No Match Found
The looming climate crisis is everybody’s responsibility and the COVID-19 pandemic has shown how rapid change is possible when inaction isn’t an option. And pressure to lower carbon emissions, reduce waste, improve social responsibility and contribute to a circular economy is being applied from many directions.
Consumers are often portrayed as leading the call for sustainability. They may increasingly vote with their feet, or with their wallets, where a choice between similar offers differs only on environmental or ethical grounds, but such choices are generally an outcome of more complex, more compelling pressures applied elsewhere.
“Change is not being driven by consumers to the degree many assume,” says Lisa Hooker, Leader of Industry for Consumer Markets at PwC UK. “Consumers are an important part of the change that needs to happen, but they are not leading the change. Their decisions may reinforce the need for change and may help build momentum. Their responses to specific issues, such as plastic waste may shape the agenda. But the real, long-term change is being driven by growing pressure from investors, governments, employees and the media holding organisations to account.”
While government regulations establish bare minimums for sustainability, many organisations aim even higher, in response to pressure from shareholders, banks, big corporate investors and employees.
“Consumer decisions may reinforce the need for change and their responses to specific issues, such as plastic waste may shape the agenda. But the real, long-term change is being driven by growing pressure from investors, governments, employees and the media holding organisations to account.”
Lisa Hooker, Leader of Industry for Consumer Markets at PwC UK
Organisations must stay alert to demands from all stakeholders and respond in a way that is consistent with their long-term objectives for sustainability.
That means balancing the often unpredictable nature of consumer and media pressure around specific topical issues, with a plan for responding to fundamental, long-term changes in society or business, such as pressure from large pension funds setting tougher carbon targets or demanding higher ethical standards from those organisations they invest in.
Wherever those demands are coming from, there’s a clear movement towards increased expectations for sustainability.
Even during a uniquely challenging pandemic year, 2020 saw many large corporations announce Net Zero commitments. And 53% of UK business leaders questioned in PwC’s 24th Annual CEO Survey acknowledged their organisations should be doing more to report on their environmental impact.
Moving towards sustainability and the circular economy will mean more than just making products recyclable or switching to electric cars.
As digitalisation advances and supply chains evolve, organisations will find the business relationships and infrastructure they have built up over decades need to change. But those transformations can’t happen overnight and progress towards long-term sustainability goals should not be derailed or undermined by trying to proceed in a way that is economically unsustainable.
It is a highly sensitive balancing act, especially for those industries under the greatest scrutiny.
“Every responsible business wants to play its part in promoting a sustainable, circular economy. Irrespective of how they have made money in the past, energy companies want to ensure a successful, sustainable future for themselves, their employees, customers and society.”
Drew Stevenson, Leader of Industry for Energy, Utilities & Resources at PwC UK
“We need those suppliers to make the energy transition work. They power businesses, they support pension funds and other large investments, and that capital, alongside the significant investments they are making in green energy and cleantech infrastructure will be critical to achieving the long-term change we all need.”
Managing change in that way requires a more holistic view of the entire economy, rather than singling out any one aspect of it.
“Many large manufacturers have huge facilities that have been running for years, designed and structured around economies of scale and certain inputs and required outputs, such as turning iron ore into steel” says Darren Jukes, Leader of Industry for Industrial Manufacturing and Services at PwC UK. “How do you then sustain those operations in a world that’s going, ‘no, no, no, you can’t emit carbon in the same way you did previously’? They can’t just start producing steel in a different way. The major changes they need to make must be aligned to changes right across the supply chain and the customers and industries they support.
“The answer isn’t to just shut down unsustainable industries or activities before alternatives are in place. That’s not how sustainability should be interpreted. Doing so could remove critical funding from the very organisations who are driving long-term positive change, while creating short-term opportunities for companies with no such plans or commitments.”
Darren Jukes, Leader of Industry for Industrial Manufacturing and Services at PwC UK
None of this is to excuse inaction, and organisations must act now. As part of that action they should have a clear plan, with major milestones and be communicating clearly what they are doing and how they are doing it, as part of an open and informed dialogue that will benefit everybody.
Being able to articulate what they are doing, how and by when, will be increasingly important for everything from recruitment and retention to the availability of capital.
Banks, as well as the debt and equity markets have a key role to play in shaping sustainability through the provision of transition funding and the growing interest in green and ethical investment. We are also seeing increasing instances of banks choosing not to provide money based on organisations failing to meet sustainability criteria.
Navigating the sustainability journey requires the agility to rethink almost every aspect of an operation and seek out opportunities to progress the circular economy.
Consumer businesses built on selling products that customers own, for example, might need to explore rental models instead.
“Access, not ownership, is an emerging theme,” says Lisa Hooker. “We’re seeing new models develop around everything from cars to furniture and fashion. You might rent a sofa for two years, before returning it to be cleaned, repaired and rented out again to somebody else, ensuring reuse and preventing waste.”
Whatever industry you are in, there’s a lot to consider while planning your sustainability journey. What are the most effective actions to start with? Where can you make immediate, incremental improvements, for example through the smarter use of technology, or process changes, while creating a clear route to the major more fundamental changes needed? What will the future look like? And how do you get from here to there?
Transforming for sustainability might appear overwhelming but it’s also imperative. There’s no ignoring accelerating climate change and a host of growing resource challenges. And there’s no ignoring increasing pressure from many directions for industries to adapt and change.
Every organisation’s journey will be different, shaped by their starting point and how they address the complex web of choices, challenges, obstacles and opportunities. But the organisations that recognise these realities, look for lessons wherever they can find them, and act now, are the ones most likely to navigate their – and society’s – path to a sustainable future.
Global Corporate Finance Industrials Leader, PwC United Kingdom
Tel: +44 (0)7966 297427