The ongoing economic crisis represents a potential standstill for global decarbonization efforts. Why should business leaders make room for sustainability goals when they are struggling to keep their business afloat?
We are currently in a situation that can best be described as a “polycrisis” – a situation in which numerous damaging events are occurring simultaneously. The geopolitical situation is turbulent, Europe lives in the shadow of an energy crisis and global supply chain issues amid the pandemic continue to frustrate manufacturers. As a result, inflation rates have reached unprecedented levels, and President Putin’s war in Ukraine is causing further massive destabilization. As you might expect, this may not be the best time to start thinking about climate action.
And yet the current crisis shows that sustainability and climate protection are strategic imperatives for companies. Not because of their leadership’s intrinsic motivation or any particular moral purpose, but because sustainability and climate action have become an economic imperative.
From a business point of view, a switch to sustainable business models and renewable energies would make more sense. Any company that invests in renewable energy sources will tell you the same thing, especially with the current surge in electricity prices. Some companies may need short-term government tools to prop them up through the crisis, but in the mid- to long-term, companies will only remain competitive through radical transformation and widespread innovation.
I have identified five key levers that can facilitate our efforts to decarbonize the global economy amid rising uncertainty:
1) Intelligent Risk Mitigation
Many of the cutting-edge technologies needed to achieve ambitious decarbonization targets are already technically available; However, scaling them requires massive investments in research and development. According to current estimates, investments in clean technologies and infrastructure must increase to around US$3 trillion per year in the 2030s.
An increase in investment of this magnitude will not happen without the help of various support mechanisms. Smart de-risking can improve the feasibility of cleantech lighthouse projects by supporting private investment with public sector contributions – at least until the technology reaches commercial viability. This can range from grants to purchase guarantees to investment alliances – everything that reduces the investment risk for companies and offers them a solid investment basis.
2) Decarbonization of the value chain
When companies buy intermediate products, they effectively “import” a large part of their emissions. Similarly, companies “export” emissions when consumers use their products. These Scope 3 emissions account for an estimated 85% of total CO2 emissions. In industries like real estate, the figure can be as high as 97%, while in others like utilities, it’s around 57%. Nevertheless, most companies fail to disclose the exact level of their Scope 3 emissions or to set reduction targets.
One reason is that Scope 3 emissions are by far the most difficult to measure and manage. For example, multinational car manufacturers can have up to 60,000 suppliers, each with their own reporting systems. Identifying and engaging critical suppliers is therefore crucial in trying to reduce emissions overall. One strategy is for a company to take a collaborative approach and provide a decarbonization toolbox to top suppliers in exchange for their commitment to reducing emissions.
3) Innovative product design and circularity
The traditional linear economy is based on a “take, make and disposable” model. The model is resource- and emission-intensive while generating enormous amounts of waste. According to an analysis by our sustainability experts, in Europe alone, circularity would reduce pollution by 72% by 2040 and eliminate 70% of CO2 emissions by 2050. In addition, it would save $1 trillion by 2050 and preserve material that would otherwise be lost.
Companies need to rethink the material mix of their products and replace polluting materials with similar but less carbon-intensive properties. You can also adjust the dimensions of products or extend their lifecycle through reuse and recycling. Other possibilities include sharing products across communities and product-as-a-service offerings. Bold steps are needed – not least for the good of the environment, but also for the multi-billion dollar opportunity that the circular economy represents.
4) A new corporate culture
Climate protection requires a new corporate culture that reconciles sustainability with performance. The company’s purpose, vision and mission should be translated into a clear roadmap for its day-to-day operations. Integrating sustainability indicators into performance assessments and decision-making processes can be very helpful. Employees at all levels should be prepared to engage with climate change. Nevertheless, the impetus should come from the top down: A culture that promotes the creativity of employees with regard to sustainability and openly promotes new ideas gives companies a competitive advantage and strengthens their potential in climate protection.
5) Private-public dialogue
Finally, it should be clear that companies cannot do all this alone. They need to engage in dialogue with governments and policymakers to promote collective decarbonization action. Governments should create legal frameworks that use market forces effectively to drive sustainability and decarbonization. This can include Carbon Contracts for Difference (CCfDs), where governments subsidize the additional costs associated with green tech to boost investment in those technologies. Such policy instruments should be accompanied by multilateral efforts that protect low-carbon companies from unfair competition from economies with less ambitious climate targets.
The polycrisis shows that sustainability is a question of economic prudence: companies will not remain competitive without innovation and climate protection. Even if we are under great pressure today, we must not deviate from the sustainable strategies and goals that we have set ourselves. Swift action to decarbonize is no longer a moral choice—it determines whether your business survives and the economy thrives.
Source: World Economic Forum
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