robust governance and disclosure procedures around climate risk
   • Actively seek misalignments between companies’ policies on climate and policy engagements
   • Publicly disclosing the company’s position on climate, climate lobbying, lobbying of trade associations and taking actions when misalignments are discovered.
6. Coca-Cola identified climate change as a material risk in 2019, as a part of the assess step, where it found that climate risks posed potential long-term adverse impacts on its operations. The company cited scientific evidence that increased temperatures caused by global house gas emission would result in decreased global agricultural productivity and lead to water scarcity, which would cause disruptions to it supply chains.
7. Cross-functional teams are useful in the govern step of the blueprint as they include people who pertain to government affairs, chief legal counsel, financial or risk management teams and sustainability teams. Having such a wide range of people will bring various perspectives to the climate issue which will help ensure company lobbyist are well versed on the latest climate priorities.
8. Mars released a climate action position statement affirming that human-caused greenhouse gas (GHG) emissions have changed the climate and acknowledged that the world must contain global temperature increases to no more than 1.5 degrees Celsius to avoid the worst climate-related impacts. Mars acted on this information and outlined its assessment of its value chain GHG emissions and released targets to decrease emissions by 27% by 2025 and 67% by 2050 from 2015 levels. Similarly, PepsiCo has disclosed its climate goals and policy advocacy efforts to be consistent with the goals of the Paris Agreement and asked its trade association to adopt a similar stance when engaging on climate.