In the same way that horsepower and coal heralded their own economic revolutions, so we stand on the cusp of the next economic revolution. This story is the growth story of the 21st century, and it’s already started.
The transition from a fossil fuel economy to a low-carbon economy is underway around the world. Like the ongoing digital transformation, the pathway for every business will be different. And like digital, it will affect every aspect of every business. The low carbon transition will change what many businesses actually do. As the 2018 Report of the Global Commission on the Economy and Climate concludes, this new era is “one where growth is driven by the interaction between rapid technological innovation, sustainable infrastructure investment, and increased resource productivity”.
Making a move
This is the only growth story in town, and like most business endeavours, it will be competitive. In fact, it already is. Companies have to weigh the merits of existing and future business models whilst planning their own transitions. They must attempt to judge how to maximise their exisiting approach whilst preparing for the future. First-movers face great opportunities alongside significant risks, but wait too long and the competitive advantage disappears.
The increasing prominence of environmental, social and governance (ESG) practices, and the demand for more transparent disclosures are driving tangible change. In 2019, almost 200 CEOs from the largest businesses in the US adopted a new Statement on the Purpose of a Corporation declaring that companies should “serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers and support the communities in which they operate”. A company exists for more reasons than to just make money. Between 2018 and 2020, there was a 42% increase in US assets undermanagement using ESG strategies, according to the 2020 Report on US Sustainable and Impact Investing Trends.
Disclosure is growing fast
The recommendations for better corporate climate risk disclosure, as set out by the Task Force on Climate-related Financial Disclosures (TCFD) have gained traction globally, with businesses and governments. The latter have begun to legislate compulsory disclosures, driving further transparency and shareholder awareness. In Europe, the new Regulation on sustainability‐related disclosures in the financial services sector (SFDR) places disclosure and transparency requirements on financial market participants to a degree never seen before.
What part will your company play in this growth story? Our clients take a range of views on these issues. Some want to be compliant with regulations, whilst others see a competitive advantage when tendering for public contracts. Our public-facing clients want to be seen to be green, whilst some of our clients understand that this is the only game in town and that it’s here to stay.
All of them are in this opening chapter of the story, but will they be in the next?
Would you like to discuss how your business can continue its transition to the low-carbon economy? Get in touch.