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The future starts now. Strategies for the new green economy normal.

The future starts now. Strategies for the new green economy normal.

Sustainability leaders play an increasingly transformational role globally as organisations embrace the net zero challenge. But this transformation takes time. Keep reading as we explore the risks of taking a short-term view and the key steps to consider when preparing your business to thrive in the new low-carbon economy.

The future starts now. Strategies for the new green economy normal.

Sustainability leaders play an increasingly transformational role

The stakes are high for corporate sustainability leaders. Balancing climate and corporate goals and setting ambitious yet achievable decarbonisation goals, all while navigating short-term and long-term change.  

The urgency to act comes from climate science, government regulation, customer demand, employee expectations and investor pressure. It comes from the growing signs of a planet-in-crisis as seen in our everyday lives.

It also comes at a time of increased scrutiny into corporate climate action, public scepticism of tools such as carbon credits and growing competition for high quality nature-based solutions. Businesses are concerned with ‘greenwashing’, but ‘green-hushing’ is also problematic.  

So while the question is no longer ‘Why?’, the question of ‘How?’ is complex and multi-faceted.

Short term focus on emissions reduction is critical, but a lack of long-term planning is risky.

When approaching decarbonisation, sustainability leaders must take a long-term view and consider the processes, technology and resources needed to thrive in the new low carbon economy.

Starting with deep Scope 1, 2 and 3 emissions reduction, a future-focused strategy includes planning for climate change mitigation activities that fall outside of a company’s value chain - such as investment in high quality nature-based solutions.

Keep reading as we explore:

  • The evolving regulatory, competitive and reputational landscape sustainability leaders operate in;
  • The risks of taking a short-term view without forward planning for climate change mitigation outside of own value chain; and
  • The key steps to consider when documenting your long-term decarbonisation strategy.

The race to net-zero is intensifying, and so is the complexity

Climate change is a critical agenda item for corporate boards globally.

In a recent Deloitte survey, 61% of CxOs said climate change will have a high or very high impact on their organisation’s strategy over the next three years. With many ranking climate changes as a ‘top three issue’, ahead of innovation, competition for talent, and supply chain challenges. With only economic outlook ranking higher.

The urgency to act comes from an acceptance of the scientific consensus on climate change as outlined by the International Panel on Climate Change (IPCC). We must achieve net zero carbon emissions globally by 2050 to limit global warming to 1.5°C.

The pressure also comes from customers, employees and investors who increasingly witness the impact of climate change on their communities and expect more of businesses they invest in with their time or money.

More than one-third of the world’s largest publicly traded companies now have net-zero targets, with most large organisations actively planning for the net zero transition.

And the stakes are high.

The ultimate and most important risk is the possible loss of a liveable planet and, in the meantime, the financial, reputational, and regulatory risk for businesses is also significant.

Government policy is evolving at a rapid pace globally. This includes:

  • Governments placing increasingly ambitious emissions limits on largest emitters in order to meet national net zero commitments, for example the proposed changes to Australia’s Safeguard Mechanism;
  • Mandatory climate reporting in many countries, including the UK, European Union, Canada, New Zealand and (soon to be) Australia;
  • Regulators taking action against misleading climate claims, or ‘greenwashing’, for example Australia’s corporate regulator’s (ASIC’s) recent court action against a super fund.

At the same time, public scepticism in corporate climate action has never been higher.

Carbon neutrality claims made possible through the purchase of carbon offsets are those most often being challenged, whether by activist groups, individual social media activity, or by late-night comedians.

The sceptics rightly challenge the practice of offsetting emissions without meaningful emissions reduction. They rightly highlight the use of less credible credits that do not deliver incremental environmental benefits.

These issues are markers of a global transformation and rapidly evolving market mechanism.

While generally well-meaning, the sceptics often miss the positive impact that investment in high quality nature-based carbon solutions has already had and continues to have on the environment and local communities.

In 2022 alone, the voluntary carbon market (VCM) is estimated to have directed more than US$1.3 billion to help mitigate around 173 mega tonnes of carbon emissions.  This is in addition to the growing number of carbon projects which focus on delivering co-benefits, such as positive social, economic or biodiversity impact, thereby helping to support an organisation’s impact on broader Sustainable Development Goals (SDGs).

Keeping a short-term, single focus feels safe, but comes with own risks.

Navigating this changing regulatory, competitive, and reputational landscape is challenging. Sustainability leaders must act, and action must begin with meaningful emissions reduction.

