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Auditel is an organisation that has seen many changes in the business landscape since it began operating here in the UK over 25 years ago. However, the momentous change required as the world responded to the threat of Covid-19 is undoubtedly one of the most significant of that period. Changes were sudden, mandatory, and hugely damaging for some sectors of the economy. It was an event that businesses could not ignore, and change has touched every employee of the economy and every user of products and services. The pandemic has shone a vivid light on our way of life; it has called in to question our assumptions about the people, systems and processes that we all take for granted. It has also brought a horribly stark realisation to the growing divide between rich and poor in our country and around the globe.

The pandemic serves as a powerful demonstration of the fragility of the global economy and just how susceptible it can be to outside forces that cannot be avoided or bargained with. And yet. It is also clear that there is a gathering of even more powerful forces that threaten our way of life, and challenge yet more assumptions about what is normal. It seems that the crucial difference between Global Warming and Covid 19 is the speed at which it is occurring. The natural human response – fight or flight – is one that engenders action to defend against the most imminent threat. We step back from the cliff edge when the threat is at its greatest, so to speak.

The evidence amply demonstrates the inexorable approach of the Global Warming cliff edge. As the human population continues to surge, and entire economies rely on consumption within a linear system of extraction, processing, distribution, rampant consumption and disposal – what hope is there of avoiding the approaching drop? Our way of life is simply not sustainable. Change is imperative. So how is it that there are still those who do not recognise this fundamental, if inconvenient truth?

Change is the only constant

If change is inevitable, how do we best organise ourselves to minimise any adverse impacts that may result?
The UK has just embarked on another momentous period of change as it withdraws from its economic and social contracts with the rest of Europe after 47 years of trading bloc membership. At the time of loading the chamber with the simple “Leave/Remain” plebiscite it is likely that even the most ardent “leavers” would now admit that the impacts of this change were not properly comprehended at the time.
This is an example of a change that was not external, but Made in Britain, and it too has served as a stark divisive force in our society, spawning two tribes of polarised opinions.

What is becoming evident is that even when change is something that is “desired” and brought about by a population, the impacts can be hard to predict. Within complex systems, there will be many unintended consequences, winners and losers.

So perhaps it is time to admit that the changes required to respond to a warming climate will be equally hard to predict and there will be another set of winners and losers. Is disruption inevitable?

The short answer is a resounding “Yes”. However, with careful strategic planning it is possible for businesses here in the UK to take steps to de-risk the changes arising from Global Warming. As the world continues to make efforts to mitigate climate change, good businesses are now entering a phase of adaptation.

Winners and Losers

According to new figures from National Grid, 2020 was the greenest year on record for Britain’s electricity system, with average carbon intensity – the measure of CO2 emissions per unit of electricity consumed – reaching a new low of 181 gCO2/kWh continuing a trend which has seen the system decarbonise by 66 per cent in the last seven years.

Rob Rome, interim head of national control at National Grid ESO, said:
“2020 has been a record-breaking year for Great Britain’s electricity system. The grid continues to transform at an astonishing rate as we move away from fossil fuel generation and harness the growth of renewable power sources. It’s an exciting time and the progress we’re seeing with these records underlines the significant strides we’re taking towards our ambition of being able to operate the system carbon free by 2025.”

This is a clear shift that those involved with power generation can be justifiably proud of. Both Solar and Wind generation contributed record flows of energy to the UK complex, whilst on the other side of the scale coal generated only 1.6% of the UK’s electricity in 2020, compared with almost 25% five years ago. The Japanese owners of Australia’s newest coal-fired power station have written down the value of the asset to zero, wiping out a $1.2 billion investment. The Bluewaters facility was barely 10 years old.

Shift to low emission vehicles

Another sector at the forefront of the change is Automotive manufacturing. The shift to low emission vehicles is accelerating and although total market share is still low, SMMT data published for August 2020 underlines this important trend:

Tax incentives have been designed to encourage still greater uptake of EVs and large infrastructure investments are now being rolled out to support this. The first all-electric forecourt was rolled out on 7th December 2020 at GRIDSERVE’s Braintree Electric Forecourt.

Other organisations also sense an opportunity associated with moving early and committing to real change. Witness Brewdog’s carbon negative strategy.

The Investor Stakeholder

In January 2021 the Net Zero Asset Owners Alliance announced that more than 30 of the world’s largest investors have committed to setting and reporting on short-term emissions targets for 2025 – a significant step forward.

The Net Zero Asset Owner Alliance and its sister organisation, the Net Zero Asset Managers Alliance, have already sent a clear signal to corporates about the inevitability of the net zero transition. Here is a group of asset holders and managers responsible for trillions of dollars of assets worldwide that have said they want to fully decarbonise their portfolios by 2050. That’s a big deal.

Therefore, any corporate wishing to ignore signalling from the likes of Allianz, Aviva, AXA, SwissRe, CalPERS, Zurich, the Church of England, and Generali Group for them to come forward with net zero strategies now has to reckon with the fact this is not solely a long-term project. The group’s new 2025 Target Setting Protocol has not only been developed inside a few months – light speed for a corporate membership body – but today individual members of the Net Zero Asset Owners Alliance started to publish their own 2025 targets in line with the newly-agreed guidelines. The targets fall within a range of a 16 to 29 per cent reduction in emissions from a 2019 baseline to achieve inside just five years.

As Mark Carney puts it in his Reith Lecture series (a lockdown “must listen”) it will be the businesses pursuing purpose and solving problems for society that will be profitable over the long term.

But what of SMEs?

Many investors and larger corporations have begun to recognise the growing imperative which will transform their businesses and a significant number have now added their brands to the pledge to achieve Net Zero before 2050. These corporations generally have the scale and capability to support this change and develop a coherent response. They can take steps to de-risk their operating environment and improve their supply chains at least to a degree.

However, how does this translate to smaller organisations? SMEs are central to the UK’s economy. At the start of 2018, there were a record 5.7 million SMEs, accounting for 99.9% of UK businesses. Overall, the number of SMEs has increased by over 1.2 million since the start of 2010 and SMEs employ 16.3 million, accounting for 60% of total UK private sector employment.

SMEs are extremely diverse, operating in every region and in every sector and they vary widely in size, ranging from 0 to 250 employees. Individually SMEs consume modest amounts of energy, but collectively their energy demand is considerable, accounting for around 50% of business energy use, using 58TWh/year.

Traditionally, it is difficult to reach the SME market with services to introduce more sustainable ways of working. Many owner managers are simply too busy to give focus or ring fence resources to lead these projects. There is a growing need to provide simple, affordable and flexible consulting support services to this market.

According to Carbon Trust, many SMEs can easily save 20 to 30 percent on their energy costs through behavioural changes such as switching off equipment and closing windows at the end of the day, at the same time as implementing cost-effective technologies with short payback periods, for example LED lighting.

Auditel’s carbon consultants provide support for the transformation of SME business in the UK. We use a structured delivery framework to ensure that SMEs can understand their carbon baseline and what verifiable steps can be taken to reduce their emissions over the critical coming decade.

Article by: David McDonald

As seen in Issue 8 of The Bottom Line