NEW Podcast: Leverage the Frozen Middle. Growing Digital Ethics in Practice. Listen here.

NEW Podcast: Leverage the Frozen Middle. Growing Digital Ethics in Practice. Listen here.

Published

27

Aug

2020

Commentary

Climate: The Next Strategic Imperative

First COVID-19, then climate … then the zero-carbon economy.

During the spring of 2020, a number of cartoons were published showing the scale of COVID-19 in comparison to climate change.  One featured a COVID-19 boxer fighting with the world, with a much larger climate change boxer waiting outside the ropes; another featured a COVID-19 wave about to hit a city, with a larger recession wave coming after it, then an even greater climate change wave coming after that.  The implication is clear: however much COVID-19 has impacted our world, the impact of climate change is going to be far greater and far more significant, if less immediate. 

Climate: The Next Strategic Imperative

Paradoxically, 2020 has thus far been a year that accelerated investors’ climate considerations. Perhaps because of the growing awareness of business fragility brought on by COVID-19, climate change is making its way from a peripheral to a central part of investment strategy for firms like BlackRock, JPMorgan, Mizuho Financial, BNP Paribas, and Aviva Investors.  Asset managers are beginning to flex their muscles: climate change is no longer the domain of environmental campaigners, but is firmly in the category of strategic management, from both the risk and opportunity perspectives.  Insurers too are contributing to shifting incentives for businesses by declaring many emissions-heavy projects uninsurable, pushing many companies into adopting strategies that reduce carbon emissions.  While previously it was oil and gas companies that bore the brunt of poor climate reputation, money managers now not only examine the carbon credentials of energy companies but are expanding their investment assessments using climate-driven criteria across a range of sectors from manufacturing to digital technologies.

This strategic shift towards more climate-guided strategy is not simply happening in the capital markets and insurance houses.  The National Grid, which operates the UK electricity network, has outlined a vision for turning the UK electricity grid carbon negative by 2033Copenhagen is aiming to become the world’s first carbon-neutral city by 2025, and has reduced carbon emissions, decreased heat consumption and increased the use of public transport and bicycles. Policies are changing at every scale from local and regional governments all the way up to regional blocs such as the EU.  Many are declaring a ‘climate emergency’ and putting into legislation changes that will have a significant impact on the future of both business and trade. Most are aiming to be carbon neutral or carbon zero by around 2050.

The direction of travel is clear: economies are starting the shift towards a low- to zero-carbon future.

Tech companies are going carbon neutral

Some of the first major movers into this new low-carbon world appear to be the tech giants, with the likes of Amazon declaring its Climate Pledge aiming to hit Paris Agreement goals 10 years early and Google shifting data centre workloads so that they run when the sun shines and the wind blows and claiming to be the largest corporate buyer of renewable energy in the world.

Microsoft has had an internal carbon fee since 2012 and is aiming to be carbon negative by 2030.  It also has a Chief Environmental Officer, Lucas Joppa, who leads sustainability at the company.  His background is as an environmental scientist and a data scientist and he founded Microsoft’s AI for Earth initiative.  Microsoft seems to believe that sustainability and technology are part of the future.

Apple, a leading provider of both software and hardware, has perhaps the biggest challenge.   Unlike other big tech companies, improving its overall green credentials isn’t just about reducing the carbon impact of software services or greening the power supply to data centres, but also cutting the carbon footprint throughout its manufacturing supply chain.  Apple has been talking up its environmental credentials for many years, including releasing products with 100 per cent recycled aluminium and labels such as the ’greenest Mac ever’.  Many Apple users (and Greenpeace) believe it to be the most environmentally friendly tech company.  It is certainly true that Apple has made conscious steps to become seen as environmentally aware.  If Apple is able to successfully reduce its carbon impact throughout its supply chain, it will provide an excellent roadmap for other companies struggling to understand the complexities of carbon impact beyond their own internal operations.

In July, Apple committed to being 100 per cent carbon neutral in its products and supply chain by 2030.  Supply chains in most companies involve numerous third parties, many of whom aren’t even visible to a company just one or two layers further up or down the chain.  Hence the true carbon cost of products and services is still relatively obscure to many businesses – especially those whose supply chains rely heavily on countries that are heavy carbon-emitters, notably China.  In the West, we haven’t so much reduced our carbon emissions as outsourced them.

While Apple proudly displays ‘Designed by Apple in California’ on its products, it relies on suppliers in 49 countries to manufacture its devices – principally China.  Apple is helping to transition all its suppliers to zero-waste facilities and to renewable energy.  Because of the lack of joined-up data about carbon impact, even the market leaders in shifting to sustainable strategies in the supply chain (like Apple) currently find it hard to audit a supply chain successfully, and mistakes will be made.  Nevertheless, Apple is working very hard to address this challenge through both internal processes and government partnerships.

In 2018 Apple, along with 10 of its suppliers in China, launched the China Clean Energy Fund investing in three wind farms.  The intent of the fund is to develop 1GW of renewable energy, primarily to provide Apple’s suppliers with a source of renewable electricity so that its supply chain can transition to renewable energy.  The China Clean Energy Fund shows that for a globalized business, the thorny issue of decarbonizing not only internal operations but also the entire supply chain is complex and time consuming – but achievable through collaboration with an ecosystem of public and private partners.

A green COVID-19 recovery

According to the UN, we’re on course for around 3.2ºC of warming even with all the decarbonization commitments that governments have already given.  To de-risk the future, pressure is growing not only from social forces but also from capital markets and insurers.  More businesses will need to start following Apple’s example by committing to decarbonization throughout the supply chain as well as in their internal operations.  Apple has committed to a 10-year time horizon to become carbon-neutral, and other businesses need to follow suit, fast.  This is more than simply getting a handle on the electricity supply; a precise data-driven understanding of both emissions and other environmental impacts will become more important as social and regulatory pressures grow.  Data processing capacity and monitoring technologies continue to improve, meaning the job should get easier, but it will take cross-industry standard practices on what and how to measure (possibly stimulated by policy shifts that define these evaluation criteria) to really create change.  For this reason, it looks like Microsoft’s model of bringing in someone with skills in both technology and sustainability (Chief Environmental Officer Lucas Joppa, mentioned above) is likely to be a good move.  And it’s not just Microsoft – we’re already seeing these sustainability technologist/data roles emerging across multiple sectors.

Whether you agree with the climate science or not, market forces and regulatory pressure are growing: the world is moving towards a low carbon and then to a zero-carbon future by 2050.   Our forthcoming report Zeroing In: Data-Driven Sustainability Strategy for a Climate-Altered World identifies what globalized businesses should be aware of during this shift, providing practical guidance for companies to stay ahead of the game of transforming into more sustainable businesses and leading the way towards a low-carbon future.


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