How industries are building a greener future together

Teresa Owusu-Adjei:

Welcome to the latest episode of our business in Focus podcast, I am Teresa Owusu-Adjei, I am a financial services partner, and I am your host for today. In this episode, we will discuss what we’ve learned through the disruption we’ve experienced over the past year. We will explore how we can take those lessons forward to help us create a safer and more sustainable future for everyone. The climate crisis is everybody’s responsibility, and the COVID-19 pandemic has shown how rapid change is possible, when inaction isn’t an option, but we must now make sure that we are not in danger of wasting the learnings from the crisis, and use the opportunity to build a better sustainable future. This is something I don’t know a massive amount about, I am really delighted today, we’re joined in our virtual studio by Leo Johnson and Volker Beckers.

Hi Leo and Volker, I wonder if you could just both give me a brief introduction. Volker, if I can come to you first.

Volker Beckers:

Thank you Teresa, really good to be with you on this program. I started my career in the 90s, actually originally in the IT sector, and then later in consulting. I’ve worked in different asset and infrastructure industries, before I joined the energy sector. Today, I have really the pleasure to work with different businesses, start-ups, and large corporates in the public and private sector, academia, and charities. Most recently, I joined the future centre of energy business at the University of Cologne, where we are looking at opportunities to drive further the changes towards a net zero environment.

Teresa:

Thanks Volker, and I really look forward to just getting the different insights from the different parts of your portfolio career. Leo, can I turn to you now, and ask you to just give a brief introduction of yourself.

Leo Johnson:

Thanks Teresa. Great to be talking with you and Volker. I head up PwC’s disruption and innovation team. I also chair the PwC advisory council, which is brilliant to be on the same council with Volker. It’s all about looking at what’s the next stage of great growth, where we can harness the new set of technologies that we’ve got to address the challenges that are out there.

Teresa:

Great, you started off with the word disruption, and of course the pandemic has disrupted all aspects of our lives, from consumer behaviour, to our working patterns, and to supply chains. Obviously, we saw last year, as large swathes of the global industries went through to lockdown, there were drastic impacts on carbon emissions and sustainability. In previous episodes of the podcast, we’ve talked about how the pandemic has impacted organisations, but today with you Leo and with Volker, I want to take a different lens. Leo, can I start with you first, just to understand from you, that from the organizations that you’ve worked with, how have they been affected over the last year?

Leo:

COVID has not been the game changer yet that it needs to be. We’ve seen carbon emissions downs, for sure. The US was down 10% at one point, but it has gone back up. In fact, December 2020 emissions were back up 2% globally than what they’ve been a year before. If we are asking ourselves the question, have we looked at the big picture challenges that we face as businesses and collectively, really responded by doing a sudden acceleration of the rate at which we are getting rid of carbon, the answer is not yet anything like the degree that we need to. We run each year our net zero economy index at PwC. The annual rate of decarbonisation since 2010 has been 1.5%. If we are going to hit the targets that we need to of avoiding 1.5 degrees of warming, we’ve got to go up to 11.7%, it’s just a massive change of the level of progress that we are making. I would say, we just have not got there yet. If anything what COVID has done, is delayed COP26. Already, if we’re just going to implement the Paris agreement, that only gives us 2% of the total 45% reductions by 2030 on the 2010 commitments that we got. In other words, the current agreements that we’ve got, don’t get us far enough. We need clear policy to drive business engagement to really step up the level of decarbonisation that’s happening. I am afraid the glass is half full, there are loads of signs of progress, but we aren’t there yet.

Teresa:

I got to say, Leo, my jaw dropped at your answer, because everything that I’d read, talked about this big difference that these last year, 18 months has made. Volker, can I come to you to get your perspective, particularly from the different companies that you worked with, have they been affected from a sustainability perspective?

