A step-change for sustainability

Rowena Daines: Welcome to Business in Focus. Today, as COP27 gets underway in Egypt, we're revisiting the theme of ESG and how businesses can proactively address turning talk and pledges into measurable actions and results. The size of the task, its complexity and the pace needed for change has only increased but progress still remains a challenge. Our net zero economy index reveals that last year, our decarbonisation rate was 0.5%, the lowest for a decade, right at a time when action is needed to make the most, to keep the planet on track for its 1.5 degrees target. To put the challenges into perspective, achieving the target will need a drop in global carbon intensity of 77%, and the required annual rate of decarbonisation will need to be eleven times faster than the global average currently achieved. It's fair to say it's not one to be solved in isolation or individually. So, today, we're going to be exploring how investors, businesses and climate tech can join the dots for success. To take a closer look, I'm delighted to be joined by James Pincus from PwC, our ESG leader for deals, as well as Mikela Druckman, CEO of Greyparrot, which uses AI to monitor and sort waste at scale. James, can I ask you to introduce yourself to our listeners?

James Pincus: Thank you very much, Rowena. So, my name is James Pincus. I'm a corporate finance partner here at PwC and I lead our energy, utilities, resources and infrastructure team in our lead advisory business. I'm also the ESG leader for our deals line of service, and that's got me actively involved in the drive towards ESG and the drive towards decarbonisation at scale across the UK. Part of that work has been involved in producing a number of thought pieces and research reports, including the Future 50 report that we launched at the beginning of this year. That report highlighted 50 interesting, early-stage companies that were doing innovative things around the drive towards net zero from a technology perspective, and I was delighted that Greyparrot was part of that Future 50 report, and I'm further delighted that Greyparrot are one of the early cohort into our Net Zero X programme, which we've just launched with Tech Nation. So, Mikela, over to you from Greyparrot.

Mikela Druckman: Thank you, James, and hi, everyone, delighted to be here and thanks for having me today. So, I'm Mikela Druckman. I'm the co-founder and CEO of a company called Greyparrot. I've spent of my career working in start-ups and technology start-ups, so bringing new technologies, especially computer vision, to different sectors, and a few years ago decided, with my co-founders, that we wanted to take this expertise that we had in vision systems and computer vision and bring it to some of the most challenging problems that we have today, and e decided to tackle the waste crisis. So, with Greyparrot, our mission is really to bring transparency automation to the waste sector, and we essentially build AI systems that allow to monitor waste streams and analyse materials and provide real-time information on that waste, and that information is, essentially, very valuable for waste managers, producers and in consumers even and everybody in the waste value chain.

Rowena: Brilliant, thanks, Mikela, so let's get started. So, I mentioned in my intro some of the high-level aspects of the ESG, net zero challenge facing us as we go into COP27, and then some really scary numbers there on the scale and speed of action needed, and so much more has happened more broadly in the markets and elsewhere since COP26. So, I thought a good place to start is just reflecting on the changed circumstances since our last COP episode a year ago, and the need for action hasn't really gone away. In fact, we need to move much more rapidly but we're in a really different market environment, aren't we? So, how is that translating to what we see from organisations around their actions on ESG, and maybe, James, if you could kick us off with that?

James: Sure, Rowena. Look, as you mentioned, it's been a year since the last COP event, and in that year, action around climate and decarbonisation has really rather fallen short of ambition. As you mentioned, in our latest net zero economy index, we found that that global rate of decarbonisation declines just 0.5% over the past twelve months, and that's far below the 15.2% rate that we need to limit the warming to 1.5 degrees centigrade. With that shrinking window in terms of the timing to take this sort of action, it's more crucial than ever that we actually drive this forward, and we're operating in a pretty difficult macroeconomic and political sort of environment. The climate agenda though has always had to compete with other priorities, especially those that created significant shocks to the system. We've seen, over the past few years, the impact of the COVID-19 pandemic. Now, obviously, we're seeing the impact of economic crisis, uncertainty in the marketplace from a geopolitical perspective, the war in Ukraine, and new shocks to the economic system in relation to cost of living crisis, inflation rates hitting double digits and interest rates on the rise as well. So, there are real risks to the investments and the need around ESG and the drive towards decarbonisation and making a difference from a climate tech perspective but there is still much to look forward to. In the UK and globally, we've seen significant amounts of money being raised, and these investment numbers are actually on the rise over the past two years.

