Comment: Growing your business in a Net Zero world

By the end of COP26, over 200 countries had announced decarbonisation commitments and plans, along with a range of pledges around funding clean technology, decreasing reliance on coal, phasing out fuel subsidies and stopping deforestation. Alongside governmental action, the onus is now on companies to transform their business models and operations if Net Zero targets are to be met.

Shareholders, stakeholders, citizens and regulators will be carefully watching to ensure real progress against these commitments. They will hold companies to account. Company CEOs and management teams need to demonstrate a real commitment to the cause, and have well-thought-through plans to ensure they can deliver on their promises. And they need to do it now.

Yet those very same shareholders will still be expecting companies to continue to deliver both short- and long-term growth during the Net Zero process. How can companies balance these two potentially conflicting ambitions?

Research into the performance of companies confirms that delivering growth while reducing emissions is certainly achievable[i]. ADL looked at the performance of selected listed companies from asset-intensive sectors (such as chemicals, oil & gas, energy, industrials, construction, steel, cement etc) by comparing revenue growth and emissions reduction rates for the same duration.

Our analysis shows that many companies have grown revenue while reducing emissions by at least three percent CAGR. What stood out with these “sustainable growers” was that they took the issue of emissions reduction seriously, making it a core part of their corporate objectives, and investing in key technologies and innovations. They used their existing capabilities, such as scale and ability to manage large capital-intensive projects, to diversify successfully.

But the majority of companies didn’t fare so well. Some companies pursuing organic growth have lost sight of the emissions implications of increasing production and sales of their products without allocating sufficient capex to sustainable projects to balance them out. Others have simply sold off “bad assets”, leading to emissions reduction (for them), but lower growth.

To achieve the dual objectives of growth and emissions reduction in asset-intensive sectors requires corporate leaders to focus on four key areas.

1. Work more closely with customers

Find synergies between customer and supply chain insights and use these to develop new technology solutions that will also help reduce emissions. For example, by investigating along its supply chain to evaluate emissions created by its own products, Honeywell realised a significant opportunity in the refrigerants, propellants, and solvents space. Through a new line of low global warming products, Honeywell is helping its customers to reduce their carbon footprint and increase energy efficiency without sacrificing product performance. As a result, Honeywell estimates that its customers have potentially avoided over 263 million metric tons of carbon dioxide.

2. Focus on technology to create growth

With low-carbon/negative-carbon technologies now at various stages of maturity and development, companies need to explore, understand, and assess them for future growth and value creation potential. For example, Boral, a leading Australian building and construction company, used innovative technology to develop cement products which resulted in over 40 percent lower carbon emissions for concrete, while providing excellent performance benefits and finishing properties.

3. Develop new business models

In the Net Zero world, new business models will open up new growth opportunities. This includes providing Net Zero “as a service” to customers, for example, in Carbon Capture Utilization and Storage (CCUS), and the emerging hydrogen economy. In addition, CEOs will need to get used to running “two speed companies” – one that is tied to the core/legacy business, and one that is much more agile, constantly innovating and bringing out new-generation products and services.

4. Align internal priorities

Achieving success starts by aligning priorities across the board, management and employees. The CEO and senior management need to work hard to communicate and increase awareness of Net Zero objectives across the organisation to boost engagement. Companies then need to think through and act to set the type and time horizon of incentives and ensure that all employee objectives fit with company Net Zero aims.

Ultimately, Net Zero must be completely integrated into strategic planning, and built into the company’s overall revenue model. Emissions reduction and growth is possible, but it requires vision, commitment and bravery to achieve these dual objectives.

Dr. Hasan Shafi is a partner in Arthur D. Little’s Dubai office and a member of its Energy & Utilities practice.

[i] https://www.adlittle.com/en/insights/prism/growth-net-zero-world