The term “net zero” is important as it refers to the state when global warming would stop - when greenhouse gases going into the atmosphere are offset by their removal.
Whilst the list of new regulations to help us achieve net zero, continues to get longer and longer, regulatory change is now matched, if not surpassed, by strong consumer and corporate sentiment. When coupled with continued rapid progress in technologies, we have a significant opportunity in the next 5-10 years to make a real difference in our pursuit of a net zero world.
Firstly, the regulation……
The UK passed laws in 2019 that require total greenhouse gas emissions to be net zero by 2050 and various regulations have been passed, or are being passed, to achieve this goal.
The deadline for the third compliance period of ESOS (Energy Savings Opportunity Scheme) is fast approaching on 31st December 2022. The Streamlined Energy and Carbon Reporting (SECR) reporting standard now makes it mandatory for an estimated c.12,000 UK businesses to report their energy and carbon emissions on an annual basis.
And it isn’t just the UK……
EU nations have committed to cut emissions by 55% by 2030 (compared to levels at 1990) with the aim of also being carbon neutral by 2050. The Science Based Targets Initiative (SBTi) is the world’s first framework for net zero targeting.
The list of regulations goes on and on…….but if you get too lost in the regulation, you miss the point. It isn’t the pace of regulatory change that is really driving the agenda in today’s world, but the changing sentiment…
Secondly, the sentiment….
Both public and political support has never been stronger, with governments committing ever larger budgets and corporates ever more meaningful commitments (the eye watering $2 trillion committed by Biden’s administration over the next four years to clean energy for example). Moreover, it is now in the best interests of corporates and investors to ensure that they are running and investing in ethically sound businesses that minimise their impact on the environment and promote employee well-being and social equality.
Listed corporates are now not only assessed in terms of their profit margins and revenue growth but also their policies with regard to ESG (Environmental Social and Governance).
And it doesn’t stop there. Every successful corporate relies on the next generation of talent and all signs strongly indicate that the latest generation (and no doubt, every generation thereafter) evaluates a corporate’s approach to ESG as part of their decision making process when applying for jobs.
And then, there are the customers. ESG scoring is now often an integral part of procurement processes and contracts will not be awarded unless certain criteria are met. Large corporates, caught both by regulation and by this tidal wave of sentiment, must reduce their emissions – the easiest way to do this is to mandate their supply chains to. Providers of services and products into big pharma, the food industry, retail and consumer goods, infrastructure and real estate, all know that they will not be successful in tenders if they cannot evidence their green credentials. It is no longer a positive differentiator to score highly in this regard but a negative differentiator if you don’t.
The advancements in technology…..and therefore growth opportunities for SME businesses…..
Corporates are increasingly looking to providers of ESG services for help therefore – someone to advise, implement change to reduce carbon emissions and then to ensure that these changes continue to generate reduced emissions (and indeed cost savings) in perpetuity into the future.
The market however currently remains highly fragmented, with most service providers doing some of the above, but not all. ESG consultancies employ highly skilled people to advise corporates on net zero strategies. These consultancies typically therefore produce well thought through, highly technical, reports, but tend to be sub-scale in size and highly dependent on people to grow. Conversely, several software businesses have also been founded in recent years – less people dependent and with technology that, in theory, can both scale quickly and help customers to monitor emissions on a regular basis. More often than not however, these businesses tend to be primarily backward looking – they may help customers to report on their ESG requirements (regulatory driven) but are far less about helping them to reduce emissions in a meaningful ongoing way and to achieve their stated aims of net zero (the behavioural change that is all so important in today’s world). In the middle, sit implementation businesses, typically engineers. These businesses, in our experience, are all too few and far between, and typically include larger industrial businesses, construction businesses, that are now re-inventing themselves image wise by portraying themselves as more sustainability focussed. They are less adept at utilising the latest technologies.
Our vision at Beech Tree, is to invest in a platform that grows both organically and through a series of acquisitions (a “buy and build” in our language). In this way, the business would be able to offer a complete range of services:
· advise on net zero strategy;
· implement changes to a customer’s manufacturing plants, offices, buildings or retail estate and to therefore deliver energy and £ savings; and
· monitor the effect of these changes (and therefore optimise their impact) on an ongoing basis.
Technology can play a key role in this, and in helping to drive efficiencies and better outcomes for customers. Consultants can benefit from software that makes the reporting side of things easier, presenting information for a variety of regulations in the right way for customers, it can help to model various net zero scenarios and the impact of different intervention strategies. Technology can unlock greater energy savings through control strategies for lighting, insulation, HVAC, refrigeration, and internet usage. Perhaps even more importantly, it can integrate with a customer’s estate as part of the implementation process to provide an ongoing monitoring and optimising service for all energy usage. Data feeds through devices on-site, or in the cloud, can provide real time information to ensure that energy usage is monitored on an ongoing basis and that alerts are created to ensure that rectification services are provided as and when required.
This will ensure a superior level of service for customers, a far greater chance of achieving the path to net zero in a quicker timeframe, whilst also simultaneously building a business that benefits from increased scale, a higher level of recurring revenues, a better mix of services and higher growth.
Sustainability is one of very few “megatrends”, like digitisation, that will shape the economy for decades to come. It is reshaping all industries. The world population, and with it the requirement for scarce resources, is still growing. The ability to provide resource efficient services is increasingly a genuine competitive advantage as well as simply the right thing to do. Digitisation has been a significant driver of economic growth in recent times, but we are only at the beginning of it really becoming a force for change in reducing the requirement for natural resources. Technologies now exist to ensure that net zero goals and economic growth can be achieved simultaneously. We all need to embrace it.
If you own or run a consultancy business, or a technology or service provider, and either share this vision, or have your own strong views, we would love to hear from you…..