Bridging the Gap Between Climate Commitments, Action & Implementation
On COP27 and Net Zero trends
Over the past two months we’ve surveyed several dozen ESG and sustainability leaders at different companies to ask them a simple set of questions. Specifically, is the economy impacting your company’s sustainability commitments and ESG prioritization, investment, and headcount?
As you might suspect, the answers were mixed:
28% of respondents say their company’s prioritization and investment across sustainability and ESG are increasing
33% say prioritization and investment will stay the same
33% say they see or anticipate some decrease in sustainability and ESG prioritization and investment
6% are seeing or anticipating significant decrease
Nonetheless, if 61% of leaders saying their sustainability and ESG ambitions are on track or increasing is indicative of the broader industry, there continues to be significant corporate sustainability momentum in spite of the macroeconomic picture.
Other data backs this up too. For one, “Net Zero” references in corporate ESG reporting has grown considerably over the past three years. Accenture also ran a separate survey recently which finds “more companies than ever before have publicly committed to reaching net zero carbon emissions by around 2050.”
We can expect even more commitments to come out in the coming days and weeks as politicians and business leaders gather at the UN COP27 climate conference in Egypt.
At a high level, this is positive. Public announcements create some level of accountability, and the fact that all these targets are being set means boards and management teams are discussing climate risk and Net Zero pathways. All good things.
The challenge, however, is that unless companies accelerate their progress, action, and investment, it’s estimated 93% of these commitments will miss their targets.
So how do we bridge the gap?
#1 - Courage
Obviously, this needs to start with courage at the leadership level. Even in the face of economic slowdown, if companies plan to achieve their sustainability targets and Net Zero ambitions, they need to invest with a longer-term mindset, and CFOs will need to engineer the financial bridge to make that possible.
The fact that 64% of CFOs agree ESG adoption will improve their company’s long-term financial performance is an encouraging sign for getting capital behind decarbonization initiatives. Energy efficiency and renewables are great, and offer fast financial payback wins, but true decarbonization often requires digging deeper into many company’s operations and sourcing.
Moreover, Net Zero ‘teams’ need to get bigger, and more embedded throughout the business. That takes budget that can't afford to dry up at such a pivotal time in history.
#2 - Carbon Intelligence
We see this on a daily basis in our work, but the reality is most organizations lack ‘carbon intelligence’ and the ability to rationalize big picture emissions goals with day-to-day business decisions:
What do outsourcing, off-shoring, and near-shoring approaches mean for a company’s GHG emissions?
What are the emissions impacts of materials and supplier decisions?
What happens if we shift delivery vehicles from using Fuel A to Fuel B?
How do company policies around areas like travel and waste management impact Scope 3 GHG?
Often, non-sustainability decision-makers lack both (a) education and perspective and (b) accurate data and forecasting tools to make these types of decisions and weigh the pros and cons. Your business already puts a dollar value behind most decisions, should it also include a carbon price?
A simple example of emissions forecasts modeled in Brightest
Moreover, many organizations face internal frictions and KPI inconsistency around sustainable decision-making. We’ve seen consumer products companies struggle to replace raw materials with lower-carbon alternatives when improving a product’s sustainability KPIs harms margins. Or perhaps sustainable alternatives aren’t available at the scale the organization needs due to supply chain capacity.
Ultimately, business KPIs and sustainability KPIs need to be in sync. Sure, you can go to IT leadership and say “we need to reduce Scope 3 emissions,” but it’s even better to create a department-level target for reducing server energy usage, then engage IT on the best ways to achieve that. Net Zero plans need to be both top-down and bottom-up.
#3 - Supply Change
Internal sustainability engagement and action are obviously important, but, in most cases, a company’s greatest carbon leverage is external. 80-90% of the average consumer product company’s emissions come from its value chain. 90%+ of the average financial services business’ emissions are linked to its capital allocation.
To respond to this opportunity — as well as the implementation challenges and emerging regulatory pressures — sustainable procurement and climate finance have become integral pillars in leading companies’ Net Zero strategies.
This means supply chain sustainability improvements and tighter ESG investment standards across the value chain, including:
Institutionalizing value chain decarbonization from a management, process, and company policy perspective
Achieving better supply chain and/or portfolio transparency and traceability to set priorities, assess risks, and target opportunities
Setting better, clearer standards (and helping partners meet them)
Upleveling value chain data, risk modeling, and forecasting capabilities
Embracing innovation and resilience opportunities
While a Net Zero 2040 or 2050 target might be your company’s north star, is there a 2025 target? A 2030 target? Are there sub-targets for different regions, departments, or business units? Do your suppliers or portfolio companies have their own targets?
Having a big, flagship Net Zero target is a great start, but actually achieving it requires reverse engineering and iterating across lots of interim plans, programs, and stakeholders. No matter how large or ambitious the denominator is, every path to Net Zero is realized 1% at a time.
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