The root of this advice is that a set of fundamental shifts in business factors are expected to create significant distraction over the next 12 months. Ongoing geopolitical and socioeconomic tensions, alongside considerable public policy uncertainty in some countries due to upcoming elections, could make it easy for business leaders to de-prioritise decarbonisation projects.
However, the risks to this reactive approach go beyond the reputational. As this year marks the crystallisation of major regulatory change on multiple fronts, failing to take action on sustainability and net zero will likely create both competitive and legal exposure.
Speaking to Chief Sustainability Officers convened by PwC UK, Peter Hill, COP26 CEO and Senior Advisor to PwC UK said:
“We are entering the era of competitive decarbonisation, where major global players see it as a domestic imperative, and businesses must take the long view on what this means for them. As a few illustrative points, the EU Commission has recently announced its 2040 net greenhouse gas emissions reduction target of 90% compared to 1990 levels, meanwhile, China is on track to meet its 1200 gigawatt wind and solar target six years early, while its storage target of 30 gigawatts is about to be hit two years early. There are similar patterns in the US, most notable with the Inflation Reduction Act. Public pressure is only going to mount in the face of the first year-long world breach of the 1.5°C warming limit. The direction of travel is clear.”
The advice is to pay attention to but not be thrown by the bumper election year, the perceived uncertainty around public policy, and the anti-climate rhetoric that will likely surround the electoral processes taking place in key geographies.
Hill continues: “Net zero and climate are likely to be wedge issues in the US election, with a discernible left-right divide. Some of that sentiment will be seen in UK and EU politics, but the reality is that while some elements may be amended, the legislative and institutional frameworks and economic logic make it very difficult to materially reverse the commitments. Broadly speaking, the momentum around net zero will remain regardless of who is elected, and organisations should galvanise their related plans, as opposed to de-prioritise them.”
A raft of significant reporting requirements come into play this year. Tackling the complex data challenges these pose must be prioritised from a legal perspective, but the potential benefits go beyond meeting obligations. The expert view is that those who hold their nerve and take effective action to make progress can gain a competitive advantage.
Jeremy Prepscius, Asia Pacific Sustainability, Sustainable Supply Chains, Managing Director, PwC Hong Kong, said: “Due to ongoing geopolitical tensions, supply chains are increasingly fragmented and more vulnerable to disruption. A supply chain strategy that embeds sustainability and embraces technology and a fully digitised ecosystem is more responsive in the face of change, and the depth of data that is liberated provides insights into growth opportunities or potential risk. By proactively partnering with suppliers to support them in digitising their own supply chains, you will also deepen the business relationship and reinforce loyalty that could pay dividends when disruption returns.”
There’s another powerful piece of business logic that adds weight to the argument. PwC’s latest Investor Survey reveals that investors are placing a significant emphasis on sustainability, with 70% believing businesses should invest in addressing ESG issues even if it reduces short-term profitability. The cost of inaction is surfacing too, with 58% of investors seeking change by entering into a dialogue with a company that has not demonstrated sufficient progress on ESG issues.
Furthermore, incoming sustainability regulations are also generating potential value shocks for businesses as Pragya Jain, Energy and Infrastructure Valuations Partner, PwC UK explains:
“With the increase in data from sustainable reporting, there will soon come a time when markets can price in the impact of climate change on a company's valuation. Rather than wait for this temporary gap between fundamental and market value to close, we're urging sustainability leaders to take control of the value narrative, by working with their boards to cost out their transition plans and quantify their net value exposure to climate risks and opportunities.”
There is too much at stake from a legal and competitive perspective for supply chain and sustainability not to be C-suite issues. Sustainability leaders need to translate this year’s unfolding issues and incoming regulation for the board, and the potential ramifications of getting their response wrong.
“We are seeing the most effective progress made when decarbonisation and sustainability are elevated to the board level and integrated into strategic decision making. These new requirements are landing at a time when large-scale transformation in response to emerging technology to drive business resilience and productivity is a priority for many, presenting an opportunity to incorporate sustainability into wider operational change.”
Marissa Thomas
Managing Partner and Chief Operating Officer, PwC UK
This is borne out in the results of PwC’s latest CEO survey findings that state 43% of business transformations are being driven by net zero. Crucially 53% of CEOs are taking personal responsibility for driving transformation projects as a whole, demonstrating how critical they are regarded for business success.
There will be plenty to distract boards this year from taking action on sustainability, but those that take the long view and focus on driving progress are likely to be at a significant advantage in the next few years and beyond.
Investors back bold moves as businesses face pressure to reinvent, scale emerging technology, upskill their workforce and manage climate risk. Explore the findings of our UK Investor Survey.
Our Net Zero Economy Index reveals that the global reduction in carbon intensity has stalled to its lowest level in over a decade. The world must now decarbonise at a rate twenty times faster if we are to limit global warming to 1.5°C. With overshooting this threshold fast becoming a reality, bold action is needed to meet climate ambitions.
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