Nov. 30, 2022
According to the tenth health survey of the Belgian Sciensano Institute, climate change has become the third source of fear in Belgium (43%) behind energy prices (68%) and the war in Ukraine (60%). A conclusion also shared by the ninth edition of Axa's "Future Risks Report" covering all regions of the world - even in Asia and the USA. Behind these figures, there are clear expectations of the population towards their government to take concrete actions against climate change. However, states and governments face many externalities and external mechanisms that prevent them from accelerating climate transition.
This article focuses on expectations at consumer-business level and at ‘applicants-employer’. Examining expectations at both these levels enables us to understand how crucial it is for organisations to review their business models in order to preserve their long-term profitability and viability. On the one hand, consumers now expect more environmental and social commitments from large companies and are willing to pay more for sustainable products and services. Same expectations are visible on the other hand among younger applicants and employees towards their future employers that will need to intensify their search for green talents.
This speaks volumes about how widespread awareness about sustainability and climate change among the population currently is. In other words, accelerating climate transition has become an expectation, and not an exception. But as the article discusses it, this shift of attitudes towards sustainability could foster the development of climate initiatives that should contribute to increasing organisations’ financial value and return in the long term.
The change of attitudes towards sustainability is firstly reflected in consumption patterns. According to a study from Simon-Kucher & Partners (2021), 85 percent of people indicate that they have shifted their purchase behaviour towards being more sustainable over the past five years. More precise figures are provided by IBM’s report of 2020:
This change of attitudes differs between generations. Looking back at Simon-Kucher & Partners’ study, younger generations lead the way as higher shares of Generation Z (39 percent) and Millennials (42 percent) are willing to pay for sustainability compared to Gen. X (31 percent) and Baby Boomers (26 percent). Despite these discrepancies, the rise of “‘mission-driven green companies' market has now become a reality and requires companies to adapt themselves and intensify their search for “green talents”.
The change of the general public’s attitude towards sustainability is reflected in the expectations of the applicants and employees. As highlighted by Greenly, for 55% of employees of all ages, companies’ environmental and social position is more important than the salary. Diving more into the detail, we note that ⅓ of Millennials (generation Y aged between 25 and 35 years old) are reluctant to accept a job if the company does not have a Corporate Social Responsibility (CSR) program. A significant incentive for big corporations and companies to review their business model, especially since this category will represent 75% of the global workforce of the labour market by 2025 (Deloitte, 2021).
Expectations are even higher among people from generation Z where 95% of them aspire to have a meaningful job according to the Opinion Way survey. The labour market tries to comply with these new expectations. According to the 2022 Global Green Skills Report of LinkedIn, green talents increased from 9,6% in 2015 to 13,3% in 2021. Similarly,the number of jobs requiring green skills has increased by 8% per year over the past 5 years. Eventually, thepositions of sustainability managers (30%), wind turbine technician (24%) and solar consultant (23%) are considered by the report asthe fastest-growing green jobs in recent years.
Assessing climate risk is challenging, difficult to quantify, and linked with uncertainties. Although corporate sustainability leaders acknowledge that climate risks should be taken just as seriously as any ‘traditional risks’, it is still inadequately measured. The 2022 Ernst & Young Global Limited (EY) Global Climate Risk Barometer found that too many companies are still either not conducting scenario analysis or not disclosing the results. However, alreadyin 2014, we could see tangible benefits for corporations managing and planning climate change actions. These secured an 18% higher return on investment (ROI) than companies that did not plan such actions – and 67% higher than companies who refused to disclose information related to their emissions.
In the same way, climate change initiatives often associated with additional costs can contribute to increasing the financial value of your organisation. This is what EY teams intended to show in a research conducted from July to October 2022. The goal was to understand how companies were currently investing in climate actions, the value realised from these investments (as well as the trade-offs), and the opportunities for companies to accelerate and scale climate actions to create value for people, planet and stakeholders. To segment companies, EY teams measured the status of 32 actions to address climate change. Eventually, they identified pacesetter companies that have completed an average of 18 actions, compared with 9 for explorers and 1 for observers. The results? As shown on EY’s first graph above, pacesetter companies that have implemented climate change initiatives are 2.4 times more likely to report a significantly higher financial value than expected (52% vs. 21% of observer companies) and have achieved a larger reduction in emissions to date (32% vs. 27%). Thanks to their climate actions, pacesetters have created more financial and planetary value than observers as illustrated in EY's second graph below.
Such performances are linked to long-term sustainability planning that makes it easier for (pacesetter) companies to stay the course on their climate plans or find new opportunities to create value from sustainability. In other words, companies planning and conducting consistent climate actions and initiatives should experience an increasing financial value in the future. EY research emphasised this reality by relating upon the conclusion of 2019 CDP’s Global Climate Change Analysis which found that the potential value of sustainable business opportunities (US$2.1 trillion) was almost seven times the cost of realising them (US$311bn in costs). In terms of financial return, climate initiatives and actions are more likely to have a positive impact.We could already observe tangible financial benefits for corporates and organisations with B Corp Certification. Ifwe look atthe experience of the 150 B Corp UK companies, these experienced between 2015 and 2018 an average year-on-year growth rate of 14%, 28 times higher than the national average, according to Sustainable Brands. Interestingly, companies having implemented a Corporate Social Responsibility (CSR) strategy also experienced benefits even though it does not automatically include climate dimension. According to a report of France Strategies of 2016, the added value of a company to implement a CSR strategy already implied an average gain in economic performance of 13%.
Investors play a central role in the positive effects of climate initiatives on the financial performance and value of corporations. According to McKinsey’s report of 2019, green financing has increased since 2014 by 68%, while global sustainable investments have reached $30 trillion. This awareness among investors on these topics is illustrated by another EY research. It shows, for example, that 74% of institutional investors are now more likely to divest based on poor environmental, social and governance (ESG) performance, than before the COVID-19 pandemic.
This statement should however be considered carefully. Because ESG is often criticised, associating it with climate ambitions or strategy is tricky. But as assets dedicated to ESG funds could grow from US$8 trillion today to as much as US$30 trillion by 2030, companies and organisations will have to keep ESG performance indicators in mind in order to remain attractive to investors and remain competitive. This example shows how crucial the role of investors is when it comes to back up social or climate-related undertakings which contribute to increasing organisations’ financial value and return.
Today, sustainable products and demands for environmentally friendly alternatives have become the expectation rather than the exception. The change of attitudes towards sustainability is now visible across all generations, in consumption patterns, and in the expectations of younger applicants and employees towards their organisation. Despite the advantages discussed above, these organisations still assume that mitigating their carbon footprint, or reviewing their business models means automatically undermining their financial value or is linked to additional costs. And what about Tapio in all of this? By helping you to calculate your carbon footprint impact and to establish concrete action plans, we don’t only contribute to making you an actor of climate transition, but also to securing your path towards sustainability and long-term profitability.