Sam Kimmins (pictured), Director of Energy at Climate Group discusses the need for businesses to continue to take bold action in the energy transition – and to confidently communicate about these actions to governments, consumers and shareholders.
We’re in an era of rapid change. Following a period of painfully slow progress in the global energy transition, the fallout from Russia’s invasion of Ukraine has clearly demonstrated the fragility of the existing fossil-based energy system. It’s stimulating a renewed ‘rush for renewables’ and smoothing the way for key legislation such as President Biden’s Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan.
Citizens and businesses across the world have been impacted by the rising cost of fossil fuels, with everything from heating and electricity to the products we import and export. On top of this, the IPCC report released in mid-March made it clear, once again, that we are dangerously close to surpassing the 1.5C limit, with irreparable changes to the climate already happening.
A recent report suggests the growth of renewables, especially wind and solar, means the world will likely use fewer fossil fuels to produce electricity in 2023. In short, we are reaching the end of the fossil fuel era.
Nevertheless, we need to act faster to mitigate the climate, economic, and security risks of the old energy system as we shake off our fossil fuel dependency.
Businesses step up
It’s often considered the responsibility of government to set the agenda and drive the energy transition. However, the role that businesses can and must play in driving a market-based shift to renewables should not be understated. Many businesses are already leading the way and taking up the challenge that governments have failed to adequately address so far.
For instance, the private sector has played an essential role in accelerating the transition to renewable electricity, by demonstrating voluntary demand for it and investing billions around the world in renewable electricity production infrastructure. This sends a clear signal to policy makers that leading corporates see the future is renewable, and they’re calling for government policy to catch up with demand.
This business-led energy revolution represents an entirely new way of thinking about how society invests in renewable energy – smashing the public and political preconception that sustainable energy is a cost to the taxpayer, by clearly demonstrating a model of market-driven energy transition – harnessing the forces of capitalism for positive change.
And this market has clout. In 2021, corporate buyers signed 8 Gigawatts (GW) worth of renewable power purchase agreements across the EU. That’s equivalent to 17.5% of the total renewable capacity installed that year, or enough to power seven million homes.
Leading the electricity aspect of the corporate action agenda is RE100, a global initiative bringing together the world’s most influential businesses committed to using 100% renewable electricity. Led by Climate Group, in partnership with CDP, our mission is to drive change towards 100% renewable grids, both through the direct investments of our members, and by working with policymakers to accelerate the transition to a clean economy.
Over 400 companies have made the commitment, ranging from household brands like Lego, Apple, Budweiser, Deloitte and Nike to critical infrastructure and industry suppliers like 3M, Danfoss and ABB. Together, RE100 companies are calling for policy change to remove the barriers to procuring renewable electricity to enable them to invest in renewables capacity at scale.
With enough businesses making this demand on governments, it quickly encourages utilities and public authorities to help provide renewable sources of electricity to help satisfy demand. This not only ensures businesses can move towards its goals, but also helps governments to decarbonise its grids and move towards net zero. We refer to this as the Ambition Loop, and businesses are ideally placed to set these positive feedback mechanisms into action.
With renewable electricity now the lowest cost form of energy on the planet, no wonder corporates are pressing for greater access. With a total revenue of over US$6.6 trillion, our members represent 1.5% of global electricity consumption, an annual electricity demand higher than that of the UK.
Climate Leadership vs Greenwash
With the renewable energy market expected to hit $2.15 trillion by 2025 and sustainable investment topping $30 trillion the market opportunities for businesses that prioritise sustainability and drive towards net zero are huge. Analysis by McKinsey shows that strong ESG propositions correlate with high equity returns as well as higher credit ratings.
Understandably, many businesses want to get their sustainability credentials right and make sure what they’re doing is both credible and effective. Failing to do so can expose a business to accusations of greenwashing – and often rightly so. You don’t have to look far to see examples of companies making misleading or blatantly false claims, or simply failing to follow through bold, highly publicised commitments with tangible action.
While there are many examples of excellent corporate leadership, there are many more examples of corporates putting a shine on business-as-usual through slick PR campaigns. Bad actors are increasingly being called out and the negative public relations impacts of being accused of greenwash can be significant. There is even a new generation of NGOs and coalitions like the Observatory Against Greenwashing, specifically focused on uncovering greenwash.
On the flip side, fear of exposure is driving many businesses to avoid talking about the great work they are doing – a term known as greenhushing. It’s important that businesses continue to talk publicly about their efforts to drive positive change. Consumers, board members, current and future employees, and even business partners and members of the supply chain all expect businesses to be both bold and highly credible in addressing the central challenge of our time. From the point of view of campaign groups such as Climate Group, it’s vital for businesses to communicate leading practice in order to drive policy change, peer-group behaviour change and to help change consumer behaviour.
‘Getting it right’ means taking sustainability seriously as a core part of the business. For a business to drive genuine impact through its sustainability commitments, it’s important that the pledge becomes a central driving force within the organisation. It should permeate everything the company does, through from the business structure, across geographies, departments, into supply chains and onwards. By having teams responsible for setting targets, joining initiatives, and ensuring that this approach becomes central to the business helps to create systemic change in the organisation and out into the broader ecosystem.
By joining third party initiatives, like RE100, that have reporting and accountability measures in place (in RE100’s case, through our CDP reporting), or initiatives such as the Science Based Targets initiative (SBTi) or the Renewable Thermal Collaborative (RTC) businesses have a platform for sharing ambition and action, and can have greater confidence in communicating their ambition and achievements without having accusations levelled at them.
Businesses are taking the lead on decarbonisation
The actions of leading businesses are paying off, in terms of changing public expectations. There is now an increasing recognition of the role of businesses in helping to lower carbon emissions and increase the uptake of sustainable energy solutions. Research has found that 76% of respondents expect businesses to take the lead on climate change, rather than waiting for government regulation. There is a clear opportunity here for businesses to lead from the front in the fight against climate change. They can be much nimbler and more adaptable to demands than governments. They also carry with them the power of influence to help accelerate government policy. The fossil fuel lobby does this to great effect unfortunately – but the business sustainability lobby now represents an increasingly strong counterpoint to these protectionist voices.
Both the individual commitment and collective action through the likes of RE100 are important in this fight. Delivering net zero for any company is going to be a challenge, with increased scrutiny from stakeholders, and challenging markets that restrict the use of renewables.
There is reason for hope. Businesses – your business – have a powerful role to play in re-shaping our energy systems for a sustainable future. But as is true in any period of change, there will be winners and losers. At the end of the day, every business has to ask itself, can it afford not to act?