December 13, 2021

Innovation and the new normal of Net Zero

COP26 drives to decarbonise the world

Innovation is now centre stage for saving the planet, so it’s time to innovate like never before.  

Since the Cop26 conference in Glasgow this October, innovation is now recognised publicly as the critical tool for tackling climate change. Or more specifically, the tool for tackling the complexities involved in reducing carbon dioxide, methane, and other harmful greenhouse gases (GHGs) across industry, commerce, and agriculture. 

Amid the bustle of world leaders pledging action, the conference welcomed a broad audience to its Climate Action Innovation Zone. Its attendees included people from corporates, cleantech start-ups, scale-up and impact investors. UN and government policymakers and NGO representatives were also there, as were plenty of journalists.  Using digital technology, the organisers shared their live streamed events around the world.  

Innovation comes of age with climate change

It was as if the concept of innovation had come of age. As Microsoft co-founder Bill Gates wrote in the Financial Times on 31 October: “Innovation is the only way the world can cut net greenhouse gas emissions from roughly 51bn tonnes per year to zero by 2050.”

The same goes for actual investment in climate change-related innovation.  Mark Carney, the UN Envoy for Climate Action and Finance has said that businesses can benefit from such investment and, if “companies focus on their emissions all the way across their value chain...reductions can be pulled through economies and across the world.”

Because climate change is an “existential threat,” there is really little choice in the matter, Carney has said in a press interview. “Climate is Covid on steroids. You can’t self-isolate from it, we’re all going to be brought into it.”

Companies must quickly respond to Net Zero

Now with the haggling between governments over, it’s up to individual businesses to pick up the baton and quickly respond with positive and effective initiatives. 

So what are they meant to do?  Well, there is a growing wealth of advice out there on the internet, and both companies and consultancies are rapidly developing their skill sets to deal with specific areas of activity required.  But time is short. Many are lagging behind, and there are dire warnings about what risks and liabilities companies will face if they fail to act quickly enough. 

In this blog, we’d like to share some insight about how we at VentureBright are working with forward-thinking companies in reducing their GHG footprint and making their businesses – and also those of their suppliers - more environmentally friendly. 

The COP26 Glasgow Climate Pact agenda

But first, let’s review the main facts of where we are, and look at how we go forward. 

The Glasgow Climate Pact at Cop2 has set the global agenda on for the next 10 years. It’s based on the 2015 Paris Agreement target of keeping global warming to “well below” 2 deg C – and to try to aim for 1.5 deg C – in order to prevent a global climate catastrophe. 

The new Glasgow pact urged the 200 or so countries attending COP26 to keep cutting emissions until reaching net zero by 2050. This means both drastically reducing GHG emissions, and balancing out remaining emissions through carbon capture and storage mechanisms. 

UK Government leads with Net Zero Strategy 

The UK Government took COP26 as an opportunity to present its own plan of action, in the form of its Net Zero Strategy. This plan sets out for the first time how the Government hopes to deliver its emissions targets of net zero by 2050. It pulls together existing ideas from various sectoral decarbonisation strategies launched during the last year, and strengthens them with new commitments in a variety of areas. 

Broadly, the strategy includes decarbonising the power sector by 2035, phasing out petrol and diesel vehicles in favour of electric and hydrogen, and introducing heat pumps for homes. 

It also presents proposals for driving delivery and scale-up of private investment across the entire economy. These include contract auctions for renewable power, and grants and contracts for carbon capture, usage and storage. 

There are also proposals for tackling the complex challenges involved in creating a Net Zero nation, including strong proposals on innovation, on business engagement and governance, and on jobs and skills. 

Extra funds promised for green innovation projects

This includes funding.  The Government claimed in a press release on 19 October that it will “unlock £90bn of investment in 2030”, and has promised “an extra £500m towards innovation projects to develop green technologies of the future, bringing the total funding for net zero research and innovation to at least £1.5bn.”

While the strategy was widely welcomed, it’s clear that more work on it is needed.  “There are some strategic gaps, as well as how the Government’s ambitions will be delivered in some sectors,” the Government’s own Climate Change Committee said in its response.

“Plans to tackle emissions from agriculture are still unclear. A credible strategy, led by needed,” it said.

