Sunday, June 23, 2024

Breaking down the barriers to decarbonisation

By Kirti Rudra, Director of Sustainability Solutions, EMEA.

At the World Economic Forum in January, the U.N. Secretary General called on business leaders to make ‘’credible and accountable’’ net zero pledges – highlighting the need for organisations to match ambition with action when it comes to implementing their climate goals. Nearly two-thirds of organisations have taken the first step by making public commitments to reduce carbon emissions. However, achieving decarbonisation goals requires sustained effort, investment, and strong leadership.

Although many organisations have a decarbonisation commitment, only 12% believe they are on track to meet or exceed their goals according to a recent report from ENGIE Impact. Many have achieved most of the “quick wins” and now face harder-to-address challenges. For those organisations that take on these challenges and do overcome decarbonisation barriers, it is compelling to note — according to ESG Book and Reuters — stocks of companies with ESG-positive portfolios can outperform competitors by more than 1.5%.

1. Maintain long-term focus and belief

Decarbonisation should be a priority for organisations looking to achieve long-term competitive advantage. Even with the challenges of balancing short-term return on investment and rising energy and raw material costs, maintaining decarbonisation efforts — even through periods of volatility — will be a boon to short- and long-term corporate goals. Decision-makers need to look beyond the short-term volatility in energy and financial markets by focusing on how continued investment in decarbonisation will drive long-term competitive advantage.

2. Establish governance and accountability

There can be significant challenges to establishing the best organisational structure to achieve decarbonisation goals. Many organisations start with a centralised model, providing clarity to organisational priorities and oversight to capability investment. As they mature, many move toward a more delegated model with resources and expertise more closely aligned to business units, functional areas or geographies — nominating champions to coordinate local efforts. Each company should weigh the pros and cons of each governance model to choose an approach that maximises the return on their decarbonisation investment and minimises disruption to their current operations. Failure to address this issue early in the sustainability process can result in tension between strategy and implementation.

3. Increase executive accountability

Strong leadership and commitment are crucial to achieving sustainability goals, but lack of incentive and ownership at the executive level is a barrier to progress. Executives need to be held accountable for decarbonisation commitments, treating them as seriously as financial targets. Bonuses for decarbonisation goals need to be significant to change behaviour and not just given to executives, but to all employees involved in reaching established goals. This way, everyone is held accountable and incentivised to prioritise carbon-reduction efforts. This also reinforces the need to have a reliable carbon data management infrastructure to track and measure progress toward these goals.

4. Close the implementation expectation gap

Any disconnect between the expectations of executive management and those in operational roles can lead to implementation challenges. Often, executive decision-makers tend to be more optimistic the current state of their decarbonisation efforts, while operational leaders tend to be more aware of the reality. This misalignment creates risks, as executives may underestimate the effort and investment required, and operational leaders may struggle to make the case for faster progress. To overcome this, organisations should align under a common decarbonisation purpose and process, which can help clarify priorities, milestones and investment requirements.

5. Activate the right decarbonisation levers

An organisation’s decarbonisation can support — and even boost — existing business targets if there is proper alignment of resources, goals, and capabilities. Three enablers can help accelerate this process: innovative finance models, carbon pricing, and carbon data maturity. Adopting innovative finance models, such as green bonds or finance-as-a-service, helps unlock capital for investment and reduce investment risk. Carbon budgeting can be used to assign a carbon value to activities and forecasts outcomes based on emissions risk and reduction potential. Data maturity works best when there is a single source of truth, utilising the right digital tools to enable transparency and action.

6. Collaborate with supply chains

Organisations need to address not only their own carbon emissions but also those produced by their supply chain, known as Scope 3 emissions. Working with a supply chain can be a major barrier, so collaboration that includes setting clear decarbonisation expectations with suppliers is vital. Some organisations have even incorporated decarbonisation commitments into procurement contracts and offer financial incentives to suppliers who meet specified targets. With clearly defined decarbonisation targets in place, you can identify areas of mutual interest and collaborate on initiatives aimed at reducing Scope 3 emissions.

Overcome decarbonisation barriers

Many organisations have committed to reducing carbon emissions, but few believe they are on track — likely because they are beginning to face more significant decarbonisation challenges in the context of the current economic downturn. With the right partnerships, strategy, and carbon data management in place, any organisation can take the proper actions to overcome those implementation barriers and work to reduce their carbon footprint. This should be top of mind for business leaders as we move forward in the new year, as any delay on implementing the right decarbonisation levers will make the targets even harder to reach, potentially even rolling back the clock on progress made thus far.

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