It was a great pleasure to attend the Event in London “Strategies for Transitioning to Net Zero,” co-hosted by the Financial Times. The conversations underscored how much progress so many of companies have made to develop and operationalize transition plans to net zero, and how much more work is required to reach that goal.
Here are some key takeaways from the discussion:
- Leaders need to drive decarbonization with urgency. This kind of transformation requires vision and bravery. There isn’t time to wait for all the information. Business leaders need to embrace imperfect data and adopt pragmatic approaches that enable their companies to make progress, beginning with the most material issues.
- Turn targets into action. A large majority of participants said their organisations have already defined their strategy and set targets, and roughly half said they are starting to see the impact of those efforts, some of it significant. This is only the start of the net-zero journey, though. The challenge ahead lies in breaking these commitments down into practical actions at the portfolio, sub-group level or even product level, over shorter time frames of perhaps one to three years, and then starting to make and measure real progress against them.
- Embed climate action in business plans. There needs to be a change in the way we do business. Climate and sustainability can no longer be a sideline activity. In order to succeed, it has to move up the agenda and become a core part of the business plan. Companies will need to integrate climate action into their day-to-day operations. This will require a change in mindset across the organisation.
- Collaborate across the value chain and the broader ecosystem. In the direct value chain, a commercially smart transition requires companies to put the customer first. That means developing broad-based strategies, not just isolated products and services, that fulfill customer needs whilst enabling companies to achieve their decarbonisation objectives. A more forceful approach can be effective upstream, with organisations setting requirements for suppliers to make sure they get certifications and transition themselves. B2B collaboration will be critical to squeezing out Scope 3 emissions along value chains. Across the broader ecosystem new partnerships will be required between the public and private sectors, corporates and financial institutions, and large companies and small businesses.
- Find ways to make legacy SMEs part of the solution. Policymakers, investors, and banks are focused on large companies, which is appropriate given the impact to be achieved. These firms will reinvent their business models or invest in new technologies to serve customers in a manner that is net zero aligned. New and innovative small and medium-sized enterprises have the opportunity to be winners as they understand and address the needs of the day. But legacy business SMEs may be stuck, without the finance or capacity to reinvent themselves, which is likely to have significant social and political implications. SMEs represent 60% of the UK economy, and many are already challenged by talent issues, supply chain issues, inflation, and now rising interest rates. Emerging carbon disclosure requirements will add more perceived red tape. Government policy and reporting requirements will need to reflect the very different challenges of SMEs and set practical and clearly articulated timeframes, backed up by an awareness. We can’t have the corporate sector bullying SMEs through procurement and supply chain processes. The SME confederations of industry need to get on the case and effectively lobby/inform government.
- Transition plans needs to be more than commercially smart. Business can’t take its eye off the bottom line, but net zero plans also need to be just and emotionally smart. Just is key in a world where we now see energy-driven inflation hitting the poor hardest and causing strikes across Europe. If today’s high energy prices benefit only management and shareholders and don’t visibly accelerate the decarbonisation agenda, the social and economic gap between haves and have nots will increase with all the associated tribal risks. An emotionally intelligent transition is about capturing hearts and minds: What’s the contribution we can all make? What sense of possibility can we create for a new generation of green entrepreneurs? How do we raise the efficiency agenda?
Climate is the great challenge of our time, one that demands we engage every actor, large and small, to meet it. We look forward to continuing our dialogue and working together with our investors selecting those companies that contribute to building a sustainable future.