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We want to answer a question we hear very often in our discussions with business leaders:"Beyond my personal desire to fight global warming, why should I commit my company to reducing its emissions? And how can I do it?"
Indeed, any business owner is right to wonder whether reducing emissions will actually benefit the company they are responsible for leading. Some will undoubtedly criticize this "return-on-investment" approach when the well-being of humanity is at stake. But let’s not be naive: aside from a few highly committed individuals whose businesses are already thriving, the majority of leaders currently allocate little to no resources to this for 3 main reasons:
- These initiatives are perceived as non-revenue-generating, highly resource-intensive, and risky for a company's competitiveness.
- They are too caught up in the daily grind.
- They simply don't know how to go about it.
We can't blame them, given how little the benefits of emission reduction are highlighted. However, if you dig a little deeper, committing to emission reduction today can become a crucial competitive advantage for a company.
Here are 5 initial reasons why reducing your emissions can be a strategic move for your business:
1. To remain attractive to investors
Paradoxically, the financial sector has a driving role to play in encouraging companies to commit to a low-carbon economy. While stereotypes die hard and you might find it difficult to imagine a financier caring about the fate of the planet (in principle, you're not wrong ;)), the financial world is currently undergoing a major shift regarding climate risk.
This is because environmental commitment has a massive impact on investment portfolios.
Why?
1. Reminder: A financier invests in companies to earn dividends and realize capital gains on their valuation.
2. Given the critical nature of the subject, you don't need to be a genius to understand that climate-related regulations are likely to tighten and that the average consumer will favor low-carbon products and services.
3. Conclusion: When a financier invests in a company, it is in their best interest to check whether that company is capable of adapting to sudden changes in regulation or customer behavior.
Just ask the airlines; they know all about it :)
So, if you run a business and want to remain attractive to investors, demonstrating your ability to track and reduce your carbon emissions must be one of your top priorities (seriously).
2. Because your customers will pressure you—or simply leave.
The few studies on the subject that have recently emerged tend to confirm our intuition: customers are increasingly turning toward low-carbon companies.
There are two scenarios:
A. Your customers are businesses.
In this scenario, the pressure from your customers will vary greatly depending on the industry you operate in. If your clients manufacture fighter jets, you might slip through the cracks. However, if your clients operate in a B2C environment like consumer goods, luxury, cosmetics, or textiles, you will need to react very quickly, as industry leaders are already holding their suppliers accountable.
For example, Zalando or Fnac Darty. It is a safe bet that this trend will become widespread in most fields, especially if they involve the general public or are high-carbon emitters.
B. Your customers are individuals.
No need for long-winded explanations here; early surveys on this topic and consumer behavior over the last 10 years are clear: consumers will prioritize sustainable, low-climate-impact products.
This trend has been ongoing for 10 years, with the boom in organic, vegan, and locally sourced products. The low-carbon product will be the new consumer favorite.
3. Managing risks related to carbon regulation
Here is a quick chart summarizing where we stand:
As the host country of COP 21, France aims to lead the way and become the first carbon-neutral European nation, with Europe striving to be the first carbon-neutral continent. However, looking at our 2050 targets and current emission levels, it is clear that we are significantly behind schedule.
Two conclusions can be drawn from this insightful analysis:
1/ If we are to get back on track for our 2050 goals, Europe and its member states will need to implement very strict regulations and provide massive financial support to help businesses transition.
2/ If we give up, there is no point in rushing. But the economic impact of global warming will be so severe that Europe and its member states will still have every interest in delaying it as much as possible, which means implementing very strict regulations and providing massive financial support to help businesses.
In short, it is absolutely certain that carbon regulations will tighten in the coming years, if not months.
As for what we can expect in terms of likely short-term regulations:
- Mandatory carbon footprint assessments for all companies
- Annual carbon reporting (compared to every 4 years currently)
- Scope 3 emissions reporting now mandatory for all companies.
- Increase in the domestic carbon tax (currently frozen following the Yellow Vests crisis) and the introduction of an EU carbon border adjustment mechanism (CBAM)
There will surely be a transition period for companies to adapt, but as always, those who anticipate these changes will come out ahead.
4. You will reduce certain cost items
Investing today means reducing your bills tomorrow. For example, by optimizing your transport and energy consumption, you will automatically reduce both your GHG emissions and your costs.
Here are some highly effective initiatives to reduce your emissions and costs:
- Invest in building insulation
- Invest in a modern, high-performance air conditioning system
- Prioritize video conferencing over travel whenever possible
- Expand remote work options
5. Involve your employees in your emission reduction goals
Another piece of feedback we regularly receive from business leaders: pressure from employees. Given the importance and current media coverage of the topic, it is a safe bet that your employees are already discussing it among themselves and have likely considered some initial concrete initiatives.
Beyond doing a good deed and keeping your employees happy, launching an emission reduction project can be a powerful unifying force. It is a cross-functional company initiative that can bring all your employees together to work on a common goal.
Furthermore, and this is important to emphasize, global warming is secular, apolitical, global, and impacts all social strata. It should not create internal divisions (except, of course, for a few die-hard skeptics) and will allow you to truly bring everyone together.
In conclusion:
If you run a business today, it is unfortunately a safe bet that nothing currently compels you to initiate a long-term internal CO2 reduction project.
It is unfortunate, and that is precisely why the majority of SMEs and mid-sized companies, even if they acknowledge the problem, have not yet undertaken any real steps in this direction.
However, hidden behind the "sensational" aspect of global warming presented by the media, a massive transition is taking place in silence.
A transition driven by 3 engines that will have a crucial impact on your future business:
- The world of finance, the heartbeat of the corporate world, which, by integrating climate risk into its models, has understood that the business of tomorrow will be ecological or it will not exist at all.
- Regulation, the upcoming tightening of which is a near certainty. The Citizens' Convention is here to remind us of that.
- We, the customers, who are adopting increasingly "responsible" behavior by favoring low-emission companies.
And given current climate events, it is hard to see how this trend could be reversed.
Thus, even if they are under no obligation to do so, decision-makers and business leaders must grasp the scale of the change awaiting them over the next decade and begin launching a few prerequisite projects today:
1. Conduct an initial carbon footprint assessment to identify your main sources of emissions.
2. Based on this assessment, define an emissions reduction action plan.
3. Conduct a "climate risk" analysis for your company.
Of course, Traace can support you through all these steps. To learn more about our support solutions, click here.