A growing number of companies sets ambitions to become net-zero and develops climate strategies aligned with the Paris Agreement. Despite these lofty ambitions, the Emissions Gap – the gap to reach the Paris Agreement – has widened by four times since 2010. This makes it clear that significantly reducing emissions, is not an easy task at hand.
Reaching net-zero will require a significant decrease of emissions. Renewables and energy efficiency are a major part of the puzzle, but rethinking the use of resources should not become the missing piece.
So where do we need to look if we want to significantly reduce the emissions? The current emission reduction efforts mainly focus on the energy transition by moving away from fossil energy sources towards renewable energy sources and taking energy efficiency measures. This can make a huge contribution to the emission reduction, but it also poses a challenge: moving towards renewables will increase resource and material demand. As a recent KPMG report suggests1, the pace in which these resources need to become available to meet the 2-degree scenario requires circular solutions2.
While 55% of current global GHG emissions is related to energy systems, transportation and heating of buildings, 45% can be attributed to the production of products and materials (ranging from heavy industry to food)3. To bridge the emissions gap, companies should ramp up action and drive down emissions by rethinking the use of products and materials. Circularity is the key to achieve the reductions on the product side. This not only drives the companies to reach their carbon ambitions, but it can also make complete business sense. By extracting value from extending rather than shortening product and material lifetime, circular strategies offer compelling strategic and operational benefits to significantly reduce CO2 emissions and garner operational cost savings. Capturing this value requires rethinking of existing business models towards circular models that can serve a world with a growing population.
The limits of our planet urge companies to rethink resource use, decoupling will allow for growth
The global world population is expected to grow to 9.7 billion in 2050 compared to 7.8 billion today. With an increasing world population and increasing economic growth there is also an expected increase of overall food production with 70% between 2050 and 2070. The demand for various critical materials needed for the energy transition is expected to increase up to 500% in 2050 compared to the demand today. The absolute increase in demand for products and resources form a threat to reach the absolute emission reduction that is needed to reach the climate pledge. Considering that companies are already experiencing resource scarcities today4, linear risks have the potential to pose significant financial risk on companies. Increased resource scarcity, but also increased pressure on sustainable resource use and more stringent regulations will further amplify companies to rethink the use of products and materials5. Circular economy strategies and business models – that decouple growth from resource use – are well-positioned to tackle those linear risks whilst reducing emissions and driving sustainable growth. Companies that manage to transition to circular business models reduce their vulnerability and increase resilience to linear risks, whilst reaping the business benefits of efficient resource use and building a future-proof business.
To unlock the benefits of the interlinkages between climate and circular, companies will increasingly move towards an integrated sustainability strategy, aligning both climate (net-zero) ambitions and circular ambitions.
When failing to address this interlinkage, companies may face a risk of not making progress on their climate and circular ambitions:
- Chasing climate targets without incorporating the extended impacts, can hinder ambitions to preserve ecosystems and protect communities (e.g. unsustainable use of biomass poses challenges to biodiversity, loss of ecosystems and soil depletion).
- Linear risks may hinder the progress on climate goals (e.g. resource scarcity of materials needed for the energy transition can hinder the energy transition).
Companies that take an integral perspective on climate and circular risk are better positioned to manage their ESG risks, enabling them to drive progress on climate and circular ambitions and obtain competitive advantages.