Consumers, investors, and partners are increasingly making decisions about your company based on a sustainable business model. Here, we examine the rise of sustainability as a business value.
In 2021, data showed that 8.7 million people die each year as a direct result of fossil fuel pollution.
And the latest report from the UN holds even more distressing data – if the world stopped producing carbon emissions tomorrow, it’s already too late to avoid climate chaos:
As the world burns: Global measures to reduce carbon emissions
Governments around the world are moving to reduce carbon emissions. A brief summary:
- The European Union passed a law in June 2020, mandating that all 27 nations of the EU reduce their emissions 55% by 2030 – a massively ambitious target. In 2020, during the pandemic, the UK dropped emissions 7%. They went back up in 2021 by 5%.
- Under the Biden administration, the U.S. has said they want to cut emissions 52% by 2030.
- China has said they want to get to net zero by 2060, but they’ve also said they want their emissions to peak by 2030, and have all of their regions source 40% of their power from renewables by 2030.
- Saudi Arabia aims to get 50% of their energy from renewables by 2030. They’re also going to be planting 10 billion trees, in an effort to get their emissions down.
- Germany is spending $6 billion to clean up steel production and start to make steel fossil-fuel free.
Considering the adaptations within these big economic blocs, it’s clear the global economy is about to become the climate economy.
Other stakeholders getting involved are judicial and financial systems. In October 2021, courts in France ordered the French government to meet its own greenhouse gas reduction targets. A court case taken against the government and the government losing signals countries will be held to meeting self-set targets. And it’s not just France – similar rulings also happened in Germany and the Netherlands. The US Treasury plans to oppose development banks financing fossil fuel projects. Similarly, China has said they’re not going to fund new coal-fired power projects outside of China.
Climate 21 is an SAP initiative that allows our customers calculate, report, and reduce their greenhouse gas emissions. The podcast showcases best practices by SAP, our customers, our partners, and our competitors in climate emissions reductions.
Show me the money: Greener is better, for the world and the bottom line
The finance sector is undergoing huge changes since the cost of capital for fossil fuels is going up, while the cost of capital for renewable energy is coming down.
This will have major implications. The cost of capital for offshore oil is over 20%. For liquid natural gas, it’s over 10%. Whereas for offshore wind, onshore wind solar, it’s below 5%, and dropping for natural gas.
Offshore oil is going up because of the inherent risk of a carbon bubble – do you want to invest money in something like offshore oil, gas, or coal, which legislation could shut down in five to 10 years?
Where would you get a return on that investment? It’s not going to happen, or it’s an extremely risky proposition. And because it’s a risky proposition, the cost of capital goes up. Therefore, these projects are going to find it harder and harder to get backing.
GFANZ is the Glasgow financial alliance for Net Zero. With 450 firms across 45 countries and access to $130 trillion who’ve committed to only financing net-zero projects and not fossil fuel projects, a massive difference in moving away from fossil fuels and into the clean energy space can be made.
Companies that have – and practice – purpose, including sustainability, are attracting the best and brightest, because younger generations increasingly want to work for such companies. That helps drop recruitment and retention costs, while also attracting and keeping higher quality customers.
Saving money on the employee side, and gaining money on the customer side: huge reasons for companies to become more sustainable.
The oil age is ending; peak oil happened around 2017 and 2018. The demand for oil is dropping for economic reasons, not just because people want to be more sustainable. It’s now cheaper to build new renewable generation than to power existing fossil fuel plants. This is an incredible landmark moment in the history of energy.
Today corporate social responsibility must include sustainability. Discover examples, definitions, and how to attain sustainable commerce.
Renewables: Solar, wind, lithium ion batteries powering market opportunities and industry changes
With lowered demand for oil, we’re seeing more renewables, and the storage of the energy created by those renewables, because renewables are variable generators, so you’ve got to have some way of backing them up.
One way of doing that is using the likes of lithium ion batteries – whose price has fallen over 90% since 2010. The cost keeps falling about 15% per annum, based on economies of scale, and on rights law. Meanwhile, the energy density of those batteries is increasing 5% – 8% year on year since 2010. The future market for these batteries is about to boom – and that’s just for stationary storage.
The desire to reduce waste across supply chains and enter a circular economy is driving organizations to embed corporate sustainability in their mainstream business.
