Sustainability or profitability? Increasingly, you can have both
Companies that act now on climate can obtain first-mover advantages and reap rewards.
Some companies have understandable concerns that major emissions abatement efforts will undermine profitability, growth, and cash flow. In fact, inaction on climate and sustainability carries greater risks from both environmental and economic perspectives. And a dramatic lowering in the cost of low-carbon technologies in recent years means taking initial actions is profitable for most companies today.
Momentum is building. While governments are trying to drive sustainability through policy and financing mechanisms, the corporate sector is also playing a key role. Consider the recent launch of the Glasgow Financial Alliance for Net Zero (GFANZ) that aligns more than 160 firms with responsibility for assets of over $70 trillion to accelerate the transition to net zero emissions.
The power of collaboration
We recognize full emissions abatement will be challenging for many and expensive for certain sectors such as steel, cement, chemicals, aviation, and shipping. In these hard-to-abate industries, ecosystem collaborations among peers, suppliers, customers, and governments can help players across the value chain to share costs, scale innovations and manage risks, while building momentum for emissions reductions.
Furthermore, net-zero supply chains are a real possibility if you work across the entire value chain. While the decarbonization cost of steel or chemicals can seem prohibitively high, in our work with the World Economic Forum (WEF) we estimated that moving to net-zero emissions would increase end-consumer costs for items such as cars or electronics by only 1% to 4% in the medium term.
Companies with large carbon footprints are already facing scrutiny from investors, activists, policy makers and the courts. This will only grow. To maintain their license to operate, these players must at the very least develop plans to reduce emissions and make their operations and products compatible with a well below 2°C world.
The case for moving quickly on emission reductions
The companies that act now on climate and sustainability have the potential to capture first-mover advantages in forging partnerships and alliances, accessing capital, and influencing regulation and policies. Those that develop a reputation for innovative climate solutions will have an edge when it comes recruiting, retaining and developing climate talent.
Companies can take rapid action on sustainability by accelerating climate initiatives that already have positive standalone business cases. For example, our research shows that most companies can achieve energy- and process-efficiency gains of 20% to 40% with relatively short payback periods. Inaction doesn’t make sense for business or the planet.
From compliance to value creation
Looking ahead, companies can drive growth through sustainable business model innovation, to optimise business, environmental and societal value.
While technical measures and innovation will play the biggest role in helping industries reduce emissions, consumers will be critical. For example, growing consumer interest in alternative proteins could reduce the carbon footprint, while also saving water and protecting biodiversity. Companies have a responsibility to encourage changes in behaviour or at the very least, to not oppose efforts by governments and civil society to lower consumers’ carbon footprint.
The moral case for climate action is clear. Inaction would expose future generations to great hardships. In many cases, companies now also have an economic rationale to take action to limit climate change. By making appropriate investments, organizations can achieve competitive advantage and position themselves for long-term success.