In 2019, sustainability commitments reached an all-time high, growing not only in number but in ambition. Yet, executing on these plans is far from a core competency for most organizations. In fact, less than 25% of corporations are on pace to achieve their carbon targets.
We've now reached an inflection point – driven by a confluence of trends, milestones and announcements – proving that growth-enabling sustainability transformation is possible. Technology and innovations once only viable in ideal circumstances are now widely applicable. New financing mechanisms, tools, and cutting-edge business models now present unlocks to accelerate progress.
As we enter the new year, experts across ENGIE Impact weighed in on how these new opportunities can break down perceived barriers to sustainability transformation – and ultimately, how these opportunities can invalidate historical rationale for not jump-starting sustainability-driven strategies and achieving results.
As reflected in the recent Business Roundtable and Davos Manifesto, companies are broadening the notion of who they deliver value to, reaching beyond shareholders to include all stakeholders, such as employees, customers, suppliers and communities. This is heavily driven by their ecosystem of stakeholders increasingly placing pressure on employers and brands to invest in sustainability.
Employees want to work for companies with sustainable business practices
64% of Millennials, which will soon make up 75% of the workforce, say they will not take a job at a company that doesn’t have strong social responsibility practices. And 90% cite sustainability as a crucial consideration when selecting an employer.
Consumers value sustainable goods
According to Center for Sustainable Business research, 50% of the growth in consumer packaged goods came from sustainability-marketed products. 66% of global consumers are willing to pay more for sustainable goods, with 73% of Millennials willing to do the same. 31% of American consumers list sustainability in the top two attributes most helpful in building brand trust.
Companies are pressuring global supply chains to decarbonize
95% of major global buyers surveyed by CDP are using environmental metrics to manage supplier relationships, or plan to within two years. As a result, significantly more suppliers are disclosing emissions this year, with nearly 6,800 suppliers responding to CDP, a 24% increase over the prior year.
Sustainable investing is on the rise
85% of investors surveyed in a recent Morgan Stanley study expressed interest in sustainability investing, a preference shared by 95% of Millennials. Sustainable investment now totals over $31T in assets, a 69% increase over the past two years. Leaders are going further, divesting entirely from corporations perpetuating harmful effects on society, such as the United Nations carbon-free pension fund.
Like any transformation, sustainability initiatives are cross-functional in nature and often face tremendous organizational barriers. By focusing on the human dynamics of change, some corporations have demonstrated the ability to achieve outsized results in their transformation efforts. This is being accomplished through a few core strategies.
Successful companies put sustainability at the core of organizational design
Sustainability goals should be connected to business strategy, embedded as a component of your culture and clearly communicated to employees. The onus for results must then be put on key executives. At IKEA, each country leader is responsible for significant P&Ls, yet also acts as the CSO of their region, driving education and engagement across the organization.
Companies are able to facilitate the behaviors of collaboration and innovation
Some businesses are building opportunities to elevate employee ideas and innovations and connect them back to a company’s overall objectives. Arming leaders with the language and tools to inspire and reward innovative, collaborative thinking uncovers new ways to meet sustainability objectives. For example, Walmart live broadcasts Sustainability Milestone Summits to highlight progress and recognize innovative suppliers and solutions.
Good governance and formal processes accelerate results
Key to successful transformation efforts are the development of dedicated cross-departmental working groups with clear charters, dedicated resources and executive sponsorship.
New financing mechanisms help companies address common financial hurdles, such as limited available capital and strict payback periods.
The business case is stronger than it’s ever been
Declining costs of technology, growing supply of renewable power, policy incentives and the emergence of new sustainable revenue streams are changing the calculus of sustainability.
Sustainable financing options are everywhere
In 2019, total sustainable-debt issuance surpassed $1T. Following years of loosely-defined ‘green’ bonds, sustainable finance has evolved to become more prescriptive and performance-based. Sustainability-linked loans, which tie interest rates to sustainability performance, rose to $108B total issuance in just two years. Banks like DBS have earmarked funds with the specific purpose of driving innovation that positively impacts Sustainable Development Goals. And companies are focusing on high-emission areas, like Apple, which issued a $2.2B green bond to lower emissions across their supply chain and beyond.
Flexible performance-based financing mechanisms, like as-a-Service models, help companies solve for both financial and capability gaps
As-a-Service models provide access to capital-intensive technologies alongside the expertise to manage them, allowing companies to implement new, clean technologies with minimal financial and operational risk.
The long-term effects of climate change are having very real near-term impacts on business.
The price of carbon continues to increase
In 2019, carbon prices under the EU Emissions Trading Scheme reached an 11-year high. In total, 57 carbon pricing initiatives have been scheduled for implementation, accounting for over 20% of global GHG emissions.
Climate-related extreme weather events are increasing in frequency and cost
2019 is the fifth consecutive year in which 10 or more billion-dollar weather and climate disaster events have impacted the United States. The 33 European Economic Area countries have experienced a collective loss of €13B a year since the turn of the decade. Companies are feeling the impact directly. Floods in the U.S. Midwest this spring reportedly cost Archer Daniels Midland Co. between $50 and $60 million in the first quarter of the year. Heatwaves in Nanjing, China drove decreases in worker productivity of about 3%. Automakers such as Subaru, Honda Motor, Toyota Motor and Nissan suspended car production for as long as 10 days due to a shortage of parts following Typhoon Hagibis in Japan.
Companies are taking action now
Whether it be hospitals like Bellevue Hospital, redesigning their facilities for enhanced resiliency or financial institutions building climate resilience criteria into their investment portfolios like Temasek, companies are making significant shifts in their businesses to account for the direct and indirect risks associated with climate change.
New technology has vastly simplified the complex data landscape. The Internet of Things (IoT) makes granular data widely available in real-time. Digital portals and distributed ledgers aggregate data from dispersed suppliers to track success. Advanced analytics can now recognize complex patterns to reveal opportunities and optimize systems. The technology is here. The question will be how companies deploy it at the speed and scale required.
Technology is increasingly available at a lower cost
The average price of an IoT sensor has dropped from $1.30 to $0.38 since 2004. By 2035 there will be 1 trillion Internet-connected devices online. As the market opportunity for sustainability grows, both traditional energy players and software providers are investing in developing, deploying and offering new tools that enable companies to scale their programs.
Innovative companies are applying new digital solutions to solve long-standing business challenges.
Walmart Canada recently launched the world’s largest blockchain application to track and optimize their supply chain. The International Rice Research Institute in the Philippines uses data visualization to help rice farmers easily select resilient rice crops. Australia’s BeefLedger uses blockchain to give Chinese customers enhanced beef traceability spanning from where the animal was raised to its health history and transport.
Advanced analytics intelligently optimize resource usage
For example, Google used artificial intelligence to optimize their data centers, reducing cooling bills by 40%, while Huawei’s IoT smart water meter application helped the city of Yingtan reduce its water leakage rate to 12%, saving 2.4 million tons of water.
The next decade is crucial to minimize the effects of climate change. There is no question that the scale of transformation needed is immense. Cities, businesses and governments around the world are already proving that old barriers are new opportunities. The businesses that can implement solutions at speed and scale will be those that capitalize on the vast opportunity ahead.
So, the question is, will 2022 be the year that your organization finally runs out of excuses?
We invite you to view our webinar, “Lessons from Leaders: Accelerating Your Sustainability Transformation.” You’ll hear from representatives from Caesars Entertainment and Staples about how they have overcome excuses and made progress to their goals.