Sustainability

Getting to net-zero

June 21, 2021

Global

Getting to net-zero

June 21, 2021

Global
Martin Koehring

Senior Manager for Sustainability, Climate Change and Natural Resources & Head of the World Ocean Initiative

Martin Koehring is senior manager for sustainability, climate change and natural resources at (part of The Economist Group). He leads Economist Impact's sustainability-related policy and thought leadership projects in the EMEA region. He is also the head of the, inspiring bold thinking, new partnerships and the most effective action to build a sustainable ocean economy.

He is a member of the Advisory Committee for the UN Environment Programme’s Global Environment Outlook for Business and is a faculty member in the Food & Sustainability Certificate Program provided by the European Institute for Innovation and Sustainability.

His previous roles at The Economist Group, where he has been since 2011, include managing editor, global health lead and Europe editor at The Economist Intelligence Unit.

He earned a bachelor of economic and social studies in international relations from Aberystwyth University and a master’s degree in diplomacy and international relations from the College of Europe.

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Whether managing climate risk or seizing new opportunities in the green recovery, companies are becoming increasingly focused on the environmental footprint of their operations, and a growing number are setting ambitious net-zero targets. This means committing to removing from the atmosphere the same amount of greenhouse gases that they generate. But making pledges is one thing; actually meeting net-zero goals can prove a complex and Herculean task.

The scale of the obstacles facing companies is revealed in a major research programme conducted by The Economist Intelligence Unit and sponsored by HSBC. While costs, skills gaps and supply-chain complexity are among the pain points for companies, perhaps the biggest challenge for many will be making the business-model shifts needed to achieve net-zero.

To assess the progress of companies towards net-zero, and to understand how they are tackling roadblocks along the way, we conducted a survey of 500 global business leaders from a variety of sectors and from small, medium-sized and large companies. We also conducted a literature review, in-depth interviews and desk research.

The importance of definitions

We convened an advisory board of experts, who all agreed that one of the first challenges for companies is to establish what exactly a net-zero goal is, particularly as the challenges of achieving net-zero emissions vary widely by sector. Inconsistency in definitions of net-zero, they argued, makes it hard for industry to move in the right direction. Yet, without a clear definition of net-zero, pledges risk being merely greenwashing statements.

Surprisingly, our survey revealed a high level of confidence from respondents about meeting their targets. Some 69% said that they had set a net-zero goal, while almost three-quarters (74%) planned to have reached this goal by 2025 and about 90% were optimistic about the outcome (with slightly less optimism expressed by European corporates).

But if definitions of net-zero—and therefore the scale of the challenge—are inconsistent, what is clear to companies is that achieving it will involve a transformation in energy sources. More than half of survey respondents said that shifting their company’s energy consumption to renewables is their top strategy to achieve net-zero.

And when asked about the most radical changes needed to take place for their company to meet its net-zero or other emission-reduction goals, a plurality of respondents (43%) cited their use of energy (with this rising to 47% among those based in Asia), followed by waste management (35%) and managing the dependency of the supply chain on fossil fuels (29%). Among European respondents, waste management was the top answer.

Concerns about costs

Despite the optimism reflected in the survey responses, our research also reveals a number of hurdles that companies face in meeting their net-zero or other emissions-reductions goals.

Making the requisite levels of investment will be a key challenge to companies, particularly those in industries that are heavy emitters, such as steel and cement—for which low-carbon options cannot yet produce the extremely high-temperature heat needed in production—and aviation—for which no clean alternative fuels currently exist. In the survey, costs emerged as the biggest perceived barrier to meeting net-zero, both internally and externally as a result of pandemic-induced financial constraints.

Concerns about increased cost were cited by 61% of respondents as an internal barrier to meeting net-zero targets and emissions-reductions goals, with almost half of those (29% of respondents) referring to this as a “very significant” obstacle. Meanwhile, pandemic-induced financial constraints represented the top external barrier (59%). 

Worries about costs may be behind another barrier survey respondents see as hampering efforts to decarbonise: making the case for climate action in the face of business priorities with clearer paths to revenue generation. This may be why companies are also reluctant to embark on business-model shifts. Just over half of respondents (54%) said that this was an obstacle, with 21% saying it was a “very significant” one. 

However, the consensus of the advisory board was that while many companies look at the cost of decarbonisation in a negative light, in the long term it offers the possibility of building a more competitive, resilient enterprise.

Long-term opportunities

Decarbonisation also presents the potential for substantial savings on energy costs. This is one investment that business leaders have acknowledged as promising. In the survey, the opportunity to make long-term cost savings, such as lower energy bills, was the highest-ranked factor driving companies to set a net-zero or other emissions goal. It was cited by 86% of respondents, with more than half (55%) calling it “very important”.

The advisory board agreed that, given the full implications of achieving net-zero emissions, many companies will need to undergo a fundamental rethink of their business models—something that presents perhaps the most daunting prospect for organisations, particularly smaller enterprises that lack the knowledge, financial means and internal capabilities needed to change direction.

The scale of this challenge—or a lack of understanding of the full implications of moving to net-zero—could be why few survey respondents appear to be prioritising business-model change. Only 17% (albeit slightly more in Asia, at 24%) saw this as the most radical change needed for their company to meet its net-zero or other emissions-reduction goals. And among smaller enterprises, business-model change was deemed even less likely, with only 15% agreeing (compared with 21% of those in large companies).

Also challenging—but accepted by companies as part of the transition—is the need for firms to look beyond their own walls to address Scope 3 emissions (the indirect emissions generated along the value chain), particularly since many rely on thousands of suppliers in dozens of locations. In the survey, respondents ranked supply chains third among the most radical changes needed for their organisation to meet its net-zero goals. 

Capacity-building

Building internal capacity will also be critical for companies as they work to address climate change. And while, as the advisory board agreed, large multinationals have no shortage of entry-level skills (many young people are keen to pursue careers in sustainability), it is harder finding senior leaders with the right expertise and understanding of the urgency of achieving net-zero to drive the transition.

For smaller enterprises with limited resources, skills gaps are even more acute. While half of survey respondents pointed to lack of sufficient internal expertise as hampering their net-zero or other emissions-reduction goals, the figure increased to 57% among respondents from medium-sized enterprises.

Need for collaboration

Our research also revealed an acknowledgement that companies cannot achieve decarbonisation alone. In the survey, collaboration emerged as a key strategy in meeting net-zero goals. Partnerships with investors were seen by 44% of respondents as the form of collaboration most likely to help them reach net-zero (followed by supply-chain partners, at 43%), while 45% said that they planned to collaborate with public-sector agencies, think tanks and non-governmental organisations (followed by industry peers, at 44%).

What is encouraging in these findings is that, as with so many environmental challenges, there is growing recognition that collaboration is critical and that no one sector alone can put the global economy on the path to sustainable development.

Few would say that meeting net-zero goals is going to be easy, and our research confirms that work will need to be done to overcome the many barriers facing companies. We have identified ten common “pain points” that firms are likely to encounter on the road to net-zero. In a series of business briefs, we use findings from the different components of the research to explore each of these pain points and to offer insights that will help companies to overcome the challenges that they face as they work to meet their climate goals.


The full research results can be found at https://gettonetzero.economist.com/ 

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