In addition, policies on limiting growth of aviation and travel demand, public diet change, and use of the tax system to support a transition to Net Zero are also needed, it said. 

It’s likely that we will see more on these topics in coming months. But in the meantime, if you’re running a business, it’s essential to get started. 

Companies must innovate now on Net Zero targets

The current pace of change is far slower than the pace needed, and emissions levels remain too high. Global carbon emissions must be halved over the next nine years, and yet average emissions have been rising by 1.5% a year. Carbon-cutting commitments by business have lagged behind those of governments. Pressure on business to act will grow, and unless individual companies get a move on, political pledges on climate change will fail.  

So this requires rapid planning by business.  Boardrooms have to identify – and achieve - targets and create credible decarbonisation plans for transition to Net Zero. 

They have to realise that investors are increasingly aware of the potential of huge value erosion for carbon-intensive assets, as well as an equally significant upside of value creation for businesses that are aligned with a Net Zero future.  

In other words, Net Zero is not an option for business. It’s a core issue. 

As such, this requires a wholesale transformation that involves very part of a company’s business and operating model. 

As PwC says in an article Reinventing the Future: “Building on a Net Zero ambition, companies have to ensure accountability at the top, realign their corporate growth strategy with Net Zero, adapt their operating model and supply chain to support the transformation, invest in innovation, provide the necessary financing, and prioritise transparency and engagement.”

Failure to deliver on Net Zero creates business risk 

The risks to business for failure are as existential as the risks of global warming are to the planet.

Cambridge University’s Institute for Sustainability Leadership has identified significant benefits for companies that act early, and major risks for those that don’t.

In its report Targeting Net Zero, the Institute says: “Action on climate change can inform innovation, mitigate risk, unlock better connections with stakeholders, and build brand and well as delivering commercial benefits...” 

Such action might require “change across all operations and may even require transformation of business models, such as a shift from selling to leasing assets,” it says. 

Meanwhile, it identifies three types of financial risk to businesses resulting from climate change:

  • Physical risk – one analysis estimates the annual cost of extreme weather events at $195bn, with projections of significant increases by 2040
  • Transition risk - companies behind the curve will be outpaced as policymakers shift toward Net Zero. Not all businesses will survive the change
  • Liability risk – companies and directors will face greater legal liabilities if they fail to assess and disclose financial risks associated with climate change

McKinsey’s sustainability blog puts it simply: “Time is running out for business leaders who don’t have a ‘Net Zero’ strategy.” 

It states that “when it comes to assessing climate-related risks, capital markets are already ahead of the real economy. They are learning more about your company’s climate risk exposure than you know, and they are deploying funds and adjusting the cost of capital accordingly (both equity and debt)”.

Innovation is the key to business cutting emissions

In conclusion, while confronting the climate change challenge is not easy, it is an essential activity for business.  The UN’s Sustainable Development Solutions Network recommends certain steps for business, including “relocating production sites and reconfiguring value chains, developing Net Zero business models and giving those models a central role in corporate strategy.” It says that “innovations will be key for companies to improve their emissions,” it says. 

Venturebright’s role in helping companies decarbonise

So, what does this have to do with Venturebright? Well, we work with companies to help execute key elements of their Net Zero plans and help them with the business and technology innovation involved in decarbonising.  We already have worked on a range of climate change-related projects, including energy, batteries, electric motors with ABB, and compostable packaging manufacture with Olam.   

This kind of innovation doesn’t have to be done in isolation, as companies collaborating to share the cost and technology involved in carbon reduction innovation can quickly produce win-win outcomes. 

‘Outside in’ collaborative innovation for Net Zero projects

This collaborative approach plays particularly to an area of Venturebright’s expertise. 

With ‘outside in’, our targeted corporate scouting programs are designed to find strategically relevant and commercially viable ventures and start-ups that can work with our corporate clients. 

In doing so, we enable strong relationships and productive collaborations that can provide mutual growth and other benefits for both the corporate, and the ventures involved. 

Of course, these ‘outside in’ projects can also result in creating an actionable, commercial portfolio that a corporate client can incubate. Our input here ranges from idea generation to business case development, in-market testing, and the building of new ventures.