Industry Voice: Businesses have a clear commercial interest in diversifying their activities by innovating strategically, according to Boston Consulting Group
The need to address climate change has become a corporate priority that sits at the heart of boardroom concerns, not just for environmental reasons but also because it's what consumers want and what investors want.
It has become increasingly clear that this is where the best growth opportunities lie in coming decades, and that failing to tackle the wave of disruption that the net zero transition brings is a threat to any business. Innovating into resilience is the key for future growth.
Companies have started to commit to change, but we need to go much further - ‘sustainability as usual' is not enough any longer. Companies need science-based targets and full transparency about what they're doing - and they need to look outside their core business to reap the climate and business benefits.
The decarbonisation economy
Blackrock estimates that the low carbon transition could create $10tr of investment opportunities, with clean energy and low-carbon products disrupting ‘dirty' incumbents. Helping consumers to be more climate-friendly will open up new business models and revenue streams.
While disruption is all around, incumbents are far from helpless in the face of the low-carbon transition - they have a lot of assets that can help them to shift to greener business models and future-proof themselves, including brand and reputation, capital, scale and specialised expertise, as well as a proven ability to manage huge and complex projects. To unlock these assets requires some creative thinking, with different assets enabling different opportunities, from regenerative farming to the circular economy.
Innovating across Scope 1, 2 and 3 emissions
Working out where your emissions lie is the first step to identifying these opportunities. You need to look outside of your own operations as well as internally, to cover your Scope 3 emissions - those that come from your supply chain or customers' use of your products - as well as your more direct Scope 1 and 2 emissions, where, for example, you can cut emissions by buying green fuel or electric vehicles. If you have the scale, you can use your purchasing power to help drive down the cost of new, clean technologies. Unilever, for example, is helping its suppliers to develop new low-carbon sources of thermal energy using technologies from heat pumps to hydrogen.
But for many companies, the bulk of their emissions are Scope 3, and this is where the most diverse opportunities lie, often in collaboration with others to build industry platforms that promote accountability and transparency.
BCG worked with the global shipping industry, for example, to build Container Xchange to reduce the inefficiencies in empty container repositioning (ECR), showing the industry how it could tackle waste through collaboration.
Key areas to consider when it comes to tackling Scope 3 emissions include sustainable product redesign; new strategies for sourcing, procuring and tracking goods and services; support for suppliers to cut their own emissions; baselining and data exchanges; target setting and reporting; best-practice sharing, certifications and standards; and low-carbon governance and internal incentives such as carbon prices.
Circular models can help companies to address Scope 3 - FMCG companies are working in consortiums to drive circular packaging use and develop plastic watermarking for easier recycling, while IKEA has said it will make all its products circular by 2030.
Initiatives such as these are not just helping companies to tackle their emissions but creating new products and services that create new revenue sources, diversification, and bigger climate impact.
However, it is also important to remember what your core business is and use that as the basis for seeking out new opportunities - companies looking to diversify do best by retaining a solid foothold in their original market. Keep 70 per cent of your investment focused on your core business and put 30 per cent into innovation projects.
Diversification to drive transformation and breakout growth
Two key techniques for creating value by addressing climate challenges are reimagining and inventing - reimagining involves thinking about existing operations and how they can be done with lower impact. BCG Digital Ventures (BCGDV) worked with Shell to develop MachineMax, an equipment management platform that uses AI telematics to reduce the amount of time off-road machinery idles, cutting emissions as well as maintenance costs.
But sometimes, you need to create breakthrough solutions to disrupt existing markets or create new ones - technologies such as renewable energy and hydrogen are replacing fossil fuels, while lab-grown and plant-based protein is replacing meat. Another BCGDV joint venture, OpenSC, in conjunction with World Wildlife Fund, leverages the charity's reputation and conservation expertise, allied to technological solutions, to create a supply chain transparency solution that allows consumers to know if the products they are buying are sustainable.
If they want to thrive in the decarbonised economy, businesses have a clear commercial interest in diversifying their activities by innovating strategically. That involves taking a portfolio approach to new opportunities, leveraging existing assets and harnessing product and business model innovations to tackle climate change - it's not just good business, but good for the planet, too.
This article is sponsored by Boston Consulting Group (BCG).