So, as a percentage of investment that is going into climate tech and in investment into ESG and into the ESG solutions, we're seeing that percentage rise versus other investments, but there are still challenges around that. What we are finding is two significant issues, we're finding that there's a struggle to make investments into the smaller-size businesses, so those in the single-digit millions are struggling to get that investment, whereas actually, if you had a proposal that you needed £10 million to £50 million-plus in investment, that seems a bit easier to find. The second is that we're seeing a number of sectors that are being prioritised over others and we're not seeing enough money going to various sectors along that, sort of, way, that can have a big difference in relation to emissions. We've seen that mobility and transport sector, for example, attracts nearly 45/46% of investment in the UK, despite their emissions having an impact of only around 27%. So, they're sort of over-funded, that sector, versus emissions, whereas we have seen things like the built environment and industry, who actually make up quite a bit of emissions, are actually getting less funded. So, we need to spread out that investment into other sectors, particularly, as I said, built environment and the industries, if we really want to make a difference to emissions right across the piece.

Rowena: A great opportunity to bring Mikela at this point to talk about the challenges from the viewpoint of those coming up with those solutions. So, Mikela, how do you and Greyparrot view the current challenges and what are you doing to turn up the narrative around that delivery and action?

Mikela: So, just building up on what James just said, it is true that some of these areas that really need investment attention are really overlooked, and at COP26, for example, waste-management and recycling were not widely discussed, and often, waste-management in the circular economy is not really linked with the reduction in emissions. Actually, when you look at the environment investigation agency, they indicate that the threat from plastic pollution is actually equivalent to climate change, and plastic pollution is closely interlinked with the climate crisis, and by 2050, plastics alone will account for 20% of all consumption. So, it's not something that we can really decouple, so what we do at Greyparrot is really try to bring a lot of awareness and data to waste-management. So, if you look at that sector specifically, we produce, you know, 2.2 billion tonnes of solid waste every year. Just to put it into perspective, that's the equivalent of rubbish greater than the Pyramid of Giza every single day, and by 2050, that number will double to 4 billion. So, this is definitely not a problem that's going away and it's having huge impact on our environment and also on biodiversity.

So, what we are looking at is essentially bringing data because, essentially, in sectors where you don't have that level of digitisation that you might find in other sectors, the challenge is that when you don't have those numbers, it's very difficult to measure really even what the problem is, and therefore how to improve things around it. So, you have consumers that are, you know, very confused about what to do with their recycling and if what they do every single day is actually working. You have waste managers that are having to deal with larger and larger volumes of waste. They need to process those materials in a very effective way and actually have revenue coming from it. So, we really need to make those systems much more efficient, and then you have the regulators and the producers, who have very information on what happens at the end of the value chain. So, for example, producers, so a typical FMCG, CPG companies putting these products on the market actually don't know how that packaging performs in the waste value chain. So, you really need information to then impact the problem, you know, at the very beginning, in how we design even products to go into the system.

Rowena: Really interesting to hear about it from those three different lenses, I think, as well and that point around, you know, being able to have the data to make the right prioritised decisions is something we hear continuously around this topic. So, a shifting theme around the ESG questions is a move to wondering where and how to get started on change, so let's move from some of that market commentary to some of the opportunities and priorities around scaling some of these solutions to a commercial level. Maybe, James, picking up some of those earlier points on the needed pace and effectiveness of turning commitments and strategy and great ideas into embedded commercial success is going to really take a collaborative effort, as we've just been talking about, and we've heard about the role of investors and VCs in partnering with climate tech, so how are the roles or corporates or those established players and end-buyers or partners of these new technologies changing?