Climate science, regulators, customers, and employees are aligned on this.

And if your own emissions reduction initiatives are still being developed, or still being delivered, it may seem premature to invest in activities that avoid, reduce or remove greenhouse gas emissions beyond your own emissions boundaries.

Both the Science Based Targets initiative (SBTi) and the IPPC, however, recognise investment in high quality solutions outside of an organisation’s own value chain as an important part of the net zero solution. Provided that emission reductions within the value chain are prioritised.

But while revising operational processes to reduce Scope 1, 2 and 3 emissions should be a priority, it cannot be at the cost of long term and strategic planning for the overall carbon footprint of the business.  

Despite best emissions reduction efforts, most organisations will be left with unavoidable residual emissions.

Waiting until all emissions reduction efforts are finalised before exploring investment in carbon reduction or removal projects comes with its own risks.

This includes:

  • Paying significantly more than you need to. Voluntary corporate demand for high quality carbon credits is expected to increase over time. This, coupled with a tightening compliance market and increased scrutiny on carbon credit quality, is expected to put upwards price pressure on quality projects.

    It is difficult to precisely predict the future prices of high-quality credits but there have been several well-considered models created. This report by EY projects carbon credit prices to rise from their 2022 prices of under US$25 /tCO2-e, up to US$ 80-150 per tonne by 2035.  This cost increase will have a significant impact on most ESG budgets, and with some forward planning, can be minimised.  
  • Delaying your own transformation. Organisations that will thrive in the new low carbon economy are actively building their in-house knowledge, processes, and resources today. This starts with value chain mitigation like energy efficiency, improved material flows and the circular economy. But it doesn’t end there.

    Businesses that can see, understand, and act on environmental market dynamics can better balance their commercial and climate goals. This in-house expertise takes time to build, and forward-looking businesses are doing it now.
  • Delaying the much-needed evolution of carbon markets. Carbon and environmental markets are recognised as an essential part of the global net zero solution. But they are relatively early in their evolution, and, like any change mechanism, there is a need for ongoing reform, including increasing transparency and trust.

    And like all similar mechanisms and industries, carbon and environmental markets will keep evolving. There will never be a time when these reforms are complete and waiting only delays the improvements needed. Collective corporate action, with an absolute focus on project quality, sends powerful demand signals to the market. This will help to encourage more quality projects and help the market and standards mature more quickly.
  • Not meeting stakeholder expectations. Avoiding investment in external carbon projects until all emission reduction efforts are complete may be driven by the perceived risk of greenwashing. The risk however is not with purchasing quality credits, it is in making claims that are bigger than the impact your business is making.

    Not communicating your progress at this point may be tempting. But ‘green-hushing’ is also problematic as it can block collaboration and therefore delay progress.

    Most stakeholder groups, including customers and investors, would rather see honest and transparent progress. This includes supporting nature-based climate solutions, one of the planet’s most effective near-term tools for avoiding and/or removing carbon from the atmosphere and the communities and species that rely heavily on natural carbon sinks (such as forests and mangroves).

Prepare your business for the green economy normal.

There are many parallels between the low carbon transformation and the digital transformation most organisations have recently completed or are in the process of finalising.

Like the digital transformation, the low carbon transformation touches all parts of the business, requires new processes and ways of thinking, and can be daunting at the beginning. As such, both change programs involve a heavy reliance on external consultants in the initial stages.

But both examples also herald a new era. There is no going back.

Businesses that will thrive in our new low carbon world will be the ones that take a strategic, long-term view, leverage all tools at their disposal and build their in-house knowledge and capability.

Just like we now rarely hear of external digital consultants, organisations will, over time, reduce their reliance on external advice when it comes to energy efficiency, sustainability strategy, emission reductions and beyond value chain climate change mitigation.

Instead, they will lead this activity in-house, with external advice providing important assurance on an as-needed basis.

This transformation takes time. Forward-looking organisations are starting today.

Take a strategic view: plan for within and beyond the value chain action

There is no one right strategy or path to net zero. What is best for your organisation will vary to that of your peers, and will depend on individual emissions profile, your level of control within your emissions boundaries (especially Scope 3), the status of your emissions reduction initiatives, your resources and budget. Your organisation's climate ambitions will also be an important factor.

One thing is for certain, corporates with net zero strategies based on a long-term view and incorporating all available tools, are likely to be better equipped to meet the challenges of the new low carbon normal.