Volker:

Yes they have, businesses couldn’t respond quickly enough to the challenges. We see that a lot of processes had to be digitized in a very short time, which is unheard of. You will remember the time when businesses had to adopt new ERP systems to improve their financial reporting when we heard how difficult it was in some businesses to get laptops to people so they could work from home, that all happened in weeks. Also, the way how you engage in retail businesses with your customers has changed dramatically. We needed to find, as businesses, a way of communicating with people, who are basically working from home and give them opportunities to also make the right decision, whether it is for energy supply, or indeed, creating an opportunity to invest to decarbonise their homes, in other words, technologies, like smart meters, heat pumps or microgeneration.

From that perspective, a catalyst, I do agree with Leo, though, that we can’t just use the greenhouse gas reduction from last year, 15 to 20% it was, depending on what measure you take, as a blueprint for the future. It wouldn’t be enough, as Leo pointed out, to achieve the Paris accord target. The question is, are we not actually getting slightly out of this pandemic, we are already going yet up again. We need to be careful that on the one hand businesses celebrate the success of last year, and learn from last year, define a trajectory, which is actually able to meet these targets. Therefore, last year was a learning, and the move into the right direction, but now we need to embed sustainable changes, which basically manifest what we have achieved in what was one of the biggest crisis in human history.

Leo:

Teresa can I chip in as well, because there are rays of hope. Volker has touched on a bit of it. We showed what we can do, no question. The transitions that are starting to happen in the sector that Volker really leads in, around the energy space, these are extraordinarily exciting. Where, COVID, as Volker says, has accelerated the trend towards distributed manufacturing of goods, including energy. This is renewable energy produced locally, it might be solar, it might be blockchain enabled solar. There you are seeing radical decarbonisation and potentially some social benefits as well of inclusive models of social growth. That trend towards localism that COVID has accelerated is really significant, but there is something else as well. Volker, I will be really interested in your thoughts on this, which is in the culture, we’ve all felt, precisely because we’ve been able to spend more time not traveling on trains and sitting inside offices, we’ve all felt more connected to that local, to the people and place around us. There is something around a new sense of ecosystem that is filtering up into organisations, into energy purchases, wiping 29% of energy customers now according to our survey are conscientious. Into millennials, where there is a study showing 83% want businesses to be more aligned with their own values. There is something that’s been bubbling up around culture, that COVID has, maybe, also accelerated. I do not know if either of you are also feeling that.

Volker:

You are right, Leo. What you saw in the past, and I deliberately say pre-COVID, was that the main decision of a customer was on price, and maybe the number two was on service quality, but whilst price is still important, you are absolutely right on people are more conscientious, and much more focused on, ‘how can I make a contribution to net zero.’ It’s staggering when you hear that almost 90% of people, which we have surveyed, know about the net zero targets, and probably half of those make that part of their decision making, that’s unheard of. Now, you could say, well does it really matter, well it does, because for energy companies, whilst only focusing on price and service at the front line, mainly in call centres, they have now the opportunity to engage with customers. How has that translated into new products? Well, we have seen a massive push in what I call the decarbonisation of the heat and cooling sector, whether it’s replacing gas boilers, or even old oil heating.

People now started thinking about ways of decarbonised buildings. Again, for energy companies, a fantastic opportunity to offer them different products. By the way, I should add. because of these massive investments, it is another opportunity for energy companies to engage with their customers on financing these longer-term investments. We see lot of customers looking at reducing their energy demands. Now, on the one hand, this is, first of all, being able to measure and analyse the data. One of the key enablers, is the smart meter in people’s home. Again, what you find is that, last year in particular, has increased the number of queries into call centres. People looking at consumption behaviour, and asking for advice. Again, a fantastic opportunity for an energy company to come up with alternative solutions. Then the third area which we have observed, is basically you could summarise every kilowatt hour you don’t use as a good contribution towards the drive to net zero. People asking for advice on using low consuming energy devices, whether it’s LED lights, whether it’s even making a contribution by having offsetting measures and investing in alternative technologies. That’s new, and that is something we have seen, particularly in the last year, where people started to look at the much broader set of products and services they could get from the energy companies.