James: I think we are seeing significant change from corporates and financial investors in terms of their appetite for investments around ESG investments, both from their own business perspective, as well as investing for the future. So, we are seeing a change in terms of corporates understanding that sustainability has to equal strategy, because otherwise, those companies and their strategies won't exist for the future. So, we're seeing those companies understand that these things are linked together. ESG is not just a tick-box exercise but it is an investment they need to make to ensure their own companies are sustainable for the future. That is a change in thought process from corporates and it's a welcome change going forward. I think we're also seeing a number of, on the funds side, investors beginning to look and create funds that they call 'impact funds', where the priority of that fund is investment into companies that are having an impact, and again, a welcome change because we're seeing if we need to make a difference, particularly around things like climate tech, then a lot of the difference is going to be made my early-stage start-ups. We've seen various stats that, for example, 40% of the emission reductions are going to rely on technologies that are not yet commercially deployed on a mass-market scale. So, investors, whether that's financial investors and corporate investors, are going to have to have a longer medium-term view around these things, rather than looking at short-term returns perspectives and financial returns.

They need to invest in companies that are going to have an impact over that medium and long term, rather than just financial considerations and returns, and I think that's a really important part, and we've been getting involved in that hugely at PwC and I mentioned the Net Zero X programme that we're working with Tech Nation around. That's a cohort of twenty interesting, series A+ climate tech start-ups, we're trying to help them to scale faster and overcome many of those common growth challenges as they look to go forward and make a difference in that climate tech environment going forward. That's where we're delighted to work with Greyparrot, amongst others, who are part of that cohort and how we're going to help them grow around scaling challenges, as I said, how to access investments, how to get talent in a touch and hot recruitment market, how to grow internationally, how to understanding changing policy and regulation. I think if we can help these companies grow from that early-stage start-up piece and to help them scale, I think these are the companies that are going to make the difference in terms of trying to bend the curve and try and really drive decarbonisation down to the levels we need to to stop the global warming problem that we have at the moment.

Rowena: Brilliant, and, Mikela, I'll bring you in at this point around reflections on your own experience of bringing Greyparrot out to organisations. It'd be good to hear, are there typical scenarios where you see that you're introduced on how to work together? How are things in terms of getting easier from an awareness perspective, and generally, sort of, what's your view on the key to successful outcomes on this?

Mikela: So, I'll start maybe with the side, on the investment side. So, you know, a few years ago, so four years ago, when we started, bringing the topic of waste-management to investors was very difficult and you had to, basically, educate and explain a lot of the industry to even get to what the problem is and what the solution is. I think where we are today is that, first of all, the awareness is much higher on these issues and you're starting to see specific investors that are really going deep into certain topics, so be it the circular economy or energy or mobility or whatever that may be, and that means that, all of a sudden, you start being able to be matched with those investors that do have that expertise and that have specific goals and reporting to their own LPs around efforts being made in those industries. So, typically, some of our investors, we have to report to them, for example, on our ESG, on the amount of waste that we divert from landfill, on the impact that we have on recycling, and that means that there's a very big alignment. So, I think it's still quite slow but we are seeing an acceleration in investors that are aligning with the start-ups and their missions as well. So, moving to the industry side, that's a little bit different, in the sense that it's sectors that have been doing and operating in a certain way for a very long time, and all of a sudden are being faced with a huge amount of regulation, of consumer pressure, of pressure to meet net zero targets and so on, and that have to move very quickly.

So, we come in, (1) as a support, to be able to make that change but we also see ourselves, and especially at Greyparrot, we do that a lot, we see ourselves as co-building solutions with the industry, and that's really important because if you come in with ready solutions or ready thoughts of how the solutions are, it is very difficult to get by. Often the problems are very, very complex and very nuanced and you need a lot of that deep expertise from the sector to actually bring the right solutions. So, the things that we did for the first couple of years, it was really listening and building prototypes, going back to the market, testing it with our customers, doing pilots, going back, building again and so on. It's, kind of, this iterative process that we have with the industry, and the other thing I would add is that we're seeing an acceleration of this adoption thanks to regulation. So, regulation, even though sometimes it's not even in place yet, it's just giving a signal of where it's going, of where the trends are going, and it's pushing everybody to think a little bit differently, to be open to working with technology and innovative solutions and we're really seeing, kind of, that openness that is really increasing in different sectors.

