Hello from London, where I’ve just attended the launch of Fortune’s new Europe edition. More on that in a moment. But first, let's talk about the pressing problem of emissions.
A 7% reduction in global CO2 emissions per year, starting right now: That should be the target if we want to save the world from runaway climate change and put it on track for the “net zero” climate goals for 2050. This is the conclusion of Boston Consulting Group in a new report prepared for the Alliance of CEO Climate Leaders, a group of sustainability-minded CEOs by the World Economic Forum.
But even before the COP28 UN climate summit kicks off in Dubai later this month, it should be obvious that this goal won’t be achieved. For starters, global emissions are still rising, reaching a record high last year. Moreover, just a fifth of global carbon emissions are currently covered under national climate plans that have a goal of net zero by 2050 consistent with the 7% annual emissions drop.
This leaves companies with what looks like a prisoner’s dilemma: Do your fair share no matter what and hope that the rest will follow, even if you will probably be betrayed. Or opt out and ignore the global goals, as they are unlikely to be achieved by the global community anyway.
Not to be cynical, but the first option will not be the outcome of the Dubai gathering. It will be another talk shop on the road to global boiling, as the UN secretary-general now describes our era. And it feels like a classic tragedy of the commons in which everyone loses.
Yet there is another way forward. In economic literature, the prisoner's dilemma assumes individual players have no agency over the process, just over their own actions, and that the outcome they face depends only on other players’ independent decisions. But in real life, that's not the case. Companies can lobby each other and the governments that regulate them.
This has been the approach of many climate-oriented CEOs. A prime example is Holcim, the global construction materials company. The Swiss firm has historically been responsible for up to 0.4% of global greenhouse gas emissions. Globally, the built environment is responsible for 39% of emissions, split between emissions from construction and those of heating and cooling.
Under a new strategy adopted in 2020, Holcim has chosen the collaboration stance in the prisoner’s dilemma regardless of what others do. It adopted a “net zero” target, verified by the Science Based Targets initiative. As a result, the company will likely achieve 2-6% average emissions reductions in the coming years, in line with the 1.5-degree Celsius pathway.
To avoid the worst-case outcome of the prisoner’s dilemma, though, the company has hedged its bets. It seeks out fellow corporate climate leaders and sells them on its new CO2-light products. It’s how Amazon became a customer of Holcim’s “Ecopact” concrete, for example, for its new warehouses in Virginia.
But Holcim goes a step further, lobbying regulators to come on board. It has active discussions with regulators in the European Union, its chief sustainability officer, Nollaig Forrest, told me, to get them to adopt regulations favorable to other climate-oriented companies. (Forrest also joined me on stage in London last night to celebrate the launch of the Fortune 500 Europe.) And in the U.S., Holcim targets progressive states such as California to set a precedent in America too.
It's a sensible strategy. Without such lobbying and coalitions, a climate-friendly strategy would most likely be penalized by the market instead. But collaborating in the fight against climate change can be effective even if the classic prisoner’s dilemma suggests otherwise.
Here is my new feature on Holcim, which comes in at No. 121 on the new Fortune 500 Europe, the first-ever list of the 500 biggest companies in Europe by revenue.
On a related note, you can now sign up for our new CEO Weekly Europe newsletter, which kicks off Nov. 29. In it, I'll cover Europe's largest companies and their quest to remain relevant in the 21st century global economy. As in the Holcim case, sustainability will likely be a big part of the narrative. If you like how that sounds, subscribe here.
More news below.
Peter Vanham
Executive Editor, Fortune
peter.vanham@fortune.com
This edition of Impact Report was edited by Holly Ojalvo.
