Over the past 18 months, momentum for a Net Zero economy has rapidly gathered pace across governments and the business community alike. Organisations are seeking to demonstrate that they are taking positive action on Net Zero, and the ones that act early will enjoy a competitive advantage over those that don’t.
Why the growing urgency? Partly from the pressure that customers, employees and investors are putting on businesses to change their ways. Also, companies seem to be taking action to build stronger reputations for sustainability. And Net Zero will be essential as governments and economies look to ‘build back better’ after the COVID-19 pandemic.
Just as we saw with digital transformation, the move to Net Zero will require big changes in technology and early movers gain many advantages over later adopters. We’re already seeing that in seven key areas.
First is in people and talent. Organisations leading the way are hiring employees with scarce critical skills for a Net Zero transformation. This makes them more attractive to progressive-minded job-seekers, especially the youngest candidates just out of university, and builds expertise. Late adopters will have a smaller pool of talent to choose from. Moreover, companies focusing on Net Zero transformation are more likely to retain talent, as employees feel they are part of a journey with a positive societal impact.
Then there’s money. Investors with trillions of dollars in capital are increasingly scrutinising environmental, social and governance factors before deciding where to invest. Businesses with strong, clear commitments to Net Zero will benefit from greater access to a larger pool of capital, potentially at a lower cost.
Companies that align their portfolios for Net Zero stand to gain in another way too. For those companies looking to divest carbon-intensive lines of a business – this is best done sooner, rather than later. Investors see a value play in transforming ‘dirty to clean’ business models right now. In a few more years, those businesses may be worth less and it may also become harder to sell with fewer investors willing to run or transform old business models. Additionally, there is a timing dimension to acquisitions. Those companies that acquire relevant capabilities sooner and integrate them into the organisation may be better placed to accelerate their transformation.
Acting now also gives organisations a head start in building partnerships needed for transformation. Few businesses have all the skills and resources needed to move to Net Zero on their own, and early movers are already creating strong partnerships. For example, leading net zero transition companies like bp, Microsoft and Amazon are partnering together to drive value from digital and renewable solutions.
Early movers also gain with customers. A growing number of people not only want to support businesses with green credentials but are willing to pay a premium for sustainable goods and services. That premium will disappear as Net Zero offerings become more commoditised in the years ahead, as it has already in energy retail.
And early movers benefit from lower costs. While many Net Zero initiatives might require upfront capital investments, a move to Net Zero can reduce operational costs overall: lower energy bills, fewer travel costs, reduced waste and so on.
Finally, there’s the expertise that early movers build through pilot programmes. This helps to generate organisational learning and supports better decision-making going forward on where to participate in Net Zero value chains. Being first to market and better than the latecomers is a powerful one-two punch.
With COP26 taking place in November and strong Net Zero commitments from existing or incoming governments in the UK, EU, US and China, among other places, now is the time for businesses to act. In an increasingly competitive and fast-changing landscape, there’s a window of only about one year for early movers to gain an advantage. Acting now is a good business strategy for the immediate future. It will also put early movers on ‘the right side of history’.
Here at PwC, we’ve committed to achieve Net Zero by 2030. And we’re working with many clients to help their organisations do the same. Contact us to learn more about how to chart your own Net Zero journey.
UK Energy Consulting Leader, PwC United Kingdom
Tel: +44 (0)7740 157147