Towards net zero – harnessing the transformation agenda

The experience of the Covid-19 crisis has provided a fresh perspective on climate change. Policymakers, businesses and individuals have never been more aware of the fragility of society and that no single entity can solve the greatest problems facing the world.

The pandemic has also exposed the scale of the task. In 2019, the world managed to decarbonise at a rate of 2.4 per cent, according to PwC’s Net Zero Economy Index. And while the pandemic-related fall in global carbon emissions is expected to have pushed that figure slightly higher last year, there will be an inevitable rebound as economies reopen. Achieving net zero emissions in line with the Paris Agreement’s goal of limiting global warming to 1.5 Celsius will require a five-times increase in the rate of decarbonisation rate every year, PwC’s analysis shows.

Against this backdrop, businesses and other organisations can expect to come under increasing pressure to act on climate change. Governments and regulators will seek to use the policy levers at their disposal, and investors will demand action too.

But other stakeholders are just as important. Research suggests that a large majority of younger employees want to work for companies with a strong commitment to sustainability¹, a compelling consideration for businesses competing to hire the best talent. Suppliers, meanwhile, are focusing on their broader environmental footprints as they strive to meet targets of their own. Above all, customers are seeking out responsible companies and shunning those they deem irresponsible².

Transform to survive

Business leaders need to recognise that sustainability is a complex issue that goes far beyond individual siloes of the enterprise, says Emma Cox, PwC’s Head of Purpose and UK Leader for Sustainability & Climate Change. 

Sustainability isn’t even a single company issue. “You’re not going to get there by yourself,” adds Cox. “Organisations are interdependent. Think in terms of the bits of the ecosystem you can own, and the bits where others may have the answers.”

What does that mean in practice? “You are going to have to make some important decisions about your business model,” says Hugh Jones, Managing Director at the Carbon Trust, which works closely with businesses on sustainability transformation. 

As businesses consider new routes to growth — moving from selling products to offering an ongoing service, say, or from physical operations to greater use of online models — they must factor sustainability into their transformation plans. As they build new partner ecosystems, they must share the sustainability burden. They will need to consider how their suppliers will help accelerate progress towards net zero, says Jones.

The real gains, Jones argues, will come from planning long-term changes as part of a broader strategic agenda. “It’s not enough simply to set a climate change target for the business,” he says. “You also have to stress test that target on the basis of different sets of assumptions about how your business will evolve.”

Measurement and reporting will be vital to delivering meaningful change. PwC’s 24th Annual CEO Survey revealed that UK chief executives are more focused than ever on the effect of climate change on their business — some 70 per cent were concerned, up from 44 per cent in 2019. Sixty per cent of CEOs plan to increase investments in sustainability, while more than half concede they should be doing more to measure their environmental impact.

Microsoft’s Chief Environmental Officer, Lucas Joppa, stresses the need for broad engagement, both internally and externally, if ambitious targets are to be achieved. Microsoft has set its own bar very high with the goal of being carbon negative — beyond carbon zero — by 2030. “We have deliberately boxed ourselves in,” Joppa says. “We’ve made a big splash with our carbon negative pledge that everyone can hold us to account on.”

To get there, Microsoft has launched initiatives that include a climate council, on which representatives from all its business divisions sit. The company also has climate-related criteria built into executive remuneration packages; budget holders are effectively forced to confront the issue by a rising internal “carbon price” on emissions, which takes into account the impact of carbon on any given business activity.

“We’re also conscious that if Microsoft alone meets its climate pledges, that won’t be enough for our planet,” adds Joppa. So the company became a founding member of Transform to Net Zero, a coalition of multinational businesses dedicated to accelerating progress to a net zero future. 

“The idea is to build a roadmap on the basis of the lessons we have all learned,” Joppa says. Microsoft is also working closely with suppliers to help them improve their performance — again, it uses carbon pricing, which means the greenest bidders for Microsoft contracts are often the most competitive.

Leadership from the top

Initiatives such as these have catapulted net zero to the top of the C-suite agenda at Microsoft and other companies. PwC’s Emma Cox says that while businesses will need the expertise and experience of a figure such as a chief sustainability officer, long-term company-wide change is unlikely without executive sponsorship. “This is part of the organisation’s broader transformation, so it has to be owned at board level,” she says.

Nevertheless, successful transformation requires both a top-down and a bottom-up approach. “The board sets the strategy and provides the vision, but it also has to appoint the right people to implement that vision — to identify the building blocks of success and to drive change across the organisation,” Cox adds. This is one area where PwC has worked with Microsoft, designing a blueprint for executing net zero transformation across company functions and capabilities.

There is also a skills challenge. Many organisations simply lack the experience of navigating such fundamental change. New technologies may help — a clear focus on improved data, in particular, is crucial for both performance monitoring and accountability — but new talent may also have a role to play.

Again, this may not necessarily come from within the enterprise.

 The broader imperative is to recognise that the tipping point has come. Organisations must think hard about how they can build for post-pandemic recovery, asking themselves difficult questions about how the landscape has changed. 

Transformation will be the natural response, providing a golden opportunity to align challenging climate change targets with commercial goals.