5 minute read 8 Jul 2021
Trees And Modern Buildings Against Sky

Decarbonization - what are the opportunities and risks for companies and investors?

Authors
Reto Isenegger

EY EMEIA Sustainability Markets & Sustainability Strategy and Transactions Leader

Strategic transformation leader. Purpose activator. Photography enthusiast.

Benjamin Teufel

Sector Leader Energy & Resources and Leader EYCarbon | Switzerland

Accompanies the transformation of the energy world, both large and small. Meets current challenges with a positive attitude and focus on solutions.

Contributors
5 minute read 8 Jul 2021

What does decarbonization demand of various stakeholders? Four EY specialists provide answers to the most important questions on the path toward a more sustainable economy.

Decarbonization represents the next great transformation. Markets and businesses must undergo fundamental and rapid change – also in Switzerland. EY specialists Benjamin Teufel and Reto Isenegger on opportunities and risks for companies on the path to decarbonization.

It seems businesses are increasingly setting specific goals for reducing emissions. Is this the case?

Benjamin Teufel: There is a clear trend. The last few years – and the pandemic, of course – have shown how vulnerable our world is. The impact of climate change is becoming ever clearer. Companies are realizing that they, too, can and must make a concrete contribution to decarbonization.

Reto Isenegger: With new regulations, such as the EU's "Green Deal" and the associated carbon taxes and contributions to investment, governments are providing incentives for decarbonization. In addition, companies are realizing that they can protect and increase their shareholder value with new business models.

By "increasing value", do you mean the share price?

Isenegger: Yes, but not only that. Sustainability must benefit everyone: the environment, people and businesses, and thus investors as well. This means that in our search for decarbonization projects we have to give priority to ideas that make economic sense for our clients, meaning that even the company's CFO and its investors can live with them.

Teufel: Companies are increasingly setting long-term goals and turning away from the short-term optimization of shareholder interests. In addition to financial considerations, this also means serving client needs, viewing employees as human beings and allowing them to develop, and creating social value, which also includes the impact of business activities on the environment, of course.

Sustainability must benefit everyone: the environment, people and businesses, and thus investors as well.
Reto Isenegger
  • The clock is ticking for the climate: This is how businesses can make their finances sustainable

    We are currently in the midst of transitioning to a sustainable, low-carbon and resource-efficient circular economy. It is the key to saving our climate and will safeguard our competitiveness over the long term. There is now widespread recognition that private-sector financing can make a major contribution to achieving a sustainable economy as well. Regulators, including those in the EU, have already set specific standards for the financial sector (EU Action Plan).

    Asset managers and financial services providers as well as ESG (environmental, social, governance) investment criteria play an important role in obtaining funding and in sustainable investments. Stephan Geiger, ESG Lead Financial Services at EY knows what really matters: “Responsible asset managers and owners should integrate sustainability aspects into their risk management processes, provide an enhanced ESG offering and, at the same time, actively aim for a reduction in their investment footprint.”

    Swiss companies, too, face rising minimum standards and information requirements regarding sustainability in their financing activities and must transparently demonstrate to their clients and investors that their business operations are sustainable. “Investors, clients and society are all demanding sustainable governance,” says Mark Veser, Head Climate Change and Sustainability Services at EY. In particular, this includes quantifiable objectives and the corresponding reporting.

    “Take account of stakeholder demands for transparency regarding the footprint of your business activities,” Veser advises companies. Anticipating shifts in the ESG market is important to maintain access to capital in a rapidly changing environment and to benefit from the opportunities arising from the transformation.

What approaches are businesses taking to reduce emissions?

Teufel: It depends on the industry. It is important for a company to assess the amount of emissions it is directly or indirectly responsible for as a result of its business operations and to then identify the options for reducing them.

Who is at the forefront of these efforts?

Teufel: Utility companies, chemical and cement companies and automotive groups are currently taking the lead. The capital goods industry is catching up by offering its products and services in such a way that they cause as few emissions as possible and that products can be recycled. Similarly, shipping and aviation will follow suit – but these are the areas with the greatest challenges.

Which other industries will be next?

