COP26 And How Businesses Need To Respond
Gary Connors, Partner at Oliver Wight EAME, explains what business should be doing in the wake of the COP26 summit.
The dialogue and agreements witnessed at COP26 this year have brought on important advances. Despite the last-minute disappointments on the reduction of the usage of coal by China and India the conference reflected a strong momentum for change. Broadly COP 26, despite not fulfilling every part of every stakeholder’s brief, achieved the aim of keeping 1.5 (the possibility of limiting global warming to 1.5C) alive.
There can be no doubt now that there are significant currents of changes affecting our environment, even the most hardened challengers cannot escape the inevitability of the change and will have to adapt their stance to a more conciliatory and cooperative tone. Businesses that fail to recognise the issue, develop survival strategies, and embrace the change will not survive.
Organisations that choose to ignore the tide of change do so at their peril. It is surprising then that this topic is not resonating with some of the businesses that we engage with. We are emphasising that to ride the sea of change that we are seeing, organisations will need to take an integrated and proactive approach to planning. They will need to develop the following assumptions:
- The political landscape. Anticipating the legislative changes that may happen and develop contingency plans as a result. Changes in consent limits for environmental emissions; changes in regulations for shipping chemicals across borders and many more.
- The social landscape. Anticipating the impact of consumer sentiment and developing contingency plans as a result. Changes in consumer preferences and behaviours will need to be considered.
- The economic landscape. Anticipating the impact on exchange rates and how this may impact their supply chains will set them apart.
- The technical landscape. Anticipating the advent of new technologies that could change the way they make their products will help them make the changes needed to stay ahead of their competitors.
Some clients that we work with that would have been considered less environmentally friendly are making great progress in improving their processes and business models. A glass bottle manufacturer uses vast amounts of heat to produce glass and is increasing the level of recycled content to produce new bottles. This not only closes the loop on the use of glass but also uses less heat. An agricultural client we work with previously associated with deforestation has changed their sourcing and processing methods to ensure that everything that they use is from a sustainable source.
Other clients in traditionally cleaner industries like pharmaceutical manufacturers are making slower progress, single-use plastics are still prevalent in many manufacturing processes. While this reduces the risk of cross-contamination in the manufacturing process it is also adding to the plastic problem that we see in the news every day.
While we have focussed on the part industry has to play, we need to raise the level of debate around consumer habits too. Not only in the products that they buy but also in the reduction of waste and the increase in recycling. You will soon see a ‘deposit / return’ scheme in Scotland for most packaging that will go a long way to creating a more circular economy that is more friendly to the environment.
So, what does the senior leadership team need to think about:
Every senior team will need to ensure that their strategic planning process considers their position on the environment and lays out a roadmap of sustainability objectives that they want to achieve, such as increasing the recyclable content of packaging by 50% over the next 5 years. This will include how to commercialise their sustainability credentials. For every senior team we have the following advice:
1. Clearly outline your values as an organisation
Build sustainability into your organisation’s values and ensure that you are living according to those values and that your team and staff are behaving in a way that is consistent with your values
Example: An organisation may choose to enshrine environmental sustainability as a value that they want to aspire to and to have every employee live by.
2. Measure what you value
Build sustainability into your executive scorecard and develop a hierarchy of supporting metrics deep that demonstrate that you value this. Measure what you value / value what you measure. The payback of sustainability is intangible as it will manifest itself in enhanced reputation along with consumer goodwill.
Example: An organisation with a strategy that is driving towards eliminating non-recyclable packaging over the next 3 years may have a monthly metric on the executive scorecard that is tracking the progress towards this ambition
3. Lower the barriers for Sustainability Projects
Financial discipline in any organisation is a basic requirement but successful organisations will exercise this discipline with a healthy dose of common sense. There will likely be a financial barrier for capital investment to enable multiple projects to be ranked against each other and to focus the organisation on making the right decisions for the business. While this fiscal discipline is sensible, it often prevents good sustainability projects from getting approved. Organisations with a strong sustainability agenda will lower the barriers for getting sustainability projects approved.
Example: An organisation may require a Discounted Cash Flow (DCF) of greater than 25% over 3 years for all capital investments but would allow investments in environmental sustainability projects if the DCF was greater than 0%.
4. Challenge your Continuous Improvement Agenda
Lean and six-sigma have been around for years now and are typically used to drive out waste, improve costs and quality, but the same tools can be used to advance a sustainability agenda within an organisation. Critically assess your continuous improvement agenda and your improvement projects to ensure that sustainability gets the right level of attention
Example: Bring an analysis of the continuous improvement efforts onto the executive team’s agenda so that the executive team can guide the allocation of continuous improvement resources and ensure a good balance between profitability, quality, and environmental sustainability.
5. Make assumptions rather than wait for certainty
You cannot know what is going to happen in the future, but you had better be planning for it. The way to do this is by making clear, quantified and time-bound assumptions about what you think is going to happen. This raises the level of debate within your organisation about key issues that may or may not happen in the future. Most organisations will already have financial assumptions about the economy and the political landscape. To further their sustainability agenda an organisation should be formulating environmental assumptions as well as the existing
Example: We don’t know what new legislation there might be in the future around recycling, but an organisation with a sustainability agenda should be formulating assumptions about this. An organisation may choose to assume that there will be new legislation around environmental emission consent limits 3 years from now that will significantly penalise organisations that contravene these limits and the onus and cost of proving compliance will be with the manufacturer.
COP26 has surfaced political promise behind the need to change and it has ignited consumer confidence to make it happen. Businesses will play a vital role in this and only those that embrace a new sustainable agenda will survive.