While most companies acknowledge the moral and regulatory obligations to decarbonise, and many have endeavoured to set a good sustainability strategy, there is often a gap between ambition and reality. If we know what we need to achieve, and what we need to change to get there, then why is it so difficult in practice?
To ensure successful delivery of your decarbonisation strategy, you need to be bold and forward-thinking.
Start planning now to replace long-term assets
Your assets may have years of useful life left and understandably, you may be reluctant to replace them ahead of schedule, especially when there's likely minimal value, or even a financial write off, upon disposal.
At Berkeley, we have tackled this challenge while partnering with transport sector clients on sustainability strategies. One client, a bus company, has committed to no more diesel bus orders after December 2022 but even with this commitment, it will take until 2035 to have a fully decarbonised fleet due to the lifecycle of their existing assets. Other asset lifecycles are even longer, with trains lasting between 30-35 years, and ferries and ships between 25-30 years.
If your company is conforming to the 2050 net-zero target (which has been adopted by most national governments around the world, including the UK and the US), an effective asset decarbonisation strategy should take full advantage of the timescale available.
Transition to decarbonised assets cannot happen overnight - you need to start your planning now.
- You need to undertake a full analysis of not only your assets, but also their supporting infrastructure to establish the cost of transition to green. (e.g. the feasibility of converting a diesel fuel pump to a hydrogen fuel pump or an electric charging unit).
- You must understand the policy landscape at every level of government. In the UK, some local authorities are moving faster than others to accelerate transition to green through a combination of policy and punitive measures.
- Depending on where your company operates, you may already be eligible for government funding. Secure that funding support quickly - government funding could diminish as new, green industries mature and manufacturing costs reduce.
Be holistic in your thinking: it's more than just your assets that need to be considered.
Businesses need to think about the end-to-end supply chain. What pressure can an FMCG or retailer put on its suppliers to reduce carbon consumption in product manufacture? Is it commercially viable to source more locally to reduce transportation costs?
The rapid growth of the electric car market has shown that consumers are becoming more willing to pay a premium for low carbon products.
Trialling green technology and suppliers
Adopting new technology may be essential to enable decarbonisation, but choosing the correct solutions and then selecting the right supplier can be a daunting prospect. In an emerging marketplace, no-one wants to back the wrong horse, requiring correction and additional investment further down the line.
For example, the technology for electrifying larger vehicles, such as buses and vans, is relatively new and currently only sufficient for relatively shorter distances. The charging technology introduces a further element of risk, with multiple solutions available and no international standard yet established.
It's important that your decarbonisation strategy allows you to hedge your bets. The ease and simplicity of having one supplier replace all of your assets may be tempting, but it's worth trying a few suppliers at the early stage. Consider embracing a trialling approach to both technology and suppliers, while maintaining balance against overcomplexity.
Again, taking advantage of government funding can help manage the risk and associated cost of this phase.
If businesses truly believe in the decarbonisation agenda, they can't be too cautious. Embracing risk means seizing the opportunity to be the pioneer and drive real progress.
To implement and evaluate your trials successfully, you may need to consider whether your organisation has the right skills. Ensure your talent and/or outsourcing strategy is appropriately aligned.
Decarbonisation requires a change in leadership and culture
Accelerating trends, such as consumer behaviour, activist investors and green finance, will drive a virtuous circle of change, and make sustainability an inherent element of profit and loss. Forward-thinking organisations recognise that decarbonisation will lead to business benefits, while a failure to act may detract customers and incur commercial penalties.
The right approach will change the operating modeland/or organisational culture so that everyone takes accountability for delivering on sustainability.
Successful change starts with good leadership. Sustainability challenges cut across traditional functions so consider appointing dedicated environmental, social and corporate governance (ESG) roles at the executive level. Such roles shouldn't only focus on policy-setting and progress monitoring, but take ownership for delivering change and achieving ESG outcomes.
However, you can't just put a Chief Sustainability Officer in place and expect everything to be fixed. Making ESG measures a meaningful component of your balanced scorecard will start to drive the right behaviours, promote collaboration and encourage a joined-up approach across the business.
Leadership must lead by example by reducing their own unnecessary consumption. Culture change won't happen unless leaders are seen to be 'walking the walk'.
Proactivity now will pay off later
While nobody can predict the next 'unicorn' of the green economy, we know there will undoubtedly be new commercial opportunities. Private and government investment in the green economy is only set to grow. The possibilities could be endless.
The organisations that embrace proactive planning, a healthy approach to risk, and ambitious leadership, are setting themselves up for the best chance of success. Those that do not, run the risk of becoming irrelevant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.