‘Net Zero’ has increasingly become an aspirational phrase that businesses and governments are committing to, signalling their advances towards securing a sustainable future. The term is generally understood to mean ‘adding no more greenhouse gases (GHG) to the Earth’s atmosphere than the amount being taken out’.
Today, thousands of businesses set Science-Based Targets (SBTis) to reduce their GHG emissions and are active participants in the Race to Zero, a framework of the UN Convention on Climate Change to rally the largest-ever global alliance towards Net Zero. However, despite several waves of progress, private businesses still have a way to go.
Global transformations are needed to instigate the systemic and granular changes required for pledges to become a reality. Businesses should also be prepared for changes in technologies, regulations, consumer, and investor preferences as the UAE transitions towards a Net Zero economy.
Recently, the UAE announced its second nationally determined contribution (NDC) as an ambitious response to the Glasgow Climate Pact, an outcome of the UN Climate Change Conference (COP26). Their NDC targets an overall GHG reduction of 31 per cent, equalling approximately 301 million metric tonnes of CO2e. Fundamentally, it is up to businesses to act on these targets as a roadmap for their evolution.
Standardisation and reporting
Upcoming demand for low-emission goods and services coupled with lower demand for high-emission ones, may create changes across value chains. The opportunities lie in supply chain reconfiguration, allowing businesses to embed sustainability principles at the heart of their operations to reduce costs and tap into new markets.
In resource-intensive manufacturing, such as cement, waste by-products can hold decarbonisation opportunities. Replacing fossil fuels with lower emission fuels (such as waste) and reducing the clinker share in cement with by-products such as granulated slag or limestone, is an example of waste-to-value practices in various geographies.
However, not all Net Zero pledges are created equal. Absorption of best practices pertaining to GHG and carbon accounting is one consideration. The limitations of current reporting paradigms lie in the often fragmented and inconsistent nature of sustainability metrics.
There is still a lack of a common standard, particularly in the ever-expansive space of Environmental Social Governance (ESG) reports, often made up of inaccurate, contradictory, and unverifiable data.
An ecosystem approach is required to capture real value and catalyse growth, beyond reporting alone. Indeed, unique value propositions lie in structural changes that enhance organisational capacity.
The role of innovation units beyond an independent department can create valuable knowledge for companies, allowing all functions and business units to innovate in the area of sustainability, rather than relying on an R&D team. This allows open-source learnings that can be vertically and horizontally integrated to strengthen a firm’s knowledge capital.
Circular economy opportunities
Certain business models can provide fertile grounds for this kind of innovation. The circular economy (CE) allows businesses to reduce their material-intensive products, expand their service offerings to leasing models, or refurbish products and extend their life cycle. Larger companies with access to capital can pay for green premiums to replace their resource-intensive virgin materials with more sustainable offerings.
While SMEs, which comprise over 94 per cent of the UAE economy, can make an impact by opting for locally sourced secondary materials to decrease the distances from transport, shipping and distribution, boosting the local economy and gaining a competitive advantage. This fundamental shift requires firms to move from linear, product-centric business models to transformative, systemic ones.
Many business owners understand how deeply interconnected global supply chains are. However, they miss the opportunity of close cross-industrial collaborations, instead focusing on isolated environmental efforts for CSR. Small and large firms can overcome this barrier by considering co-creation with other businesses, as a central tenant for capacity building, re-skilling and creating economies of the future.
Partnerships can develop capabilities that are not part of existing value chains.
Strategic practices and processes
On a governance level, businesses can combine two strategic considerations: offence and defence. Offense means building new low-carbon businesses, scaling up nature-based climate solutions such as reforestation efforts, and employing R&D for innovation.
Whereas, defence requires retiring and repurposing high-emitting assets, alongside building resilience against physical climate hazards. For smaller businesses, upskilling employees will drive change, allowing more holistic and dynamic decision-making to cover technical and commercial concerns.
Upskilling may also increase organisational capacity to enhance competitiveness, enter new markets, comply with upcoming regulations, and improve customer retention, in addition to adding more value to products and services.
Companies should treat climate action as a material business issue, rather than an afterthought or CSR opportunity. Technological innovations are important on the road to net zero.
Whatever the size of the business, most can avail the opportunities net zero offers by re-examining their value chain, paving the way with a low-cost, low-tech solution: organisational culture as the key to transformation. After all, we are only as sustainable as our supply chain.