Journal

Accelerating the transition: From commitment to action

Introduction

Global decarbonization efforts need to accelerate if we are to avoid the most catastrophic consequences of climate change. Current actions and commitments fall short of reaching the 2015 Paris Agreement goal of limiting global warming to well below 2 °C.  Governments, corporates, and financial institutions are ramping up their commitments to transition to net zero emissions but, as highlighted by Oliver Wyman’s Climate Action Navigator, the gap between ambition and reality is widening. 

The 2022 polycrisis has put the net zero commitments and pledges to the test and exposed a divergence between what is politically feasible and scientifically necessary. This was evident at the  2022 United Nations Climate Change Conference of the Parties (COP27) in Sharm El-Sheikh (Egypt), where negotiations largely failed to scale up pledges to cut emissions and did not deliver on commitments to phase out fossil fuels. This highlights how climate action can be discouraged by a volatile geopolitical landscape and a deteriorating economic outlook with high inflation in many countries.  

The current energy and food crises and global supply chain issues illustrate the urgency and the complexities of making progress towards net zero ambition. Corporations need to transition at pace and at scale, and within the normal pressures of sustaining and growing a profitable business. With commitment comes accountability and  growing recognition that not only the pace of the transition but also the effectiveness and integrity matters: Climate litigation is increasing and concerns about greenwashing triggering calls for new regulatory oversight for the transition to net zero.  

As organizations across every industry move forward with their decarbonization strategies, they need to prepare for new risks and opportunities. The ability to anticipate, measure, and manage risks is a critical advantage as the transition unfolds. Delivering a commercially smart climate transition requires businesses to reimagine their climate governance and risk management strategies. 

This Handbook features perspectives from business leaders across Marsh McLennan who routinely help clients in their net zero journey. It provides insights on governance strategies, explores how energy systems are transforming, investigates the evolving role of financial institutions in accelerating decarbonization, and describes progress and obstacles across different sectors.  

Businesses are at different stages in their climate transition and tools such as Marsh’s ESG Risk Rating tool and Mercer’s Analytics for Climate Transition (ACT) help  to measure performance, assess investment portfolios, and manage risks.

Managing the transition: Reimagining corporate strategies

Businesses need to accelerate their net zero efforts and turn commitments into action. Despite recent progress, current pledges are not enough to avoid the most catastrophic impacts of climate change. An analysis of greenhouse gas reduction targets from G7 companies shows that their commitments are on a path to a 2.7°C warming by the end of the century – far above the goals set out by the Paris Agreement. As regulatory scrutiny and stakeholder pressure on corporates are rapidly increasing, organizations need to rethink their climate strategies and avoid greenwashing.

Powering the transition: Decarbonizing energy systems

Energy systems are evolving, creating new risks and opportunities. The importance of renewables in the global energy mix is rapidly growing, with further public and private investments required. Well-established solutions, such as solar and wind, are being complemented by innovative technologies like hydrogen. The energy transition opens up new opportunities but requires careful navigation of evolving risks and uncertainties. The invasion of Ukraine brought the topic of energy security to the forefront, while droughts and heatwaves pose challenges to the transition strategies of countries heavily reliant on hydropower.

Financing the transition: The changing role of financial institutions

The net zero transition requires new insurance and investment solutions. The financial sector has the commercial opportunity to develop targeted products and services that address climate change and the decarbonization of energy systems. Investors, banks, and insurers need to consider how and what emissions to measure, how to decarbonize their portfolios, and how to support their clients’ decarbonization journeys. Climate disclosure and reporting can help businesses prepare for new financial risks and opportunities.

Implementing the transition: Sectoral perspectives

Climate and sustainability leaders across industries are working to turn decarbonization commitments into concrete action. They must navigate changing economic realities, geopolitical challenges, and wider societal and environmental considerations. This requires new data, skills, and collaborations. Organizations must act swiftly to navigate this pivotal transition and seize new opportunities.