Corporations have come to recognize that transparency is more than a reporting obligation or simply ‘doing the right thing.’ It also provides a competitive advantage. But does this same recognition apply to Net Zero? And if it does, how does one lay claim to that advantage?
At ENGIE Impact’s recent breakfast briefing, From Transparency to Transformation: Redesigning Your Organization to Achieve Net Zero at Pace and Scale, my colleague Sesilia Plavina and I addressed these questions, positioning ourselves squarely within the critical transition from carbon reporting to company-wide transformation, and discussing how to shift gears from one mode to another.
Making that shift is anything but evident, as it’s one thing to report on the current state and set a Net Zero target, and it’s quite another to deliver on it. In the hope of providing some insights that would help facilitate the transition for the broad range of organizations from a variety of industries that attended our breakfast briefing, we presented a few enablers of rapid transformation. I want to share them with you here.
We conducted our session against the backdrop of a large-scale executive survey ENGIE Impact recently conducted to assess how confident business leaders are in their Net Zero initiatives. That research showed that while they are optimistic about their sustainability programs and believe they have the resources to achieve their sustainability goals, they have yet to reinforce those ambitions with an informed, governing strategy and the enablers to achieve decarbonization at scale and pace. In short, we found a gap between their optimism and the reality on the ground.
By ‘enablers’ we mean the tools needed to transition effectively from knowing where you want to go— namely, Net Zero—and how you want to get there. During the breakfast briefing, we focused on three critical Net Zero enablers:
When it comes to data and digitization, the adage still holds; you cannot manage what you cannot measure. Having a firm data and analytics platform is crucial as you drive your sustainability program to the next enabler, solutions design and innovation, which helps determine what you need to do to deliver your programs successfully. The final point, governance, concerns the systems that should be in place to activate your program and measure its success.
We started by asking whether our participants believe they have a single source of truth for decarbonization data across their respective organizations. About 50% of them felt confident in this regard, proving much more optimistic than the executives from our survey, only 18% of whom agreed they had a single source of truth, with only 3% of those confident about it. Carbon data availability is still a struggle for most organizations, yet as we move from transparency to transformation, decision-makers need access to accurate and timely carbon data.
Asked whether leaders in their organization indeed use emissions data to drive decision-making, our participants (60%) again proved more optimistic than those from our survey (~50%). However, the striking takeaway was the difference between the C-suite and operational directors—those closer to day-to-day decision-making. When it comes to their respective levels of confidence in using available carbon data to make decisions, we see a huge gap between those setting the sustainability strategy and those implementing it. Closing the gap between organizational strategy and operational decision-making is one of the key tasks that will drive the shift from transparency to transformation.
The idea behind this enabler is that organizations must be able to envisage and plan what the Net Zero transformation looks like for their businesses to be able to execute it. Given the scale of the transformation and the investments that will be needed, a significant level of granularity and accuracy will be needed to deliver at the lowest total cost.
To dig into companies’ level of understanding concerning what it will take to execute their sustainability plan in the long term, we presented them with a series of increasingly sophisticated questions to gauge how well their decarbonization roadmap is constructed. We found that companies’ confidence in their decarbonization strategies declines sharply as they move from planning to execution.
This decline is not merely due to uncertainty about changing technologies but also to potential business changes over time, the total cost over decades and the interrelationship between various decarbonization measures. The fact is, the further we dive into what it will take to deliver on decarbonization goals, the more companies’ initial confidence starts to erode. At the breakfast briefing, drawing on insights from our “Net Zero Corporate Readiness Report,” we therefore shared a glimpse of how we see solutions design coming together to enable the Net Zero transformation.
Decarbonization can be challenging, but developing integrated solutions rather than siloed approaches can avoid pitfalls, such as missing major dependencies between sustainability levers. Without a vision of the long-term interplay of energy solutions, taking isolated actions on ‘low-hanging fruit’ may create the illusion of progress being made, while in fact, you may be locking in emissions that will be economically unviable to remove until the end of life of a particular asset. Having a view of the long-term evolution and interplay of energy solutions can avoid costly investment decisions.
Finally, we believe that looking at the total cost of ownership rather than payback and ROI is a crucial step we need to embrace if we are going to achieve deep decarbonization. We cannot achieve it just by looking at solutions that will pay back within a certain number of years. To be successful in your sustainability programs, you need to start with a business-as-usual (baseline) assessment and then model scenarios looking at the total cost of ownership. If you compare various scenarios against the baseline, you will obtain a deeper understanding of the transformation you need to deliver, and you might be surprised how many assets can be decarbonized at a lower total cost than the baseline.
We identified five best practices in terms of governance that can help deliver the Net Zero transformation desired:
We asked our participants what their toughest challenge was regarding corporate governance, and a clear winner emerged: cascading ambitions. In other words, how to cascade Net Zero transformation ambitions into your business lines and functional areas and encourage ownership of a particular target at the site level—especially if the sites have not been involved in setting the target in the first place?
The question also concerns how to balance operational KPIs while still trying to deliver on the sustainability transition. Such a task is manageable for a small business. But imagine you’re an organization with hundreds of sites in multiple countries. How do you push ownership of corporate ambitions across those sites and then track and measure them? It is a real challenge that takes us beyond the scope of this article, but it indicates the scale of complexity our group was concerned about.
A final issue raised concerns the challenge of integrating carbon in daily business decision-making. It gave us the opportunity to discuss internal carbon pricing, a mechanism whereby organizations put a monetary value on their emissions. We see three benefits to integrating the internal carbon price into business decision making: it helps drive decisions to be in line with the decarbonization targets and objectives one wants to achieve; it allows organizations to conduct scenario analyses on the impact of climate-related risks, so they can really understand the impact of decisions, equipment selection or forward-looking investments; and it enables organizations to stay ahead of increasing carbon regulations.
Our breakfast briefing brought together select individuals from companies that are extremely ambitious about achieving their Net Zero targets but still have much to do to enable their ambitions to become a company-wide reality. Two decades ago, the same could have been said about corporate transparency. Yet what was initially perceived as an imposition from without has become a tremendous asset, particularly for early adopters. The case is even clearer for accelerating one’s Net Zero transformation. Those that succeed in doing so early will gain a long-term competitive advantage over their peers.
Let's work together to decarbonize your organization.