Business will lead on the road to net zero Business will lead on the road to net zero

Business wasn’t invited, but showed up anyway, said CBI chief Tony Danker, of COP26, indicating the scale of private sector engagement with the net zero imperative.

Well, business certainly was invited to our post COP26 National Leaders Circle.  I’m pleased to share the gist of the discussion between owners and executives from mid-market firms who discussed the summit’s implications for business and heard from panellists freshly returned from Glasgow:

• Simon Virley – Vice-Chair and Head of Energy and Natural Resources, KPMG
• Lucelia Rodrigues – Professor of Sustainable and Resilient Cities, University of Nottingham
• John McCalla-Leacy – Head of Environmental Social and Governance, KPMG

COP26 saw 90 percent of the planet’s countries sign up to the transition to net-zero carbon, a strong build on the pre conference 30%. For some though, the agreement to aim for a 1.8°C temperature rise rather than the 1.5°C we have been advised is necessary to avoid catastrophic climate change, fell disappointingly short.

Regardless of which perspective you may have, the overriding message from our event was that your business is involved – be it via your place in a larger organisation’s supply chain, the policies of your funding partner, or the appetite of your employees and customers to be part of the solution rather than the problem.

In fact, this was described as ‘the business and finance COP’, as investors and corporates had the most significant presence and profile yet, with a raft of initiatives emerging from these quarters. Financial institutions representing trillions of dollars have committed to directing their investments towards combatting climate change, from decarbonisation to reversing deforestation.

This engagement from business and investors is vital.

Firstly, it ups the financial ante: governments can provide billions of dollars, but it’s businesses that can pump in the trillions.

Secondly, it means governments will find it increasingly difficult to secure finance for initiatives that don’t support the net-zero objective.

And thirdly, the momentum generated will continue long after today’s politicians have vacated their posts. As national administrations come and go, it’s businesses and investors that will take the lead in driving real change.

A significant development for business is the requirement to publish net-zero transition plans.  While these new disclosure rules only apply to listed companies now, their effects will be felt by organisations of all sizes – sooner rather than later given the integration in supply and financing chains.

Many privately owned businesses in the service of large corporates or funded by institutions captured by the new reporting requirements will find themselves being asked to make similar commitments.

Indeed, we heard it argued that to continue to attract investors, corporates will need their suppliers to present credible transition plans. Businesses will, in effect, be regulating businesses.

It’s also due to the growing pressure from customers and employees, who want to know what firms are doing to mitigate climate change. The new rules usher in a transparency that will show people which companies are taking net zero seriously. Greenwashing won’t cut it and businesses of all sizes should expect stakeholders to increasingly make ESG based decisions when choosing where to work and from whom to buy.

After ten days of declarations and announcements, the burning question for business leaders is what to do about it all. How does the transition happen from day eleven onwards?

We heard their priorities must be to:

• Understand what decarbonisation means for their organisation : What will their financial and operating models and systems look like in a net-zero world?

• Focus on tangible actions : That will mean going beyond the ‘E’ of ESG, to the ‘S’ (people’s appetite for action on climate change) and the G (the importance of having the right controls).

• Make themselves accountable for their company’s journey to net zero : Leaders will need to put the KPIs in place, against which their progress will be measured.

• Identify the opportunities in decarbonisation : Reducing carbon footprint represents savings, not just costs, especially if the investment horizon is lengthened. The price of green tech, renewable power and electric vehicles is falling; running costs can be lower and finance is becoming available on more favourable terms for investments that mitigate climate change. 

Waiting for some game-changing technological innovation or government intervention is not the answer.

Our panel were clear that business will and must lead on the road to net zero. For COP26 to translate into success, individuals need to make change happen themselves. In other words, we need to evolve and disrupt - which entrepreneurs and business leaders are good at.

Alongside making their own operational changes business arguably has an additional role - in education. According to one study, over half of UK consumers don’t know that gas boilers are a major part of households’ contribution to global warming.

People need to understand the impact of the choices they make when it comes to recycling, water use, diet, food sourcing and so on. And they need to be informed about how individual firms are tackling climate change, so they can make their buying decisions accordingly.

It’s the sum of the many small parts that will get us to net zero, meaning every business has a critical role to play.

Read Simon Virley’s reflections from COP26 here COP26 reflections | Implications for businesses - KPMG Global (home.kpmg)