Top 10 challenges with corporate net zero transformation
Engie Impact's 2021 Net Zero Corporate Readiness Survey shows businesses upbeat about their sustainability programs but underinvesting in the enablers of Net Zero transformation. It surveyed 400 business leaders across 23 countries, representing companies with more than $1bn in revenues or more than 10,000 employees, just weeks before the COP26 conference.
The research found a stark contrast: while companies are optimistic about their ability to decarbonise, the managerial and operational fundamentals necessary to enable the Net Zero transformation are not yet in place. Here are 10 key challenges.
10: Lack of co-ordination on decarbonisation
Corporate and local offices are not co-ordinating on decarbonisation, according to the survey. Asked whether local and corporates work together on net zero strategies, only 37% agreed. Looking at solely department directors, even fewer, 28%, say this co-ordination is happening.
09: Mobilising the organisation for delivery
Implementing Net Zero transformation cannot be driven by corporate headquarters alone. Entire organizations must be activated, from manufacturing sites to sales operations, business units, support functions, all the way to the C-suite.
08: Absence of sustainable finance models to fuel decarbonisation
When asked if companies have implemented sustainable finance frameworks, only 16% were confident, 31% agreed and 69% disagreed. Similarly when asked if they use innovative financing and contracting models to fund decarbonisation actions, only 11% were confident, 52% agreed and 48% disagreed.
07: Leveraging green finance solutions
Capturing the multitude of green financing and regulatory support mechanisms contributes to reducing the costs of decarbonisation action and accelerating change.
But only 31% of companies agree (of which 16% are confident) they have sustainable financing frameworks, such as green loans and green bonds, to guide capital allocation for decarbonisation projects. And only 11% are confident they are making use of innovative financing and contracting models (e.g., shifting financial responsibility to third parties via private equity, corporate debt, subsidies).
06: Business decisions remain disconnected from emissions data
Only 10% of business leaders were confident that they regularly use emissions data to make business decisions (although 48% agreed) and more than half (52%) disagreed. On the question of a 'single source of truth for decarbonisation data', only 3% were confident, 18% agreed and an overwhelming 82% disagreed.
05: Making carbon data ubiquitous
Sound business decisions require accurate data insights, and carbon is no exception. To be successful in their Net Zero transformation, business managers need to be equipped with accurate and timely carbon data insights geared toward supporting decision making.
Yet more than half of all business leaders, and an even larger majority of directors, acknowledge that their global business operations may not incorporate streamlined calculation and modeling of emissions data. Just 48% of business leaders agree, of which only 10% are confident, they are using emissions data to make business decisions.
When we zoom in on just the directors, even fewer, 35%, share that view. 97% of companies lack confidence they have a single source of truth for decarbonisation data for the whole organisation.
04: Most companies have yet to integrate carbon into business decisions or incentives
On the question of whether companies have 'mechanisms to integrate carbon in all investment and business decisions', only 3% were confident, 37% agreed and 63% disagreed. When asked if they incentivise organisations and individuals to achieve their decarbonisation objectives, 5% were confident, 31% agreed and 69% disagreed.
03: Integrating carbon into corporate governance and decision making
Decarbonisation at scale requires carbon KPIs to be integrated in the decision-making and governance mechanisms of companies. New investment opportunities at all levels should be assessed not only for their financial and strategic merits, but also for their carbon impacts. In addition, goals and incentives of business leaders must be updated to integrate carbon performance.
Over time, companies should apply the same scrutiny to carbon as they do to money. The data is concerning. Almost all (97%) companies lack confidence in having mechanisms to integrate carbon in investment and business decisions. Similarly, 95% lack confidence that business units and individuals are being incentivized to decarbonize at the required pace and scale. Only 29% of department directors agree, compared to 45% of C-level executives, that their companies have mechanisms in place to integrate carbon into decision-making.
02: Confidence in decarbonisation technologies declines from planning to execution
The survey found 38% of companies understand the relevant technologies for their decarbonisation needs, but the numbers fell even further when it came to decarbonisation plans consider technology evolutions and uncertainties (23%); decarbonisation strategies includes anticipated future business changes (22%); developing business cases and scenarios that consider total costs of decarbonisation (18%); and combining solutions into decarbonisation plans to achieve goals (14%).
01: Creating an actionable and cost effective decarbonisation plan
A bold decarbonisation ambition must be supported by a detailed decarbonisation roadmap that acts as a blueprint for action. This roadmap must identify and sequence the rollout of decarbonisation levers and business models and integrate these in the company strategy.
It is also a living document which must capture the rapidly changing technological and regulatory landscape and ensure the agility to change course or accelerate when the conditions are right. Interestingly, the confidence of business leaders steadily declines with their ability to anticipate decarbonisation uncertainty, the impact of strategic changes, and total costs, indicating a relative immaturity in their business planning.
The business leaders polled wee split equally between C-suite executives and department directors who lead day-to-day sustainability responsibilities. The gap between perception and operational reality widens when we compare their responses. "We consistently find directors more attuned to the reality of missing decarbonisation enablers in their organizations than C-suite leaders," it states.