Teresa:

My perspective, Leo, is a lot of what Volker just said resonates with me, in that, as you saw the TV pictures of the clearer sky, the clearer air, etc., I’ve become much more conscious than I was 18 months ago about a lot of the ways in which I can contribute. Volker was saying about smart meters, which absolutely resonates with me, and low energy products, etc., but I am still struck by what you said at the very beginning, in that we started off really well by December, we’d seen a shift going back and reversing. Volker has talked about the energy companies, but if I look more broadly across all of the industries, there is a lot of pressure at the moment for people to make or businesses to make their operations, their supply chains, their business models, everything much more sustainable. In order not to, erode to the gains that we are having over the last year, from your perspective, Leo, how do you think that we can recover sustainably from the pandemic?

Leo:

How do we recover long-term sustainably, there is three horizons we’ve got to look at this through. There is a short-term horizon, which is, everyone has got to get the show back on the road. Business has been extraordinarily resilient in managing to do that. The question then is, after this period where the principal challenge has been staying afloat, dealing with the crisis, keeping resilient, how do we manage to get transformation to happen at the size and scale that we need. I think here it's challenging on the environmental side, that there is just a range of colliding cost curves that make me optimistic, that we are going to do some stuff to decarbonise. The energy return on energy invested on fossil fuels continues to go down, where, if you look, and Volker can speak to this, to the breakthroughs in renewables, they are looking more and more cost competitive.

This is the type of stuff that translates into our daily lives, it might be vehicle to grid integration on renewable power, where it starts to get mainstream, because it just makes business sense, and it’s easy. It’s not there yet. We need another 155,000 charging points in the UK to make it work. We need carbon taxation to really drive it, but you can see with the right collaboration between business and government we could start to make that happen. You could see a second horizon there of transformation towards some other modes of doing business that makes sense, which are within the boundary of the global. There is a third horizon as well, which is, where we step back, take the bigger picture and look at some of the other challenges beyond carbon that we’ve got. It is not just about net zero, it’s the elephant in the room at the moment, but we’ve also got a pressing set of social challenges and governance challenges that are around us.

We’ve got 4.9 billion people that are going to be in Asian and African megacities by 2035, according to the World Bank where I used to work. We’ve got hundreds of millions of them exposed to sudden and gradual climate stresses around water, adjacent cities, who are going to be forced to accommodate destressed migrants, creating pressures on the political systems. We’ve got challenges around the combination of climate change, urbanisation, and demographics, which are of real existential threat to the global value chain model of doing business that we’ve got. There is something about the third horizon, where we really think long-term and strategically about our interdependence as Western Nations, where we realise as we’ve started to being to see through COVID, and the joint vaccination problems, that we are as robust, as strong as the nations that we collaborate with, that none of our nations is an island. We got to start looking for, call it a green Marshall plan, call it environmental and social, not just green Marshall plan, opportunities to create inclusive growth in emerging markets that really works for the many. That for me is the third horizon, and it’s probably the biggest opportunity for business and also the biggest challenge to us if we fail to see it, and we don’t rise up to it.

Teresa:

What do you think the chances are, particularly with the third horizon happening?

Leo:

Teresa, that’s a tough question. I do think it's wonderful that COVID has opened up our eyes to the need to vaccinate not just ourselves, that’s a start. Paradoxically, though, I don’t think compassion and a sense of our interdependence with others is going to be the main driver. One of the big drivers is just going to be the sheer range of opportunities to create growth by looking into these massive world challenges. It’s in sanitation, in water, in housing, in education, in healthcare, in smart agriculture, in climate, smart irrigation, across all these major world challenges, this is where there are market opportunities. The UN estimates the sustainable development goals represent a 36 trillion market. If capitalism is smart, it will realise it’s not about trying to eke out another little bit of market share, serving an already served UK or OECD market with a whole series of commoditised low-margin products, that by the way often have a lot of environmental and social side effects. It’s about looking into this new set of growth opportunities, where we’re growing precisely because we’re solving the big social, environmental and economic problems that are there. There is a business logic and that’s what gives me hope.

