The energy transition: Responding to the economic impact and leading the change

The global shift from fossil fuels to renewable energy – also known as the energy transition – is not merely an environmental mandate but an economic one. Businesses, particularly those in the manufacturing sector, need to increase their investments in transforming energy and land-use systems to meet the net-zero emissions target by 2050. This comprehensive guide provides a detailed roadmap for organizations to navigate this transition effectively, with specific examples of companies leading the way.

Phasing Out High-Carbon Businesses

High-carbon businesses face increasing risk from stringent regulations and shifting consumer behavior favoring green alternatives. Strategies to manage this transition include:

Identifying High-Carbon Assets and Activities: Conducting carbon audits and using lifecycle analysis are effective ways of identifying high-carbon business components. For example, BP's 2020 decision to reduce its oil and gas production by 40% by 2030 stemmed from an analysis of its carbon-intensive assets.

Developing a Transition Plan: Once high-carbon assets are identified, a transition plan with clear milestones can be developed. For instance, Duke Energy has outlined detailed steps to phase out coal-fired plants by 2030.

Leveraging Carbon Pricing: Incorporating carbon pricing in financial planning can incentivize investment in low-carbon alternatives, like Microsoft has done by doubling its internal carbon price.

Growing Low-Carbon Businesses

Concurrently, organizations should seek to develop new low-carbon businesses:

Identifying Low-Carbon Opportunities: Market research, competitor analysis, and customer surveys can reveal opportunities for low-carbon products or services. Unilever, for instance, has committed to halving its use of virgin plastic, thereby opening new opportunities for recycled products.

Investing in Low-Carbon Technologies and Practices: Investing in technologies and practices that reduce carbon footprints is crucial. Tesla's continued investments in electric vehicle technology and energy storage solutions are notable examples.

Leveraging Incentives: Governments worldwide offer incentives for businesses reducing their carbon footprints. Apple has leveraged these incentives to adopt 100% renewable energy in its facilities.

Managing Changes to Cost Structure and Supply Chains

The energy transition will necessitate changes to cost structures and supply chains:

Assessing Cost Implications: Understanding how the energy transition will affect costs is vital. For example, Maersk is assessing the cost of transitioning to carbon-neutral shipping.

Optimizing Supply Chains: Identifying opportunities to reduce supply chain carbon footprints can provide significant benefits. IBM has leveraged blockchain technology for supply chain transparency and optimization.

Building Capabilities for Risk Assessment and Continuous Learning

Developing a Risk Assessment Framework: Regular risk assessment is crucial to manage both physical risks, like impacts of climate change, and transition risks, like regulatory changes. The World Business Council for Sustainable Development has published guidelines for integrating sustainability into risk assessments.

Promoting Continuous Learning: A culture of learning can help organizations adapt to the energy transition. Companies like Interface have succeeded by regularly reviewing and learning from their sustainability initiatives.

Engaging Top Teams and Boards: Regular briefings, dedicated committees, and board retreats focused on sustainability are ways to involve the organization's top management in the transition. Nestle has pioneered this approach by including sustainability in its board's strategic discussions.

Conclusion

Organizations that successfully navigate the energy transition won't just be those that react to changes, but those that proactively guide their businesses towards a more sustainable future. By phasing out high-carbon businesses, growing low-carbon alternatives, adapting cost structures and supply chains, and promoting continuous learning, companies can turn this transition into an opportunity for innovation and growth.

Leading this transition requires a concerted effort across the organization, from the boardroom to the shop floor. Companies such as BP, Duke Energy, and Microsoft are paving the way, demonstrating that with a clear vision and strategic planning, businesses can not only survive the energy transition but thrive in it.