The battle over how businesses operate is being fought through international treaties, intergovernmental organizations, and the courts, with new phrases like sustainability and net-zero, and acronyms like ESG, CSDDD, and CSRD becoming prominent in the business sector. The question at the core of this battle is whether businesses have an obligation to prevent climate change. The Paris Agreement signed at the 2015 United Nations Climate Change Conference is a major catalyst for change, setting clear goals to reduce carbon emissions by 45% by 2030 and reaching net zero by 2050, to limit the rise in global temperature.
In response to the Paris Agreement, nations and organizations began working on plans to implement a new regulatory framework to work towards the net zero goals. This involved a multi-pronged approach that included controlling businesses’ access to resources such as loans, insurance, and bank accounts. Organizations like the UN Principles for Sustainable Insurance and the Net-Zero Insurance Alliance were formed to encourage businesses to implement net-zero actions. Similar principles and organizations were also created in the banking sector, leading to the formation of the Net-Zero Banking Alliance. Businesses that do not reduce their GHG emissions may find themselves unable to obtain insurance, business loans, or a checking account.
The next area of focus in this battle is the financial markets and investment strategies, where the most regulatory developments have occurred. The UN developed Principles for Responsible Investing and fund managers adopted ESG investing, a new investment strategy that considers non-financial factors, with a focus on climate action. Companies began providing sustainability and ESG reports to investors, leading to the development of reporting standards by governments and regulatory bodies. The International Financial Reporting Standards and the European Sustainability Reporting Standards were created to address climate disclosure and ESG reporting requirements.
Legal liabilities are emerging in relation to climate and marketing, with regulations being put in place to address issues like greenwashing and climate washing. Greenwashing, or exaggerating environmental action, is being enforced through consumer protection laws in the US and Europe. Climate change is quickly becoming a required consideration for businesses, with legal obligations being established for businesses to address sustainability issues. The debate over whether businesses should be legally required to consider climate change in their decisions is ongoing, with the potential for significant impacts on businesses, particularly small businesses like Joe’s family-owned hardware stores.
If the current plan goes into effect, businesses like Joe’s may have to change the way they operate, calculating GHG emissions for their business, suppliers, and products sold to consumers. Business decisions will need to be made based on keeping GHG emissions low enough to prevent climate change, with potential enforcement actions, loss of access to resources, and lawsuits for non-compliance. The changes may be seen as a reasonable measure to combat climate change by those concerned about its impact, while others may view it as an overreach into how businesses operate. The direction of legal developments suggests that businesses will increasingly be required to consider climate change in their operations, with significant implications for the business community.