Teresa:

Brilliant, thanks Leo. Volker, can I pick up on that, because Leo used the phrase, ‘if capitalism is smart,’ you already gave some examples of what businesses are beginning to do. I just wonder, having heard what Leo has had to say, if you just want to pick up on the same question, how can businesses sustainably recover from the pandemic?

Volker:

When Leo talked I was just thinking about a famous quote I came across, Teresa, which is, ‘there is no vaccine for environmental degradation.’ Surely, it is not just businesses, it’s a whole combination we need to address. Before I come back to businesses, just important to remind us, we know consumers, customers, individuals, they have changed the way how they are looking at the net zero transition. They definitely have voted with their feet, and all surveys and all evidence from last year show this is already happening. Secondly, businesses have responded to this. What is more important is that we also see all governments to look at stimulus packages to get out of this crisis. When you look at this, this is very different to what we have seen back in 2008 and 2009 during the financial crisis, where most stimulus packages across the world were actually focussing on existing industries. We all remember the famous car scrap scheme, which was basically supporting the existing industries and there were similar measures. Now everyone is focussing on this build back better, and if I may add, greener. That is the key foundation for businesses. Not very often, I can recall, there was a large consensus on the objective. Where we need to work on, however, is how do we get to that common goal, because as Leo has pointed out now a couple of times, time is of the essence here, and we are not there yet, so it’s the speed of the transformation.

Now on businesses, what makes me really very optimistic when I just heard in the last few weeks, at the beginning of June, already almost 800 British companies have signed up to the UN campaign called the race to zero. Again, 800 businesses, and that tells you it is more than just another trend, something you need to do as a business. It is genuinely driving that change, not only to be seen as a corporate citizen, and a good corporate citizen, but rather also improve as I was already pointing out earlier the propositions you have with more engaged customers.

My personal view, Teresa, is this system has now the right dynamic, customers who want to change, governments who now see this is the number one, maybe the number two, key critical issues to be re-elected at some point, combining that with packages to get us out of the pandemic and stimulate economic growth, and then businesses, who are making a great contribution to it. There are plenty of opportunities.Thats why it is so exciting to be part of this energy sector at the moment.

Teresa:

Looking forward, Volker, in terms of the lessons that we’ve learned, is there anything that you would see that you would want as the keep from the business perspective or from the consumer perspective from this new post-pandemic way of life.

Volker:

If I could choose, it is that common goal, which we need to maintain. We all know in businesses that what is very topical and very important to discuss, could be superseded by more pressing issues going forwards, so we need to keep momentum here. Let’s be clear, as we have now stated numerous times, momentum is one key, but innovation is needed. This is an unfinished article, Teresa. We just look at the generation portfolio, and yes you could argue, we are close to achieving our carbon reduction targets by 2030, but then again, the big other sector we haven’t talked about yet, is heating, contributing about another 30% on average across the globe to greenhouse gas emissions. Another, almost as big sector, with 25%, is what they call surface transport. So, there are big challenges to decarbonise these other two sectors; and therefore, more needs to be learnt from the crisis. You need to find ways of keeping momentum where I believe we have made fantastic progress on technology.

I talked about smart meters. Okay, that rollout is going to be done in the next couple of years, but what are we doing with this. How does this drive consumer behaviour, how can we encourage people to change their consumption behaviour? Quite an interesting one, Leo and I talked about recently. In Spain, for example, you have now, since the 1st of June 2021, a tariff where you have different prices across three different price zones, simply to shift their consumption behaviour into offbeat hours, which are usually during the nights or a couple of hours during the daytime, between morning and midday.

This is just one example of very many, we are already working on. I looked at the number of start-ups, actually found it over the last two years, and it’s amazing when you actually see the leading country across Europe, and this includes the UK, in this survey, is the UK followed by Germany. A staggering three-digit number of new founded start up businesses in the energy sector, which tells you there is a lot of focus of young people, experienced professionals of the sector, and from adjacent sectors coming into this. That’s the momentum I am talking about, Teresa, that’s what we need to learn to keep focus on. Hopefully the political will to support these industries, with all of these announcements, on whether it’s the resurgent, innovation, infrastructure, and program the UK government has launched around the 22nd of June, or other areas where you see the Australian government’s and similar investment schemes in North America. They will ensure that businesses see an attractive opportunity to drive the change to a fully decarbonised environment, and at the same time have the opportunity to create new business models.

