Corporate execs confident on sustainability goals, admit more work needed

Most companies have hit their near-term goals for greenhouse gas reduction, and some have advanced circular-economy projects. But to get to net-zero emissions, suppliers, customers, and dedicated corporate teams will all be needed.

HPE sustainability

About six in 10 executives believe they can achieve their corporate sustainability goals over the next year, according to a recent global survey commissioned by Honeywell International. But only about 16% think they'll do so primarily through technology-driven changes, such as upgrading or replacing existing systems with newer, more efficient or more sustainable technologies.

The vast majority of the 600 business leaders surveyed — 62% — expect to hit their short-term goals mainly by modifying or eliminating operational processes or business behaviors.

Sustainability has become an increasingly hot-button issue in recent years for companies looking to reduce their carbon emissions. The idea is that by making changes now, they will see a substantial return on investment later, spend less on energy and materials, and build up infrastructure resiliency to weather-related catastrophes. 

Successful sustainability efforts also require partnerships with suppliers and customers to create a circular economy, where business consortiums work to refurbish and recycle existing materials and products as long as possible.

With that backdrop, Honeywell recently launched a quarterly Environmental Sustainability Index to track key trends involving global efforts to mitigate climate change and bolster sustainability.

"Over the next decade, we expect sustainability to be further prioritized through not only policy, but increased investment by the world's leading companies to demonstrate the importance of sustainable practices, becoming a mandate from consumers, investors, and company boards around the world," said Daniel Newman, principal analyst and founding partner of Futurum Research, which conducted the survey for Honeywell.

honeywell sustainability optimism graphic Honeywell

Organization's optimism on sustainability for this year and the coming 12 months.

That said, the business leaders remain less sanguine about success when asked about longer-term goals through 2030: Fewer than 40% of all organizations are extremely optimistic about hitting sustainability goals for 2030, and 24% are extremely pessimistic about achieving their 2030 goals for energy evolution and efficiency.

Honeywell, which sells home and commercial building heating and cooling technologies, committed in April 2021 to become carbon neutral in its operations and facilities by 2035 using a combination of energy-saving projects and a conversion to renewable energy. The company plans capital improvement projects at its sites and in its fleet of vehicles, and to use carbon credits where needed.

The initial Sustainability Index is based on responses from execs involved in sustainability; it found that 90% are generally optimistic about their efforts to focus on energy evolution and efficiency, emissions reduction, pollution prevention, and circularity/recycling.

More than 700 of the largest 2,000 publicly traded companies have made net-zero commitments of some kind, according to the Harvard Business Review. Two-thirds of the S&P 500 have committed to emission reduction goals and 60 of the Financial Times Stock Exchange 100 Index have committed to net-zero emissions by 2050.

(Net zero refers to creating a balance between the greenhouse gases emitted into the atmosphere and those taken out.)

The issue of sustainability has been bubbling up for a while. In July, global strategy consulting firm L.E.K. Consulting surveyed 400 senior decision-makers, with 28% of respondents from companies with revenues of $10 billion a year or more from a wide range of sectors.

approach to sustainability over next 12 months honeywell Honeywell

Executives' approach to sustainability over the next 12 months.

More than half (51%) of those surveyed by L.E.K. Consulting said they're willing to trade off short-term financial performance to achieve long-term sustainability goals. But 58% reported their organizations can't agree on what the tradeoffs should be.

Mekala Krishnan, a partner with the McKinsey Global Institute, said thousands of companies have set net-zero greenhouse gas (GHG) emissions reduction targets. While targets can be arbitrary, those considered ‘science-based’ are in line with what the latest climate science deems necessary to meet the goals of the 2016 Paris Agreement; that agreement aims to restrict the mean rise in global temperatures to 1.5°C from pr-eindustrial levels.

In order to meet 2050 net-zero goals worldwide, governments and corporations would need to spend $275 trillion. That would require spending to rise from about $5.7 trillion a year now to $9.2 trillion, according to the Network for Greening the Financial System, a consortium of national central banks and supervisors.

If policies currently in place are carried out, and not stifled by political pushback or unrest, the needed increase in capital expenditures could be as little as $1 trillion more each year, Krishnan said.

For example, the US has announced a goal of reaching net-zero by 2050, and halving emissions by 2030. Congress, for example, passed the Inflation Reduction Act (IRA) in August in an effort to create long-term value through sustainable practices and new opportunities in the US energy sector. And in March, the US Securities and Exchange Commission proposed rules that could force companies to not only report their emissions and material risks but also set out their plans for dealing with climate-related issues, Krishnan noted.

How Cisco treats sustainabilty

“When we use the term net zero, we are using the science-based target initiative standard, which means 90% absolute reduction by our commitment year of 2040,” said Mary de Wysocki, Cisco’s new chief sustainability officer.

Cisco first began reporting its greenhouse emissions in 2005. In 2008, it began making five-year commitments to reduce those emissions, and it generally achieved those interim goals in four years or less, Wysocki said. In 2018, Cisco announced a circular-economy project team, whose efforts it reports on annually.