Here are key points to consider when exploring and documenting your way forward.

  1. Understand your data and put it to work. Defining and gathering detailed emissions for Scope 1, 2 and 3 emissions across your operations is the logical first step, but making sense of the data can be difficult if you don't have the right tools. Think beyond spreadsheets. Now is the time to consider what tools you need to understand your starting position at a glance, across all of your portfolios, and to track the progress of your emissions reduction efforts.
  2. Design a long-term strategy from your baseline. Start with identifying your own guiding principles for the net zero journey, including your risk profile. Then determine which emission reduction initiatives are best placed to help you reach your goals. Document your sustainability initiatives, gain board approval and ensure your extended team is aware of the organisation’s commitments.
  3. Prioritise your emissions reduction initiatives. Which of your chosen initiatives will help you reach your immediate reduction goals, quickly? Which are the easiest to implement? Many organisations start with energy efficiency and renewable energy procurement, with the view of reducing Scope 2 emissions to zero. This relatively quick win makes sense. But don’t forget to start thinking about Scope 1 and 3 also. How much can you reasonably expect to reduce in the short, mid, and long term? What unavoidable emissions can you expect to be remaining?
  4. Determine your best-fit climate standard. Third-party net zero or carbon neutral certification and accreditation bodies such as SBTi or Climate Active provide useful frameworks to help guide corporate decarbonisation. Once achieved, accreditation is also a useful external communication proof point. While working toward a common low carbon goal, each organisation has different requirements and guiding principles. Consider the guiding principles you set when creating your decarbonisation strategy to select the climate standard that works best for your business.
  5. Determine how you will track and communicate progress. Meaningful change happens when entire teams are engaged. And your customers, employees, investors, and other stakeholders will be watching your progress with interest. Ensure you have the tools to manage the end-to-end process; from emissions tracking, monitoring and management, and selecting credible carbon credits, to comprehensive reporting with just a few clicks.
  6. Make sure you always understand your position. Despite best reduction efforts, most organisations will be left with unavoidable excess emissions. Whether you are working to ‘net zero’, ‘carbon neutral’ or another term as determined by your climate standard of choice, high-quality carbon credits will help you go that last mile. Work out your commercial position. What do your excess emissions mean to your budget at today’s carbon credit prices vs projected future prices? How will you manage your financial risk? Advanced modelling tools with wholesale market links can help you get the full picture with just a few clicks.
  7. Consider your carbon procurement strategy. Sustainability leaders are expected to maximise the impact of every ESG dollar spent and invest in carbon projects that deliver optimal climate impact and values aligned co-benefits. How will you ensure that you are purchasing the best quality carbon solutions at the best possible prices? Access to wholesale carbon markets will help ensure you’re not paying unnecessary margins. Advanced technology tools can also help you find, compare, and select credible carbon projects that meet your climate and brand driven criteria.
  8. Monitor the journey, benchmark progress, consider climate positive.  Regular review milestones and other monitoring tools will help you stay on course to reach long and short-term objectives. What impact are your reduction initiatives having? How else are they contributing to the SDG’s your organisation supports? Where are you falling short (and what interventions are needed) and where are you ahead? If you’re tracking well against targets, you may consider looking above and beyond the impact of the organisation by taking more ambitious action towards climate positive (or carbon negative). Organisations like Microsoft have already made this commitment and others are following suit.

The green economy will be the new normal, but transformation takes time

Sustainability leaders play an increasingly transformational role globally as organisations embrace the net zero challenge and prepare for new ways of working in the emerging green economy.

And while the green economy will be the new normal, this transformation across large and complex organisations takes time. Organisations that will thrive are focused on deep emissions reductions today, and on building their in-house knowledge, tools, and capabilities for the low carbon future - and beyond by considering carbon negative (climate positive) targets.

This includes active planning on how to manage residual exposure over the medium and long term, determining what types of investments you will make and how you’ll communicate and manage delivery of your climate program.

The road will be bumpy and there will be challenges along the way, but the stakes could not be greater.

About CORE Markets

CORE Markets is an end-to-end markets, technology and climate solutions partner for business.

We offer corporate net zero services, project optimisation services, and corporate and institutional brokerage services, all backed by a powerful software-as-a-service platform.

We help corporate sustainability teams, carbon & clean energy project developers, and wholesale & industrial clients, take decisive action to net zero. Get in touch with our team to see how we can help.

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