It is that belief that there is a future business model in this environment, then you are responding as a corporate to customer needs and demand, and more importantly you’re making a good contribution to what is probably one of the biggest societal challenges we are facing at the moment.

Teresa:

Thanks Volker, and coming back to you again, Leo, in terms of lessons learned, when you are talking to organisations, what do you get from them in terms, what are the top two or three things that they want to keep from the last 18 months.

Leo:

Let me pull out one big thing, which is really around innovation. The COVID was this extraordinary crisis lab, where people were forced to innovate, to just reinvent the way they did stuff. What happened was that crisis lab unlocked a huge amount of talent, what Clay Shirky calls the cognitive surplus. We saw Italian doctors 3D printing the venturi valve, when the ventilators weren’t working outside a pressure in Milan, saving ten people’s lives over a 24-hour period. You see sector after sector where people just reinvented a way of working. It's that unlocking of innovation talent, unlocking that cognitive surplus, that skills based, this is the crucial challenge. We are at this extraordinary moment, where we could see widespread automation. The World Bank projecting 69% of blue- and white-collar jobs globally getting shed in the mid-2030s through automation. We could see that COVID has accelerated that trend, the combination of cost cutting, automation, and digitisation for security, has definitely accelerated the growth of the tech platforms. The big getting bigger, the small getting smaller. You can see a world, where we are left to click and swipe, where we become this class of the useless, surviving on universal basic incomes, that bankrupt the state. I don’t want to get gloomy, because that’s not the world we are headed for. If we play this right, what we will do is, unlock that cognitive surplus. We will line up this new set of easy to pick up skills and tools. These low barrier to entry technologies, totally democratisable. A friend of mine just told me on Friday, he set up an open source free coding school. We can unlock these skills and tools, put them into the hands of the many and create a new wave of entrepreneurs, who are just coming up with the new business models that Volker talks about, that are solving the problems we’ve got at scale.
If we can within our own organisation find that talent, which is up and down the organisation, and inside out of it, and collaborate with it around these big problems, then there is a huge set of opportunities ahead of us.

Teresa:

Great thank you. This has gone really quickly actually, and I am going to end, with a personal question for both of you, because your passion and your insight for this topic is just really infectious, but what’s the one thing that you can’t wait to get back to ‘normal.’ Leo, I am going to start with you.

Leo:

I really want a holiday, I really want to be like, going for long walks, sitting with my family and friends, that’s my dream.

Teresa:

I am with you there, Volker what’s your one thing that you can’t wait to get back to normal?

Volker:

I really can’t wait, and I cannot believe for a moment, Teresa, to meet my peers, my friends, my colleagues in the office again. It has been such a long time since I haven’t been in an office environment. What a wonderful thing to have a chat with somebody, where you don’t need to schedule a video conference call, just in the kitchen or in the canteen, and just have a coffee and talk about business, that’s something I am really missing, I must admit.

Leo:

Let me edit my answer, and say, what I meant to say was, I really want to go back to the office also.

Volker:

I will join you on your holiday, Leo, that’s for sure.

Leo:

It’s a deal, beautiful.

Teresa:

Brilliant, that actually draws us to the close of another episode in our Business in Focus podcast, Leo, Volker thank you, that was so fascinating. As a person in the street, I learned a lot just from listening to both of you. Of course, thank you to everyone for listening. If you would like to explore PwC’s industry led insight and thought leadership, and get some more insight and inspiration for your organisation, then I’d really suggest that you visit Industry in Focus at pwc.co.uk/industries.

Finally, don’t forget to subscribe to keep up to date with future episodes thanks everyone and please tune in again soon.

Participants

• Volker Beckers
• Leo Johnson
• Teresa Owusu-Adjei