In 2019, Cisco also pledged to reduce its use of virgin plastic by 20%. And last month it upped that goal to 50% use of recycled plastic in its products by 2030

More recently, Cisco in 2021 said it's committed to achieving a net-zero goal by 2040.

Key to achieving those pollution reducing goals has been having a dedicated circular economy team, and energy management team, and an environmental, social, and governance (ESG) reporting team.

state of environmental stability in the fortune globel 200 forrester Forrester

The State of Environmental Stability in the Fortune Global 200.

“I will say, our 2040 net-zero commitment on all scopes is ambitious,” Wysocki said. “That means the energy in our buildings, vehicles, and emissions we attribute to products that customers use — that’s about 73% to 75%. The other 23% to 25% [is] coming from our partners [and] our suppliers in how we manufacture that embedded carbon.”

According to Wysocki, Cisco used 2019 as its baseline year for the 2040 goal, and then made assumptions using 12 different scenarios that included things such as percentage of growth target; how many of its customers would adopt renewables; and what percent of its products would gain energy efficiency over time.

"Then, of course, it’s just greening of the grid," she said. "So, how can we help public utilities think about that low-carbon economy?”

Critical to achieving company goals, Wysocki said, is helping Cisco’s partners and customers understand the sustainability impact of its products and services.

“That’s one of the things that’s so interesting when I have conversations with CIOs," she said. "They’re really good at looking at the cost savings or the bandwidth or how secure a product is. What they don’t always know is how can they connect a product back to energy efficiency. So, when it comes to sustainable data centers, there's renewed focus there.”

Providing information to decision-makers is also key to hitting net-zero goals. That's where ESG management software comes in helpful. It automates the process of gathering and analyzing data, potentially saving time and reducing errors. (Data is collected from users via their devices, or from connected systems, sensors, devices, and other components that play a role in any of the areas being tracked; once collected it can be made available on dashboards and reports.

More than just money is needed

The increased spending needed to meet science-based GHG goals set by the Paris Agreement hides further complexities.

“One is the massive reallocation of capital required, from high emissions technologies we use today — like fossil-based power generation — to low emissions technologies like renewable power,” Krishnan said. “The other is the front-loaded nature of the spend; spending would need to rise from 6.8% of GDP today to about 9% of GDP between 2026 and 2030 before falling.”

Approximately 97% of organizations surveyed by Honeywell plan to increase annual spending in at least one sustainability category, with nearly three-quarters planning to do so in all four categories.

“It is important to translate targets to near-term action plans, and for companies to ensure they are making demonstrable progress on these plans,” Krishnan said. “Those who have not yet set targets and developed their net-zero pathways will likely need to catch up, given a range of developments across stakeholder expectations.”

Companies more often than not do understand the benefits of achieving net-zero goals, according to Krishnan:

  • Some portion of their investment comes with a financial return based on lower costs to produce energy.
  • Spending helps avoid the catastrophic impact of climate change, and in that sense helps avoid potential loss of lives and infrastructure.
  • The transition opens up new opportunities for nearly every sector of the economy, as decarbonization spurs new efficiencies and creates new products for new markets—which would create jobs and strengthen growth and inclusion.

Efforts to achieve sustainability goals can broadly be grouped into several areas: green resources procurement, which includes sustainable energy and water; operational efficiency, which includes the IT value chain, supply chain and other scope 3 emission sources that make up 40% of all greenhouse gas emissions; and end of lifecycle, including circular economy or recycling products to create new ones.

For example, data centers and cloud industries tend to focus on green energy procurement (since they use a lot of energy to power data centers) as well as operational efficiency to reduce power usage, according to Abhijit Sunil, a senior analyst with Forrester Research.

“Standards are certainly evolving, and more and more organizations are held accountable for their commitments and how they take action towards it,” Sunil said.

For example, Sunil noted, government scrutiny will continue to increase, holding more “greenwashers” accountable. Greenwashers are companies that deceptively purport that their products, aims and policies are environmentally friendly.

Most industry leaders, Sunil said, have also indicated that economic volatility will not affect their sustainability plans significantly, meaning “sustainability investments are a strategic priority for organizations.”

Time to 'play offense'

There are various other actions corporate leaders can take, according to McKinsey’s Krishnan.

First, they need to “play offense” through a sustainable value creation strategy. In doing so, two objectives should be paramount: extend and decarbonize the core business and build new sustainable businesses in reshaped value chains.

“Leaders need to make quantum leaps to meet the moment, by getting smart on climate tech fast, engaging with the innovation ecosystem, and leveraging their engineering and business-building talent,” Krishnan said.

Secondly, corporate execs can try to get ahead in the area of biodiversity, which involves stewardship of shared water and air resources, ensuring a responsible supply chain, and contributing to a just transition, among other steps.

Third is the need to maintain resiliency in the face of stronger weather events brought about by climate change.

“Lastly, as companies embrace a sustainable future, they will need to cultivate new skills and should aggressively reskill leadership teams, boards, and frontline workers,” he said. “Companies need to identify the skills needed for their more sustainable business models and work toward acquiring them and building them internally.”

Copyright © 2022 IDG Communications, Inc.

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