The race to decarbonize is on. Slow out of the starting gate, a growing number of companies are recognizing the need to accelerate the pace of their energy transition. Whether nudged in the right direction by investors that consider Environmental, Social, and Governance (ESG) when making investments, consumers demanding green products, regulatory pressure or the ability to attract employees, increased sustainability has nearly become an imperative for organizations to remain relevant and competitive in today’s world. And yet the level of corporate action is still insufficient. In 2021, only 9% of companies globally achieved an actual emissions reduction of more than 4%.
While change is on the way, companies still face barriers to implementing their green ambitions. These barriers may come in the form of an ‘expertise gap’, which finds them lacking the specialized resources to identify their needs and develop a feasible strategy; a ‘financing gap’, or the question of how to pay for sustainability initiatives without impairing the capacity to invest in their core business; or an ‘implementation gap’, pointing to the lack of resources and a corporate governance model to implement their plan efficiently.
The difficulty of overcoming these barriers increases exponentially when a company must address them across a worldwide footprint. This explains the increased need for partners that can design and deliver multi-country programs to achieve ambitious decarbonization goals across a global portfolio of sites.
Making a public decarbonization commitment is an important first step, but it is only a first step. Earlier this year, the CDP (Carbon Disclosure Project) reported that of the 18,600 companies that participated in their 2022 climate change questionnaire, only 22% (4,100) said they had already developed a 1.5°C-aligned climate transition plan, with only 0.4% clearing the higher bar of having a ‘credible’ plan in place. The discrepancy between intention and action is not due to a lack of organizational will but rather to companies lacking a structured way to realize their ambitions and goals through concrete solutions.
Large corporate clients consistently tell us that achieving results remains a challenge due to the complexity of driving sustainability initiatives forward, while many others either don’t know where to start or how to properly build a sustainability strategy and roadmap that will drive economic and environmental value. Still others are not clear whether it will benefit them and wonder whether it’s really worth the effort. They need a holistic vision and a comprehensive approach that can take them seamlessly from the planning stage right through to implementation without handing off responsibility or losing momentum. In short, they need a sustainability partner that is prepared to back up their recommendations with action.
An organization’s journey to Net Zero starts by assessing its current carbon footprint, setting ambitions, and developing an actionable roadmap based on identified concrete projects to guide its initiatives. It takes sustained effort, and investment, and often requires a fundamental shift in organizational approach and mentality.
Decarbonization is about transforming the way an organization operates, not just tweaking it around the edges in an ad hoc manner.
ENGIE Impact wants organizations to be aware that undertaking a sustainability transformation is not just a matter of compliance. It can provide a competitive advantage, growing their top line while offering differentiated, low-carbon products, as well as lowering their costs by implementing tailored decarbonization levers and better controlling their energy commodity risk.
That’s why pursuing a Net Zero future is not something to do only when energy prices are soaring, or after operational investments have already been budgeted. Developing a strategy and pulling sustainability levers like green energy supply, energy efficiency, on-site solar, or in some cases green thermal, serves to align decarbonization and business objectives and should be an engrained business imperative. Too often, however, there is a disconnect between them.
Getting corporations to fully integrate decarbonization into their business pursuits can be complicated. Having a sustainable strategy in place is key, but without a clearly defined implementation plan, buy-in across the entire organization, and sufficient financial and human resources to turn intentions into action, it won’t deliver results. It is common for companies to experience difficulties implementing their decarbonization strategies as they move from planning to execution. Yet given that many have already set ambitious near-term climate targets, they need to overcome the barriers to implementation quickly.
The biggest barriers to implementing a carbon reduction strategy often center on the practical activities and decisions required to achieve meaningful decarbonization. The positive side of the coin is that they are not structural barriers, and so can be overcome through changes to elements within one’s control – or even better, through outsourcing their solution to experienced and resourced decarbonization specialists. The main obstacles we have in mind are insufficient data to understand the carbon footprint, internal resource constraints, the complexity of solutions and financing, and aligning strategy and execution, the last of which raises issues about changing the mindset of an organization and obtaining company-wide engagement.
You cannot reduce what you can’t measure. Understanding an organization’s current state is one of the first steps on the decarbonization journey, yet carbon data availability is still a struggle for most organizations. Decision-makers need accurate and timely carbon data, but companies do not always have the tools allowing them to understand their footprint and take action to reduce it. The good news is that you don’t need to wait until you have all the data to take effective climate action, but the better your situation is diagnosed, the more efficient your mitigative action will be.
Allying oneself with a partner that has the tools and methods to gather the necessary data in real-time and then using it to identify opportunities to implement practical solutions to reduce emissions is a winning strategy to decarbonize your operations. This takes more than annual data collection that traces how efficiently you have used energy over the past year. It requires active carbon data management that detects inefficiencies across a single system or entire portfolio of sites.
Companies are designed to do business and they allocate their resources to do it effectively. They are not necessarily equipped with the capabilities to manage a potentially complicated sustainability program. This requires skilled engineers with deep knowledge of decarbonization methodologies and assets to design and build solutions, dedicated staff to operate the assets, and fit-for-purpose tools to monitor performance. Adding to the level of difficulty is that some companies need to manage implementation programs across a global portfolio of tens or hundreds of sites in multiple countries.