Isenegger: In addition to the aforementioned carbon-intense industries that are being forced to act in line with the notion of "transform or be transformed", an increasing number of companies are identifying opportunities. The consumer goods industry is doing this with sustainable products that are well-received by customers – a strategy known as "transform to win." The carbon reduction goals of the major consumer goods manufacturers are already having an impact on most upstream suppliers because they likewise have to adapt. A "domino effect" of decarbonization by supply chains can already be observed. In the field of finance, ESG ratings are increasingly gaining in importance in corporate valuations. This closes the decarbonization cycle between finance and the real economy.

Digital transformation places great demands on business. What is the role played by digitalization in the fight against climate change?

Teufel: Digitization in itself is neither good nor bad for achieving climate targets. It depends on what we do with it. Digitalization enables new forms of transparency, collaboration and control, provides the data for better-informed production and consumption decisions, and opens up new creative possibilities for environmental policy. Digitalization can be an engine of sustainability.

Asia and the USA are far ahead of us in Europe with regard to digitalization. Are we not in danger of being left behind in terms of decarbonization?

Teufel: Europe – and Switzerland along with it – has understood that decarbonization is the topic of the future. With the "Green Deal", the EU has shown that it does not want to be left behind again. And Switzerland, too, is exerting regulatory pressure with a view to giving the topic of sustainability a framework with specific requirements.

Isenegger: Just like with digitalization, green tech also involves competition among countries. The EU has recognized that investments in green tech, specifically after Covid, offer new growth opportunities. This is good and promotes competitiveness. The EU is investing, the USA under Joe Biden, too, as is China. Switzerland has a huge opportunity for taking a leading position in this respect. With technology institutions, such as ETH and EPFL, leading global companies and one of the world's most competitive SME landscapes in terms of innovation. We must not squander this situation. 

We have to start working toward the objectives now. The short and medium-term path to reduction is just as important as the target in absolute terms for 2050.
Benjamin Teufel

Ultimately, we have to meet the Paris climate objectives. Do you think we will do this?

Teufel: Yes. But we will have to start working toward the objectives now. The short and medium-term path to reduction is just as important as the target in absolute terms for 2050.

Can't businesses just "buy" their way out with offsetting? Who provides any guarantee that they are not just greenwashing their operations?

Teufel: If a company announces its intention to become climate neutral, critical questions are inevitable: Is this someone simply buying their way out or are reductions actually being implemented? EY was asked these questions, too. For this reason, it is important to communicate the specific measures in a transparent manner.

As a consulting firm, you are also at the focus of attention: EY has been climate neutral since last year and intends to achieve a 35 percent reduction in emissions from business travel by 2025, among other measures. Is that sufficient?

Teufel: No, that is not sufficient, of course. And EY has set additional targets. With 300,000 employees worldwide, we will be carbon negative in 2021 and carbon zero in 2025. In addition, we intend to use 100 percent renewable energy. It is important for firms like EY to take this step. If not us, then who? If not now, when?

Isenegger:  Here, too, we are trying to combine decarbonization with efficiency. In our new Stockholm offices, we were not only able to reduce carbon emissions by 70 percent, but at the same time to lower costs by 50 percent. In an effort to find new ways of working, we are deploying modern work models in cooperation with our technology partner Microsoft to increase employee satisfaction. Doing so benefits everyone. In this way, we can show how such approaches work.

Summary

In recent years, the effects of climate change have become increasingly visible. Europe - and with it Switzerland - have understood that decarbonization is the issue of the future and are working towards a regulatory framework with concrete requirements in terms of sustainability. With its technology institutions, leading large companies and particularly competitive SMEs, Switzerland has a unique opportunity to address the challenges of climate change and become a global leader. The innovative strength and adaptability of institutions and companies is now required to ultimately achieve the Paris climate goals and to survive in an economy and society shaped by climate change.

About this article

Authors
Reto Isenegger

EY EMEIA Sustainability Markets & Sustainability Strategy and Transactions Leader

Strategic transformation leader. Purpose activator. Photography enthusiast.

Benjamin Teufel

Sector Leader Energy & Resources and Leader EYCarbon | Switzerland

Accompanies the transformation of the energy world, both large and small. Meets current challenges with a positive attitude and focus on solutions.

Contributors