For many years, companies have sought to attribute green credentials to their products (with varying degrees of credibility). Wrapping burgers in paper rather than polystyrene and filling our cars with palm oil derived biodiesel are obvious examples.
Corporate strategy has evolved, and sustainable messaging is now being attached to brands rather than products. Research by Nielsen suggests that 2/3 of consumers will pay more for sustainable brands.
There are other compelling reasons for companies to drive a carbon reduction agenda:
- companies can stay ahead of increasingly stringent environmental regulations and policies
- employee satisfaction and morale may benefit from the attachment to a sustainable employer
- supply chain players are demanding improved carbon credentials from their partners
- investment and funding are increasingly directed towards “green” companies and initiatives
3. What can companies do?
Business leaders must act to a) set a carbon vision/goal and b) establish a road map to get there. According to a recent survey by KPMG/Eversheds, 72% of executives surveyed stated that: "Managing climate-related risks will be a key factor in keeping their jobs in the next 5 years."
While the current coronavirus pandemic has been met by unprecedented levels of government (financial and non-financial) support, when it comes to carbon reduction, companies are likely to be on their own. Moreover, company boards will expect their CEOs to fund carbon neutral strategies through process savings and new market expansion rather than through a dedicated pot of capital.
At Frost & Sullivan, we believe companies can plan their carbon reduction journey by establishing three core areas of action: Energy & Material Modification, Process Innovation and Emissions Management.
3.1. Energy & Material Modification
For most finished manufactured products, the emissions generated in the production and distribution of raw materials and component parts can contribute up to 70% of the product’s total cradle to grave carbon footprint.
Energy usage is a critical component, so switching from fossil fuels to renewable grid sources for key process equipment (such as furnaces and crackers) is a winning strategy. Adoption of hydrogen as a fuel or feedstock is particularly relevant to the chemical industry. Availability of renewable energy becomes a key factor when determining where to locate a new production facility.
3.2. Process Innovation
Digitization plays a critical role here (Industry 5.0, IIoT, factory automation, etc.), but it needs to move away from function-specific or site-specific implementation to 'cross value-chain' solutions to realise scalable benefits. Driving digital implementation across customer, plant, supply-chain, energy management, planning, scheduling, sustainability and services is the new mandate many organizations have taken up to improve efficiency.
3.3. Emissions Management
Managing emissions by carbon capture and storage (CCS) could be seen as a cure for excessive carbon generation rather than a prevention of it at source. The preference is to reduce emissions in the first place, and indeed the jury is out regarding the feasibility of large scale carbon storage.
Carbon capture and usage (CCU) presents a more holistic alternative. Capturing carbon and converting it into products that can be reused has more attractive circular economy benefits. It also presents a critical future source of revenues for companies who must fund their carbon strategies through new market expansion. Captured carbon can potentially be put to many valuable uses.
4. Look outside as well as in!
In pursuing their carbon reduction goals, business leaders must continue to meet the shareholder need for increased enterprise value. This translates to growing sales and profits.
Decarbonisation presents myriad new market opportunities for innovators. For example, a successful hydrogen economy will create demand for high-strength composite storage vessels. AI and robotics will transform the efficiency of factories.
According to US Climate Envoy, John Kerry, 50% of carbon reductions will come from technology that has yet to be invented.
5. Is this all hot air and can you pay your way out of it?
In pursuing their carbon reduction goals, business leaders must continue to meet the shareholder need for increased enterprise value. This translates to growing sales and profits.
One of climate change’s hottest topics is the use of financial instruments such a carbon credits and offsets. For large organisations, the use of such financial tools gives them a way to kick start their carbon zero journey. In the short term, financial instruments will be a critical part of their arsenal of initiatives. Longer term, the scope for offsetting may narrow, while the growing maturity of game- changing technologies and the opening up of new market opportunities will encourage organisations to take direct action to reduce emissions.
Carbon zero looks set to be the most significant business disruptor for the next 30 years. A strategy that combines the rebalancing of internal operations with market facing opportunism will enable organisations to meet their commitments while continuing to grow.