Managing this level of complexity is typically the work of external consultancies that identify areas of action to decarbonize the company and recommend fixes but have no capacity when it comes to implementing the recommended actions. A company then either needs to close this capability gap on its own by hiring a new team for two or three years to set up and manage the recommended carbon program – a suboptimal approach – or it needs to find a solutions and service provider with a global presence and an end-to-end approach, capable of supporting everything from defining the action plan to implementing it.
Either way, the key to success is having skilled project management resources that interact across all levels of the organization, serving as the critical missing link between the staff on-site, the relevant business units, right up to the corporate sustainability team or executive committee. An impactful decarbonization advisor provides these resources. It not only diagnoses the problem but also designs, finances, builds and monitors the solution.
Some decarbonization solutions may be considered low-hanging fruit in the form of mature technologies for reducing energy consumption, such as LED lighting. Even if this solution is straightforward, a multi-site industrial operation would be well-advised to partner with a sustainability specialist to identify the most suitable alternatives and to take advantage of economies of scale. But not all solutions are that simple, requiring synergies between decarbonization levers.
Take the challenge of industrial heating for instance. A recent client case from the specialty chemicals sector involved a combination of technologies (heat pump, woodchip boiler, biomethane boiler, e-boiler, on-site PV and a virtual PPA) to meet a variety of needs (baseload space heating, baseload steam, peak space heating and steam, electricity demand) at a particular site.
Managing the design, procurement, installation and operation of such a system is not the core business of most companies. But with the support of expert analysis and provided a roadmap to implement, the right combination of technologies led to the full decarbonization of the site as well as a lower total cost of ownership – the investment costs plus expected operating costs including commodities—over the lifetime of the assets.
Financing is a central issue in accelerating decarbonization and sustainability projects. Innovative solutions are needed to connect funding with projects, but the first order of business is to recognize that shifting organizational thinking from a short-term view of decarbonization investment to a long-term view is one of the biggest hurdles to clear – particularly when the solutions are CAPEX-heavy and require a significant upfront investment.
There is a range of third-party financing options created specifically for sustainability projects, such as green bonds or loans, but this doesn’t change the fact that a balance must be struck between investing in ‘quick wins’ and longer-term, transformative initiatives. The conventional approach to corporate investment creates a pool of funds with new projects competing through an approval process. Projects are typically expected to have a payback period of no more than three years. The issue is that decarbonization projects have longer payback periods than typical core business projects, so unless a business invests less in its core priorities, decarbonization projects will have less access to funds.
One alternative that is gaining advocates is the as-a-service model, where a third-party partner finances the decarbonization projects so that the company does not need to mobilize CAPEX for projects it does not consider strategic, or core-business related. In such a model, the contracting company outsources the design, procurement, installation, O&M and financing of its energy conservation measures or energy-generating assets to a service provider. This new model provides greater confidence in the provision of decarbonized utilities and removes much of the complexity of financing.
Companies tend to be optimistic about their ability to deliver on decarbonization goals, yet our research shows that companies’ confidence in their strategy declines as they move from planning to execution. In effect, there is a disconnect between C-suite leaders and managers on the ground regarding their ability to decarbonize, leading to what we call an ‘implementation gap’ that erects yet another barrier to carrying out a strategy.
An experienced consultancy knows how to navigate this disconnect and ensure a company has a clear rationale for its carbon reduction plan, that its leadership is aligned from planning to execution and all stakeholders are engaged in the process. Lacking such company-wide alignment on a roadmap, corporations often take a site-by-site or even project-by-project approach to their decarbonization efforts. This makes it difficult to accomplish the transition at pace and to quickly identify synergies to cascade a project across multiple sites. Developing integrated solutions rather than siloed approaches can avoid pitfalls, such as overlooking dependencies between sustainability levers.
ENGIE Impact employs a solution that identifies priority sites to get a robust picture of the organization’s current state, developing a site-level assessment that could be adapted and replicated at other sites. Site-to-site collaboration is important for balancing local and centralized priorities, sharing best practices and keeping costs in check. This is why a portfolio-wide implementation program is needed to take a company from strategy to implementation.
With all the barriers to consider, undertaking a portfolio-wide decarbonization program is clearly a challenging endeavor. A portfolio-wide energy transition that implements the end-to-end approach requires identifying synergies between technological, financial and procurement solutions at one site and then rolling them out across multiple sites to drive decarbonization at pace and scale with the lowest cost option.
Companies seeking to accelerate their net-zero transition might be increasingly aware of the comprehensiveness of the task, but may lack the required expertise and network of connections to get the job done. Fortunately, they don’t have to do it on their own.
Companies that understand the value a comprehensive decarbonization program has for their economic success, and their ability to attract investment and spur sustainable growth, will look to experienced partners with an end-to-end approach to create greater confidence about the feasibility of reaching their goals.
They will need an external partner with integrated capabilities to guide decarbonization efforts over the hurdles of strategy and solution design, financing and contracting processes, streamlining the workflow and creating efficiencies of scale. A partner for whom geographically disparate locations and their associated regulations are not an obstacle. And perhaps most significantly, a partner looking to develop a win-win relationship, who will be accountable for the success of the strategy to implementation program, who has skin in the game and a genuine interest in ensuring your ambitions achieve their desired outcome.
Let's work together to implement your decarbonization strategy.