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13 January 2020

Onward to the Roaring 20s: This is the decade to do sustainability right

With the welcoming of a new decade we must reflect on what can be achieved in 10 years. Our predecessors in the 1920s drove wide-spread adoption of such products as the radio, home appliances and automobiles, and laid the foundations for a future booming commercial aviation industry. The industrial and economic boom of the 20s fostered a cultural evolution which embraced modernity and, to a great extent, forwent long-standing traditionalism for an industrious pursuit of modernism; revolutionising the way we live, work, and socialise.

Stepping into the 20s once again a century later, we are poised to undergo the same level of social, cultural, and economic change over the next 10 years. The pursuit of sustainability and the mitigation of anthropogenic climate change is in itself the new transformation to the modernity of the 21st century. the momentum of this will be felt all the stronger given the planet’s additional 6 billion, highly connected, occupants.

Net-Zero goals are the new normal amidst a global perspective shift on climate change

The direction of the coming year is exemplified by the New Year’s announcement of the unprecedented right-left coalition between Austria’s People’s and Green Parties, combining. Climate change and sustainability is increasingly a platform and policy focus, as well as a point of collaboration, across political affiliations and is progressively ascending to the top of agendas of major industry groups at the behest of stakeholders and financiers. The solutions that will be implemented in the 2020s will stem both from market-oriented policy mechanisms and from the individuals, corporations and financial institutions that are increasingly taking a proactive stance on climate protection for practical and ideological reasons. The direct environmental and regulatory risk that threatens companies in 2020 are also opportunities to make businesses stronger, and this year marks the beginning of the decade when corporate innovation can, and must, take the reins for meeting national climate targets.

One point is clear, companies which do not integrate sustainability into the core of their business will not be around to write about in 2030. Five years on from the COP21 Paris Agreement in 2015, the 2020 COP26 in the UK presents the first formal opportunity for nations to assess their progress and enhance their climate targets. This will be the first global opportunity to jointly recognise newly formulated net-zero targets from a range of nations, regions and municipalities, which include sharp cuts to GHG emissions through to 2030. The UNEP[1] already lists 65 2050 net-zero targets pledged worldwide, and 2020 brings the chance for these to be implemented with concrete governance strategies.

These targets mean that emissions reductions in line with established operational practices are not enough. In order to comply with targets and thrive, we need to reconsider how we operate and generate value, incorporating historical externalities into economic realities.

The threat of inaction is increasingly clear and accounted for in the regulatory and financial landscape

Sharp increases in climate targets are, unfortunately, now required as a result of a past decade which failed to see adequate climate action. This lack of discipline in realising workable reductions has resulted in very visible environmental threats, which have been increasing in frequency and intensity throughout the second half of the last decade. Severe droughts and desertification, unstoppable fires across the globe, aquatic acidification, harsh storms and rising sea levels are just a few of the impacts which have dominated headlines and continue to grow in regularity year on year. Faced with the tangible impacts of what many have seen as distant and abstract, 2020 is the year when meaningful action must be pursued to mitigate and adapt to real and escalating climate threats. The IPCC[2] reports that in order to mitigate climate change to 1.5C by 2100, emissions will need to peak by 2030 and net-zero emissions must be achieved worldwide before 2050. To achieve this, policy mechanisms including enhanced carbon pricing and emissions trading schemes, augmented non-financial disclosure requirements, and environmental and energy certification obligations will force businesses and property owners to rethink their operations models in innovative ways to remain competitive in a shifting regulatory landscape. This policy shift in line with net-zero must be enacted in 2020 and implemented with momentum from the very beginning of the decade to avoid moving beyond the point where goals for safe climate stabilisation become impossible, an eventuality the UNEP states is a strong potential outcome in their Emissions Gap Report[3] published at the end of 2019. As it stands, national GHG cuts of 2.7% (2C scenario) to 7.6% (1.5C scenario) need to be achieved each year in order to achieve alignment with IPCC scenarios.

As demands for strong policy actions escalate and market mechanisms for the enforcement of environmental protection and impact assessments are enhanced, unresponsive corporations will be increasingly excluded from regional markets, burdened with environmental-related taxes and fines, and suffer from environmentally sensitive risk adjustments for non-financial disclosures through financial integration of ESG valuation frameworks at a global scale. As international climate targets are adjusted and implemented this decade, spurred on by the effects of tangible anthropogenic climate change, corporate competitiveness will depend ever more on the ability to reduce environmental impacts and integrate sustainability throughout core business models and supply chains. Companies unable or unwilling to adapt to environmental standards in a competitive manner face the prospect of market exclusion and will lose ground to more adaptive rivals.