As a result of the falling costs of renewables, some major projects are being rolled out around the world and across industries to help reduce carbon emissions:
- Australia has several big projects happening: One called Sun Cable is a solar and battery project, where they’re building a 22 gigawatt solar plant backed by either a 36 or 42 gigawatt hour battery plant. To put that in perspective, that’s the output of 22 nuclear power plants. They’re already using it to power the city of Darwin. But they’re also planning to send Australian sunshine over 3,100 miles to Singapore, which is powered primarily by gas and oil today. It’ll be the biggest solar farm and battery storage facility in the world, and will open in 2027.
- Kazakhstan is building a 45 gigawatt renewable plant, powered by wind and solar. They’re going to use that to create green hydrogen, because they figure there’s going to be a huge global market for green hydrogen.
- The transition to electric vehicles is rapidly transforming the transportation sector: Norway plans to ban the sale of fossil fuel vehicles by 2025, but trends indicate they could get there by April 2022. In Western Europe, zero emission passenger car registrations achieved a new record of 16%, fully battery electric vehicles in 2021. That figure was 2.5% in 2019, and 6.7% in 2020. Volvo is the first car maker to explore making cars from fossil fuel free steel via SSAB, who delivered their first fossil fuel free steel to Volvo in 2021. Volvo said they want to build all of their cars using this kind of steel by 2026.
- The aviation industry is looking toward green skies: United Airlines earlier this year bought 119 seat fully electric planes from heart aerospace. Airbus is looking at their zero e plane, which is a blended wing plane, which still haven’t decided how it’s going to fly, whether it’s hydrogen or electric, I suspect unless there’s some huge change in technology, eventually the aviation industry will end up using sustainable aviation fuel, at least in the short term, longer term, unless there’s that there may be some big breakthrough in energy density of batteries or something that will allow them to go fully, fully electric.
- Big truck manufacturers are going electric, as well as public transportation: A majority of the world’s 600,000 fully electric buses are operating in China, while London boasts the largest electric fleet in Europe. London’s largest taxi firm, Addison Lee, plans to go fully electric by 2023. Ferries are also going electric, with Maersk stating they want their containerships to start using green methanol.
“A developed country is not a place where poor people have cars. It’s where rich people use public transportation.” – Enrique Peñalosa
What kind of actions should you or your organization be taking to reduce carbon emissions?
What can or should your business (and yourself) do to help protect our world for tomorrow? There are a some quick, easy wins.
Ways to reduce carbon emissions:
- Convert everything to electric: Your transportation, heating and cooling, if you’re cooking, don’t use any gas, oil, diesel, or petrol – convert it all to electric.
- Switch to a 100% renewable energy provider. It’s low hanging fruit, a huge carbon savings, and you send a demand signal as well – these kind of things are important, too.
- Start measuring your emissions: Set emission targets, measure your emissions, and report against those targets at least annually, but quarterly is better.
- Rollout circular economy projects: Don’t be throwing things away – waste is just something that’s misplaced. Rather, have it be a raw material for something else – people often don’t realize the emissions reductions you can achieve by becoming more circular.
- Require emissions reporting in all RFPs and RFQs: Ask your suppliers what the emissions consequences will be for your projects. In some cases that will require working with your suppliers to help them figure out how to do that.
- Set an internal carbon price for any internal projects: Not just for travel, but for any office refurbishments – anything at all – decide what the carbon implications will be, and have a price internally under carbon. Every project then pays the carbon implications to your internal sustainability organization. The sustainability organization can use that money for things like buying car chargers for your parking lot, or purchasing renewable energy, etc.
- Tie executive remuneration to emissions reductions: KPIs and bonuses tied to emissions reduction KPIs will immediately start driving big shifts in behavior.
With the rise of conscious consumerism, businesses need to prioritize circularity. Discover how brands can become more sustainable in the circular economy.
The time to act is now: Carbon emissions demand attention today
We’ve said the 2020s are going to be the decade of action. They have to be, because we’ve got to get to that 55% reduction in emissions.
But here’s the thing: That 55% is going to be the low hanging fruit, which means the next 45% will require a whole lot more work out of the system, meaning the 2030s will be the decade of more action.
And if you think that’s too much to accomplish, think again – we can adapt now, or suffer later.