Rowena: That's great to hear and that leads us nicely onto, sort of, the third topic I wanted to cover, which is more of a look ahead and what's needed to deliver on COP commitments. So, what do you think, so maybe, James, from the perspective of investors, whether they're funds or corporates, and, Mikela, from the perspective of climate tech, what do you both think will actually make the biggest difference to progress between now and then COP28?

James: I think I'd go back to my point around that-, where there are certain parts, certain sectors, where we need to invest more, that have been underfunded. We need to do a lot more around industry, a lot more around the built environment, things like, for example, the concrete industry, globally, is responsible for around just about 8% of global emissions. If that was a country, if the concrete industry was just a country, it would rank number three in terms of emissions, just behind China and the US, and the steel industry is something similar. So, I think there are certain sectors and industries where we need to be a bit more ambitious and need to be a bit bolder, and around the technology, start to move away from historic thinking and do things in a different way and take advantage of some of the new technology that's out there and be bold and aggressive. We have seen some progress around this in relation to, for example, green steel and the movements that we're seeing, particularly in the Nordics, around the production of green steel. So, I think we can be bolder and more aggressive around moving into new industries and sectors where we haven't really seen enough decarbonisation yet, where the emissions are very significant, and if we want to make that progress that we committed in Paris and in COP26, then I think we need to take that bold, aggressive action in terms of those areas.

Rowena: Thanks, James, and, Mikela, what's your perspective?

Mikela: So, for me, it's really adopting a very holistic approach to these problems, and that means not being only focussed on emission reduction, you know, in a very narrow way, but also bringing in different aspects of it, like biodiversity conservation, and that means that, for example, the circular economy and waste-management and looking at all of that in conjunction with emission reductions is really important because they really go hand-in-hand and, unfortunately, sometimes we lose a bit of that nuanced narrative because we look at it from too much of a narrow perspective. So, a typical example would be, you know, while designing regulation for a packaging, if you look at it from an emissions standpoint or a biodiversity standpoint, you might be putting in different types of regulation for that but those two really go together, so really bringing those two parts. Then the second piece, which I've mentioned as well, but really I think is really critical, is having policies and regulation coming into play that accelerate the transition for these corporates because, at the end of the day, unless they see a clear direction on where that's going to go, the pace of change is still too slow. So, from a start-up perspective, when you need to move very fast and you're ready to make those changes very fast, we need that help from the regulators to really set that vision, so that we can come in with the solutions and help those big industries move forward much faster.

Rowena: Got it, okay, and finally, we always ask our guests for a single piece of really practical advice, and you've given a lot of really good stuff there, food for thought, Mikela, that our listeners can put into action straight away. So, I'm, sort of, thinking a question to ask in the next board meeting or something to consider or reflect on to help really bring clarity to their strategic next steps, what would be your one key takeaway, Mikela, and then, James, I'll come to you?

Mikela: So, I'll come back to data because this is really part of what we do and at the core of our mission. So, the question I would ask is, 'How do we measure that? Where are we at today and what should be our goal?' Often, what you'll find is that you're not even measuring it today in a consistent, scalable way, so I would really encourage people thinking about what are areas where they could have more data that allows them to understand where they are today and what their goals could be around those plans.

Rowena: Brilliant, thank you, and, James, how about you?

James: From my side, I'd come back to the point I made earlier, that sustainability is strategy. So, all the board meetings at the moment, sustainability should be high on their agenda points. It should be one of the top three agenda items for all board meetings at the moment, and not, as I said, because it's a tick-box and everybody's talking around ESG as a theme, but because unless a company has sustainability built into the heart of its strategy going forward, then I'm not sure that company really has a long-term and sustainable strategy for its business in the future. So, sustainability very much is strategy for all companies going forward, and that's the agenda and the question that I'd be asking boards to have up and down the country.

Rowena: Brilliant, thank you, both, and that's all we've got time for, some really good, practical next steps and takeaways there, so thank you. So, if you're interested in learning more, you can head over to our ESG homepage, which you can find at pwc.co.uk/issues/ESG, and don't forget to subscribe to keep up-to-date with all of our latest episodes. Thanks, everyone.

Participants

• Rowena Daines
  
• James Pincus
  
• Mikela Druckman