The world is speeding up and becoming more complex; as we struggle to rebuild after COVID and numerous other global shocks, organisations and their employees also face pressures such as the cost of living, high energy costs, and increasing cyber and AI threat. Factor in the increasingly evident, damaging effects of climate change and you’re left with a potent mix. It’s easy to see why many organisations are prioritising short term challenges over complex, long-term issues like the decarbonisation of their operations.
Concerningly, if we start to take a longer-term view, over the next decade the increasingly severe threat from climate change and its impacts will dwarf these shorter term risks (as outlined by the World Economic Forum). We cannot afford to delay and take the short-term view; every day that we add more greenhouse gases (GHG) to the atmosphere, we reduce our window of opportunity to avoid the worst impacts of climate change, and to ‘keep 1.5 alive’. Despite the recent weakening of many ‘green’ policies here in the UK, we must not weaken our resolve. As stated by the IEA, ‘there is no low international co-operation route to limit warming to 1.5 °C and no slow route either’.
So, how can organisations accelerate their journey to net zero? We recommend four steps to help put decarbonisation higher on the organisational agenda.
Recommendation 1, Define what is important to your organisation
The development of any strategy should start with first understanding what an organisation values. This includes understanding key strategic drivers (internal and external), such as the need to align to mandatory or voluntary reporting frameworks (of which there are many).
It’s important to think about value in the broadest sense; economic, social and environmental. Value frameworks can be helpful tools to aid discussion with stakeholders and build consensus. You should also determine your scope and areas of focus; is it net zero that you are looking to achieve as a priority, or is your scope wider than this? There are pros and cons of taking a narrower or broader view (such as pace and complexity). As a minimum, organisations should be looking at both mitigation (the reduction of emissions) and adaptation (understanding the risks associated with climate change and taking action to prepare for current and future projected impacts). A greater understanding of climate risk can lead to greater awareness and buy-in from senior leadership, which can be helpful when building support for mitigation activities.
Organisations often develop separate sustainability or net zero strategies, which can lead to siloed working and decarbonisation being seen as ‘add-on’ activity, dealt with by specialists. To be successful, organisations must build sustainability into their DNA; this means that it should be considered alongside a wider set of strategic objectives and embedded into corporate strategy and governance systems, along with any metrics and KPIs.
Once you have set your scope and ambition, including the wide range of benefits that you intend to deliver, it’s important to publish your strategic intent internally and externally, to ensure accountability for delivery.
Recommendation 2, Don’t delay – focus on ‘low regrets’ activity
Building a Net Zero roadmap is a complex process and can be difficult to start. Developing a comprehensive GHG inventory – an emissions database – is often the first step to lay the groundwork for a detailed transition plan. This can take time, resource, money, and specialist expertise, which not all organisations have access to, and a common reason for delay is a lack of good data. However, a lack of data shouldn’t limit progress. It’s important that organisations build their confidence to make decisions in the face of uncertainty. In our experience, it’s best to just make a start and course correct as you go.
We recommend setting up concurrent streams of work; one to address your data gaps, and another to identify and capitalise ‘low-regrets’ interventions. The UK Government’s Net Zero Strategy defines low-regrets decisions as ‘actions that are cost effective now and will continue to prove beneficial in the future’. This could be as simple as swapping in LED lightbulbs, or insulating your buildings. Other low-regret interventions, such as those which encourage behaviour change, aren’t hugely costly but do take time and sustained effort. Creating an organisational culture that champions sustainability is a critical enabler to decarbonisation (more on this in a moment). Marginal Abatement Cost Curves (MACC) can be useful tools to help you prioritise where to focus, especially if you have limited funding available.
Achieving Net Zero will take time; there isn’t a quick fix. However, it’s important to start and make progress, even with imperfect data, and build your understanding as you go.
