A confluence of powerful forces is driving decarbonisation to the top of corporate agendas. The EU Corporate Sustainability Reporting Directive (CSRD), UK obligations following COP26 and Irish sectoral carbon budgets mean that companies are being driven to decarbonise sooner rather than later.
As companies assess the scale and depth of transformation they are facing, business leaders are carrying out market scans and impact assessments to ascertain their value-drivers. They need to understand if their business will be viable in a decarbonised future and how that places them against their competitors.
The imperative of “transform to survive” has been well understood in fossil-driven industries such as Oil & Gas and Automotive since the 2015 Paris Agreement. The need to “transform to win” in order to maintain competitive advantage is now being accelerated by sectors such as Life Sciences, Consumer Products & Retail, and Technology, Media & Telecoms.
The Cost of Decarbonising
There is considerable evidence to show that ESG-related value-drivers deliver performance improvements, enable lower cost of capital and deliver above-market valuations. Additional benefits include future-focused products and services, customer loyalty, and increased employee engagement.
But achieving that performance and realising those benefits requires careful planning with decarbonisation being viewed as a value-led transformation, rather than a compliance exercise.
Cost is still a factor. Regardless of the potential benefits, CEOs are still faced with the challenge of resolving the tension between a rising awareness of the need for sustainable transformation and unknown cost.
As pricing pressures impact every business decision, the first question with regard to activating a sustainability strategy is “How much is the transformation going to cost?”
That underlines the need for decarbonisation planning to be value-led with return on investment built into individual business cases so that they are both business and climate positive.
The ‘How to’ Decarbonise
EY Carbon’s 6+1 levers of decarbonisation assess:
- Process effectiveness and efficiency to reduce carbon
- Green energy supply
- Product transformation
- Value chain management and green procurement
- Circular economy
- Business model innovation
6+1) Compensation and neutralisation measures.