Organisations Make Ambitious Plans to Decarbonise - With Focus on Business and Financial Benefits

Competitive Advantage and Lower Cost of Capital Are Among the Benefits – but Costs and Access to Capital Get in the Way, Finds L.E.K. Consulting Survey

BOSTON and LONDON, Jan. 4, 2024 /PRNewswire/ -- The vast majority of global business leaders are making ambitious plans to eliminate carbon emissions, according to a survey by L.E.K. Consulting. Eighty-two percent have established a formal decarbonisation strategy and plan, and 73% report that their plans are on track or ahead of schedule.

Trade-offs are clearly required. Nearly half – 42% – believe their firms should pursue decarbonisation at the expense of short-term profitability. And 41% believe their firm should consider divesting a profitable business if it undermines sustainability goals.

Leaders report they are reaping significant business benefits – from improved reputation to competitive advantage to lower cost of capital.

But the path is not smooth. Not all companies are keeping to their timelines, and many leaders say it is expensive to decarbonise and that it is often difficult to raise capital to fund their decarbonisation investments. In fact, 77% report that the cost of decarbonisation presents a barrier, and 78% say the same about a lack of funding for the effort.

Those are among the major findings of the 2023 Corporate Decarbonisation Survey by L.E.K. Consulting. The results of the survey of 400 C-suite executives in the U.S., Europe and Asia by the global strategy consultancy, fielded starting in the first quarter of 2023, show that corporations are accelerating their progress toward net zero carbon emissions.

"Leaders are committed and organisations are making strong progress on climate, especially when it comes to highly focused efforts to meet clear climate targets," said John Goddard, Senior Partner and Vice Chair for Sustainability at L.E.K. and head of its Sustainability Centre of Excellence.

"Even when it comes to the barriers, there are grounds for optimism," he said. "The barriers that leaders most often cited are financial – cost and capital formation. Those are the kinds of issues CEOs deal with every day – which makes it more likely that decarbonisation efforts will succeed."

"Decarbonisation is such a significant issue facing businesses, and while many companies now have a plan, not many have fully costed it," said Rebecca Scottorn, L.E.K. Partner and co-founder of the Sustainability Centre of Excellence. "Taking a strategic approach and recognizing the trade-offs required greatly increases the likelihood of their success."

Among other key findings:

Decarbonisation commitments get to the heart of strategy and operations

• Decarbonisation initiatives are not isolated – they get to the heart of strategy and operations. Forty-three percent executives report they have changed their overall business model due to the company's commitment to decarbonisation, and 46% say they plan to. More specific changes encompass research and development (41% report they are designing products to reduce emissions); new technology (42% say they are investing in R&D to develop low-carbon products, and another 35% say they plan to in the next five years); energy consumption (57% report using renewable energy sources); organization (54% say they are hiring new talent to support net zero initiatives); business model innovation (42% say they are increasing product lifespans, and 35% have made their logistics more efficient), and the supply chain (41% say they are engaging with suppliers to reduce emissions, and 42% report purchasing the same products from lower-carbon suppliers).

Benefits are significant

• Benefits are significant – and tied to business results. The decarbonisation effort benefits most often cited were: "We are significantly more energy efficient" (51%), and "we have greatly reduced our operating costs" (46%). Close behind were "our sales have been positively impacted" (47%), "we have been able to access additional funding" (44%), "our cost of capital has decreased" (43%), "we have improved our employee brand" (46%) and "we have been able to improve our competitive position" (44%).

The energy industry sets the pace – as does Europe

• Among industries, energy is in the lead. Eighty-seven percent of energy industry leaders report they have target dates of 2050 or earlier for carbon neutrality on scope 1 (direct) and scope 2 (indirect) emissions, and 73% have targets that cover scope 3 (supply chain). Seventy-three percent report they are on track or ahead of their goals – the highest percentage in the survey. "The energy industry's focus on this is not surprising, though recent COP events have shown the challenges and criticism facing the industry," Scottorn said.
  
  
• Leaders in Europe, where regulation is a strong driver, reported the most ambitious targets. Seventy percent of UK businesses are targeting net zero on scopes 1, 2 and 3 by 2050. The U.S. is not far behind, with 69% reporting they have scope 1 and 2 targets in place for 2050, and 44% have scope 1, 2 and 3 targets by 2050. China is less ambitious – just 28% of leaders in China report they have plans to achieve net zero on scopes 1, 2 and 3 by 2050.

For leaders facing barriers – and hoping to accelerate their decarbonisation efforts – having a plan is key, Goddard said. "Among the most striking findings is that the most ambitious companies – those that went beyond compliance and tied decarbonisation efforts to their core values – reported the greatest benefits. The message to leaders is: If you don't have a formal decarbonisation plan in place, create one. And if your strategy is focused only on compliance, reconsider that. The more ambitious the goals, the better prepared you will be for competition, the better your strategic position in the industry will be, and the lower will be your cost of capital," he said.

"It is tempting to delay investment, especially in the face of economic challenges, but the stakes are clear – firms that are farther along in their decarbonisation journeys are already realizing benefits, and delaying investment is likely to put your firm at a competitive disadvantage. The time to invest – and to act – is now," added Goddard.

About the Survey
L.E.K. Consulting surveyed 400 leaders of global companies in early 2023. Eighteen percent were in the C-Suite, 55% held sustainability leadership positions and 27% were in other corporate leadership roles. Twenty-five percent were located in the U.S. and 15% each were in the UK, France, Germany, Australia and China (this refers to the geographic location of the executives, not the headquarters of their companies). Thirty-four percent were in the industrial sector, 24% in healthcare, 21% in consumer products, 15% in transportation and 8% in energy.

About L.E.K. Sustainability Centre of Excellence
The L.E.K. Sustainability Centre of Excellence draws together expertise, best practices and strategic insights from the firm's practices and geographies to support organizations as they work to meet the challenges of — and identify opportunities related to – climate change and the broader sustainability agenda. The Centre combines the talents and insights of L.E.K. partners and outside experts from practice areas including energy, industrials, life sciences, transportation and consumer. It brings to bear analytics and proprietary research focused on key sustainability themes and emerging trends. Through the Centre, L.E.K.'s consultants work with leaders and investors to identify the central elements of sustainability strategy, areas of operational focus, and sources of competitive advantage.

About L.E.K. Consulting
We're L.E.K. Consulting, a global strategy consultancy working with business leaders to seize competitive advantage and amplify growth. Our insights are catalysts that reshape the trajectory of our clients' businesses, uncovering opportunities and empowering them to master their moments of truth. Since 1983, our worldwide practice — spanning the Americas, Asia-Pacific and Europe — has guided leaders across all industries, from global corporations to emerging entrepreneurial businesses and private equity investors. Looking for more? Visit www.lek.com.

Media contact:
Michael-Jon Romano
mj.romano@allisonworldwide.com

SOURCE L.E.K. Consulting LLC