Recommendation 3, Your people are your greatest asset
Leading on from our last point; a focus on your people, at all levels of your organisation, is essential. If you can capture the imagination of your employees and make them feel a part of the change you are trying to deliver, they can advocate on your behalf and even help you to innovate around some of the stickiest challenges.
Changing individuals’ behaviours can be notoriously challenging, especially on emotive topics like personal lifestyle choices. Most people by now understand the importance of tackling climate change. However, sharing the same hard numbers and familiar facts can cause people to switch off. When it comes to driving change, we tend to focus on measurement and disclosure, which is retrospective. This is undeniably important (with measurement comes management), but more could be achieved through the development of a human-centred (and co-created) shared vision for the future. We aren’t helping ourselves by speaking in purely scientific terms; net zero is a nebulous concept that is hard to relate to or visualise – much less buy into.
Engagement with your staff should be two-way, centred on their future, as well as the future of your organisation and the value you intend to create. It should be guided by climate science, not led by it. Up-front investment in activities such as leadership workshops and training, and creating incentives for behaviour change (e.g. electric vehicle salary sacrifice schemes), help set the foundation for the culture you are striving towards, and can pay dividends later.
Recommendation 4, Build your case: secure financial backing
One of the major barriers to decarbonisation is certainty of funding. The upfront investment required can be substantial and, when developing your business case, your broad value definition (economic, social and environmental) will be important, to derive maximum value and ensure a robust qualification of the costs and benefits. Your cost-benefit analysis should identify opportunities and capture the true cost of delaying or not acting, as well as accounting for the wider constraints, dependencies, and risks. Funding for decarbonisation activity can also be used to enhance organisational resilience, which might make costs more palatable. Companies should look to optimise their capital budget over time to deliver the greatest impact.
All organisations will see a natural reduction in emissions over time. Modelling a ‘do nothing’ (or business as usual) option can help you to understand what your decarbonisation trajectory will look like if no action is taken. Decarbonisation of national energy sources, supply chains and wider sectoral changes (e.g. transportation) can all reduce an organisation’s emissions. The Climate Change Committee’s 6th Carbon Budget contains a series of sectoral decarbonisation pathways which can help to inform your ‘do nothing’ option.
A note of caution: when making important decisions, be mindful of the methodology used. Take Net Present Value (NPV) for example, the standard model for investment decision making, which converts all future benefits and costs into how much they'd be valued today. A static approach to investment decision making, using NPV, means the benefit often looks smaller against the investment. This is a particular problem for Net Zero business cases, as there is often a large time horizon between costs expected and benefits realised, in which flexibility is needed, including the flexibility of delaying the investment through time. As outlined by Ofgem, applying a real options framework, rather than NPV, could provide ‘a more objective approach to valuing flexibility and the optimal timing of investments’.
Finally, in organisations which want (and are able) to truly cover all bases, the ‘social cost of carbon’ (SCC) can be a helpful addition to your cost benefit analysis. SCC is a measure used to estimate the economic cost associated with the release of one additional tonne of carbon dioxide equivalent (CO2e) into the atmosphere. It reflects the long-term damage caused by GHG emissions, and can help organisations to make more informed investment decisions, as it ‘signals what society should, in theory, be willing to pay now to avoid the future damage caused by incremental carbon emissions’ (source). Some organisations use Internal Carbon Pricing to start building an understanding of the true cost of their operations and to divert investment from polluting activities.
Through the development of a robust business case, organisations have the opportunity to propose a living strategy, with ring-fenced funding to support longer term planning and delivery.
Collaborating now for future success
Organisations must balance the need to act ‘now’ with putting in place the foundations to enable decarbonisation success in the future. Uncertainty about the future should not be a barrier to progress; by taking their first steps with low-regrets activity, even before perfect data is available, organisations can join the drive for positive change. Your people can be your greatest asset and collaboration amongst all is key; we are all on this journey together and it is only through learning as we go, sharing knowledge and decisive, joined-up action that we can collectively make a difference.