Implementing net zero/net negative and COP commitments
As E, S & G are becoming a part of board discussions and increasingly detailed in annual reporting organisations, organisations are realising how much work there is to be done. It isn’t glamourous, but businesses need to turn their attention to:
- Materiality – what aspects of climate change, social licence to operate and governance are material to their businesses;
- What you know now – the real work starts with the essential role of data and technology in tracking and reporting on environmental impact in order to achieve sustainability goals. This data is critical to establishing baselines;
- Where you are going – implementing robust and effective plans and roadmaps on how to reduce carbon and other GHGs, manage supply chains and ultimately transition to more sustainable business models.
As Net Zero/Net Negative discussions become more granular and supply chain considerations from COVID-19 continue, boards and management teams would do well to start integrating a holistic approach to their short and long-term planning, particularly through the lens of a circular economy. Stakeholders need to come together across sectors and industries to establish how industry changes can deliver net zero and net negative targets.
Scaling Transition of Energy, Built Environment and Transport
Viability of transition paths away from fossil fuels towards low-carbon energy production is crucial to meeting net zero/net negative targets and with new technologies such as hydrogen and carbon capture we expect to see increasing activity and news coming out of these spaces.
According to our 2021 Energy Transition Investment Report the most popular current power generation technology for investment is solar (photovoltaic but also solar heating), followed by hydro, and onshore and offshore wind. But change is complicated and companies reported a notable drop-off in investment into new hydro and onshore wind over the past year, including due to environmental and social licence issues. The proportion of organisations that have invested in, or decided to invest in, battery storage technology has surged from 46% to 67%. These findings likely reflect faster than expected declines in chemical battery costs, as well as the need for additional firming capacity in markets that increasingly have a high penetration of variable renewable energy sources.
But with an increase in scale and a shift from fossil fuels to established renewables such as wind and solar as well as transformative energies such as hydrogen also comes challenges, for example the “greenness” of new technologies and supply chain concerns, which organisations will need to be aware of.
The built environment is crucial to delivering a sustainable future. It is estimated that 80% of the buildings we will be using in 2050 already exist on the ground today, so retrofitting and refurbishing existing ‘brown’ assets into ‘green’ assets is vital.
Transport will be a key area of focus this year. China, Japan, Singapore, the UK, South Korea, Iceland, Denmark, Sweden, and Norway have all started taking action on limiting or banning combustion engines for cars. That change in transportation mode will bring with it changes to infrastructure and infrastructure support systems such as the introduction of charging stations as well as the rethinking of how people move around. While a number of results depend heavily on technological advancements, serious work will also need to be done to convert existing systems.
Increasing tide of regulation
ESG regulation has increased year on year and we anticipate this will continue. In the latter part of 2021 a flurry of policy announcements from around the world revealed that change is certainly afoot. Governments are being pressured to provide commitments but more importantly roadmaps to deliver on commitments. Releases such as the UK’s Greening Finance roadmap are giving markets an indication of government direction on the fundamental issues.
Additionality and adaptation
Transforming our economies to be more sustainable is no easy task. It includes:
- Rapid decarbonisation of our existing industries and businesses, energy production and use, built environment and transport to name a few;
- GHG removal at scale and speed, in particular carbon but also methane, which is 25 times more potent than carbon;
- Refocusing finance and digital transformation to accelerate sustainability and support a just transition;
- Grappling with the question of adaptation, companies will need to address increasingly erratic weather and its impact on our businesses from supply chains too insurance costs.
Stakeholders across the board will have their own targets and ambitions when it comes to ESG and sustainability. We will continue to see both progress and delays from stakeholder input as tension arises as to who should be responsible for what, particularly when the benefits of turning green are shared. Increasing collaboration, whether with regard to businesses within supply chains, relationships between clients and service providers or between owners and occupiers of real estate, is going to be increasingly under the spotlight.
In conclusion, this year will not be about addressing just one aspect of sustainability. It’s the opportunity for us to look at the problems and the solutions holistically. And an incredible opportunity for companies to get it right and be the leaders in their fields.