Battle for the planet: the UK net-zero challenge

July 2022  |  FEATURE | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

July 2022 Issue

The 2021 United Nations Climate Change Conference (COP26) asked countries to come forward with ambitious climate targets that align with reaching net zero – a state in which the greenhouse gases going into the atmosphere are balanced by removal out of the atmosphere – by the middle of the century.

From countries and companies to organisations and individuals, the need to tackle climate change is at the top of the agenda, with businesses across the globe tasked with reaching net-zero carbon by 2050.

In the UK, under proposed Treasury rules, businesses (including the majority of big UK firms and financial institutions) will need to set out detailed public plans for how they will move to a low-carbon future – non-mandatory commitments that will be put before an expert panel by 2023.

However, recent research by Seacourt indicates that, despite the UK’s commitment to reaching net zero by 2050, a large portion of UK businesses are still on the starting block when it comes to meeting reduction targets, with a third admitting to not having started any journey to reduce emissions. The Seacourt research also found that almost half of UK businesses viewed sustainability as a cost and not an investment.

“While our research shows that nearly two-thirds of UK businesses have started the journey towards net zero, 11 percent categorically stated that they will not achieve net zero in time,” says Gareth Dinnage, managing director of Seacourt. “This is concerning news for the UK’s challenge to reduce emissions and achieve net-zero targets.”

Targets and barriers

With the majority of scientists agreeing that significant steps need to be taken to reduce carbon emissions as early as 2030 if global warming is to be stopped, it is imperative for businesses struggling to reduce emissions to develop a clear plan of action for net zero.

However, according to analysis by the University of the West of England – ‘Journey to Net Zero: Challenges for the UK industrial sector’ – standing in the way are the four challenges outlined below.

First, reducing financing and operational cost of low-carbon investments. Key barriers to investing in net-zero solutions and infrastructure highlighted by research are cost and lack of support from stakeholders, which can reinforce lock-ins and path dependencies. Policy drivers include market-development, measures to target technological innovation, financial incentives and carbon tax.

Second, unlocking innovation practice in business models and enabling behaviour change. A lack of knowledge about low carbon alternatives, lack of benchmark quality insights and data, and lack of information about low carbon alternatives are key barriers. Innovation is therefore key for decarbonisation.

Third, adopting a whole supply chain perspective. Vertical integration and strong buyer-supplier ties can pose a significant barrier for the introduction of low carbon products and practices. The challenge refers to the consideration of embodied emissions that occur across the supply or value chain and that can be hidden at the sale point.

And fourth, identifying a just transition decarbonisation pathway. The effects of decarbonisation can potentially result in real damage to regions and communities (e.g., loss of jobs, low-paid jobs) and could exacerbate UK regional imbalances. However, this could also represent an opportunity to strengthen the UK economic output if just transition considerations that enable workers to move from high carbon to low carbon employers are mainstreamed across UK decarbonisation policies and strategies.

A simple first step in cutting emissions, in the view of Mr Dinnage, is to reduce costs. “Less energy consumption through improved insulation, low energy lighting and improved waste sorting into recycling streams means less operating cost and improved profit,” he suggests. “A dialogue with supply chain networks frequently throws up possibilities to make changes that reduce their emissions, which also reduces costs – this can apply to material specifications, methods and quantities transported.”

Also central to achieving targets, ventures Mr Dinnage, is more assistance from the UK government. “Businesses always respond best and fastest to schemes that carry a financial incentive, so a corporation tax credit scheme awarded both on genuinely ‘green’ investment and progress targets from an independently audited baseline is one way that governments can engage with businesses,” he adds.

Targets trajectory

While the UK government has clearly set out net-zero targets for UK businesses, what is less clear is the capacity of the business community to reach said targets and not be left behind.

“A lack of any concrete actions on emissions reduction will become as bad an admission to have to make as a lack of a quality system was in the 1980s and 1990s,” opines Mr Dinnage. “It will bar businesses from supplying the public sector and large swathes of industry, and reputations will be damaged by an increasingly environmentally aware Generation Z consumer base as they move into middle age.

“Currently 32 percent of businesses believe they will hit net zero by 2030, 30 percent by 2040 and 8 percent by 2050,” he concludes. “We need to be pushing the 11 percent of businesses that do not believe they will hit targets through incentives and penalties to make sure that we all reach the target on time for our planet.”

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Fraser Tennant