Carbon strategy should focus on energy reduction, whether or not the business chooses to pursue neutrality as a goal.
One of the first points to assess is external forces within a given marketplace, due to varying degrees of maturity worldwide.
Weighing up energy use
For most firms, energy is the source of the majority of their emissions and a key factor in shaping their thinking on carbon neutrality.
At one extreme are the highly energy-intensive sectors, including:
- Chemical manufacturers
- Cement makers
- Natural resource and extractives firms
- Energy and infrastructure companies
“As these industries are often already regulated, and as energy costs are usually prohibitive already, such firms typically prioritize energy reduction or greater use of renewable energy,” says Sudipta Das, Leader for Climate Change and Sustainability Services for EY in India.
For industries with lower energy use, and especially for firms with consumer-facing brands, the business rationale differs. Some firms will aim to pursue a low-carbon strategy; others will see a reason to go further, toward carbon neutrality.
Realigning the business to reflect strategic shifts in an industry
A further external factor to assess is the strategic direction of a given industry. In some sectors, it is clear that a shift toward low-carbon products is under way.
As the industry moves this way, there is clearly scope for leading companies to build and enhance their credibility by creating carbon neutral products and branding. Leaders need to consider the long-term strategic shifts of their market, and whether carbon neutrality can be a part of moving to where their industry is headed.
Preparing for regulatory change
Another external factor is the regulation of emissions. While there is no law that directly requires a firm to go carbon neutral, regulation can either prompt a few firms to try and do better than proposed carbon reduction rules to stand out from rivals, or else limit their attention to simply complying.
This highlights the importance of conducting a detailed assessment of regulatory and policy trends, to be prepared for future shifts in the marketplace.
Both awareness and stakeholder perceptions of carbon neutrality varies widely across different geographies.
Of all regions, Europe is likely to hold the greatest potential upside for carbon neutrality, from a brand and consumer awareness perspective. By contrast, the term “carbon neutral” has become a contentious one in the US, in part due to improper claims by some companies in recent years.
In regions such as South America, there is simply limited awareness of carbon neutrality in many markets today, with many companies only starting to get involved in sustainability-related issues. Elsewhere, such as in India, awareness and interest in carbon neutrality has grown in recent years.
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