The threat of climate change will drive innovation across all sectors

The transformation required during the 2020s to ensure anthropogenic climate change remains manageable is immense. This, however, should not be seen entirely as a threat, but rather as the greatest opportunity for innovation and value generation since the industrial revolution. Adaptation to this new regulatory landscape is just one component of the driving force behind 2020s sustainability transition. Incorporation of sustainability - using the UN SDGs as a standardised framing and reporting of non-financial operations data to identify key improvement areas - into corporate business models brings obvious opportunities to develop value based on co-benefits between companies and the environments and societies in which they operate.

Considering just the built environment, the development and operation of which accounts for 39% of global emissions to date, strengthening climate change legislation across the globe represents an opportunity to identify risks to long-term property value through reporting and certification scheme requirements for old and new buildings, new value streams through participation in distributed energy resource generation and transportation electrification infrastructure services, lower operational costs resulting from energy efficiency standards and ratings for heating and electrical installations, and overall value retention and occupant satisfaction, health, and productivity. Likewise, the services and products administering for such collaborative and distributed energy management, and those enabling operational efficiency and increased performance is an industry ready to be widely expanded.

Unlocking value through transparency and continuous improvement will be at the core of corporate competitiveness

Transparent reporting of consumption and operations data by businesses and property owners doesn’t just yield positive ESG indicators for financial risk modelling, but provides significant insight into value creation opportunities and cost reduction throughout supply chains and operations models, from the built environment to utilities, pharmaceuticals to consumables. As of 2018, the non-financial reporting platform CDP[4] (www.cdp.net) reported the data of more than 8,000 companies collectively worth $35 trillion throughout the world, and this figure is expected to grow as public reporting requirements continue to expand and companies come under scrutiny from their own stakeholders to be accountable for their impact. CDP investor partners requesting corporate disclosures on climate change, water security and forest management already accounts for $96 trillion in global assets. In addition to strengthening internal governance and external risk indicators, reporting organisations identified $53 billion in saving opportunities across their operations and supply chains, directly impacting their bottom lines. Similarly, the results of building audit procedures such as BREEAM for In-Use and New Construction buildings presents property owners and managers with key benchmarking data they can use to enhance value for occupants, build resilience in the face of climate change, and identify cost-saving measures along the way. Such added value is in addition to the boost in property value and slower depreciation which accompanies the provision of green building certificates[5].

Redefining sector roles, and stakeholder goals, will change the way businesses partner and deliver services to customers

Consumers themselves are increasingly driving corporate engagement in sustainability through product and service preferences, selective investments and individual engagement. As net-zero targets and the SDGs are incorporated into business models, businesses can integrate these shifting relationships to generate new value. Likewise, synergies between sectors will become increasingly relevant in meeting transformative targets through circular economic principles.

This is epitomised through the rapidly changing relationship between the real estate, energy, and transportation sectors. Throughout the next decade these emissions-heavy sectors, which deliver the foundational services supporting the way we live and work in the modern world, will see unparalleled synergies as they adapt to the initiatives of decarbonisation. Property owners must become distributed energy producers and fuelling hubs for electric mobility. Auto manufacturers must build out their e-mobility products and increasingly become energy service providers for fleets and individuals, who in turn produce and store energy, and contribute to grid stabilisation for the benefit of utility suppliers seeking to increase reliable, affordable clean energy targets. Individuals will have more freedom to create value for themselves and manage the mechanics of their own lives in a more focused and meaningful way. These trends will drastically shape the way we create, consume, and manage energy in our daily lives. This new shift toward collaborative business cases shows that the push to meet the demands of all stakeholders in upholding climate targets can and will be used to fuel new business cases and create better products and services.

Change is inevitable, so make it positive

2020 launches us into a new decade in which social, cultural and economic priorities are being re-aligned. Sustainability has emerged as a point of personal and shared responsibility to our planet and our posterity, but also as the single greatest opportunity for individual and collective value creation in 250 years. Where and how people live, connect, work and interact with the natural and built environment will change over the next ten years, and this change will most certainly be for the better.

To accomplish this, businesses will take the reins and create value by:

  • Measuring, reporting and benchmarking their environmental and social impacts
  • Establishing and meeting competitive sustainability targets for themselves to stand out from sector peers
  • Rethinking sector partnerships and the value they deliver to those they serve
  • Building for long-term value and resilience to change
 

[2] IPCC Special Report: Global Warming of 1.5C. (2018). https://www.ipcc.ch/sr15/

[5] BRE Briefing Paper: The Value of BREEAM. 2016. https://www.breeam.com/discover/resources/