The recent COP26 resulted in the Glasgow Climate Pact on the back of worldwide acknowledgment that not enough has been done so far to avert a climate disaster. Governments have now committed to strengthening targets by the end of 2022 to prevent further planetary warming. Enterprises also made several voluntary pledges on areas, from phasing out gasoline-powered cars to reducing deforestation. A promise, however, will not be enough. To build trust with their customers, they must now deliver.
“The context is shifting. Consumers are having increasingly bigger expectations from enterprises,” explains Sarah Watt, Senior Director Analyst at Gartner. It is what a recent report by the World Wide Fund for Nature (WWFN) calls a “eco-wakening,” and it isn’t just happening in high-income countries. The WWFN found, for example, that the most significant growth in engagement has occurred in Asia, most notably India and Pakistan. Consumers worldwide are changing their behaviors, with the report citing web searches for sustainable goods have increased 71% in just five years.
The EY Future Consumer Index recently highlighted the fact that consumers are more than willing to pay a premium for sustainable products and services. In fact, 85% of respondents said sustainability is now important when making purchase decisions.
“Many people have learned to live with less, a trend that will likely stick beyond the COVID-19 pandemic. Saving is the top reason for this shift, but environmental concerns, spending on better quality items that will last longer, or pursuing experiences rather than things are also important drivers,” explains Kristina Rogers, EY Global Consumer Leader.
Change is happening
With public demand for action growing, companies are already taking action. Walmart, for example, has committed to U.S. Environmental Protection Agency (EPA) labeling, which helps consumers, businesses and purchasers find products that perform and contain ingredients that are safer for human health and the environment.
One of the biggest impacts of technology on the environment is down to the short lifecycles of electronic devices, especially smartphones. To this end, Orange has been working to enhance the eco - design of its smartphones, making them last longer, easier to repair and recycle. Cisco is also aiming to increase the reuse of its products. It has designed a server, for example, that can be taken apart without specialist tools, allowing faster reuse and recycling of components.
The rise of the corporate green agenda
Technology also has a major role to play in helping to establish a circular economy, such as tracking provenance in supply chains and tracing embedded emissions in components for more accurate reporting. This will allow enterprise leaders to better deal with stakeholder and policy interpretations about sustainable business and operations development.
Gartner asked industry leaders which organizations they were feeling the most pressure from besides customers and suppliers. They cited the Task Force on Climate-related Financial Disclosures (TCFD) and the European Union’s Green Deal. The TCFD was set up to provide consistent climate-related financial risk disclosures for companies, banks and investors to offer information to stakeholders. The overarching goal of the latter is for the EU to become the first climate-neutral region by 2050.
Accountability was high on the agenda at COP26. Although little is mandatory right now in terms of sustainability reporting, not taking action will harm enterprises’ reputation with customers and stakeholders long term. Speaking to CNBC at the summit, Per Heggenes, CEO of the IKEA Foundation, went as far as saying that companies that don’t accept climate targets “should be discriminated against.”
BlackRock, the world’s largest asset manager, believes that sustainability will play a vital role in investor portfolio decisions in the future. It is calling for a single global standard to make it easier for investors to make informed decisions, but it believes that enterprises need to take action now in setting up reporting frameworks. “Because better sustainability disclosures are in companies’ as well as investors’ own interests, I urge companies to move quickly to issue them rather than waiting for regulators to impose them,” Larry Fink, Chairman and Chief Executive of BlackRock, said in his open letter to CEOs.
Don’t wait for sustainability reporting to be mandated
According to McKinsey, however, these net-zero requirements and commitments are running way ahead of organizations’ own plans to meet them. Few businesses, it maintains, have detailed plans in place on how they plan to achieve net-zero. But it is imperative they move fast, as this is what regulators and investors – as well as increasingly astute consumers – will expect.
Businesses need to move forward with net-zero commitments to keep stakeholders, employees and customers on their side. With the likes of the International Sustainability Standards Board (ISSB) emerging, enterprises need to start moving forward on sustainability reporting without waiting for it to become mandatory and take proactive steps to improve environmental impact and ensure they are a core part of the organization’s roadmap and not simply an add-on.
The window for action is a small one
COP26 has been heralded as “the world’s last chance to take action on climate change.” With consumers putting increasing pressure on enterprises to help mitigate climate change, enterprises must reassess their business models to address this growing environmentally friendly audience to retain loyalty and grow.
“Consumer preference is driving entire industries to change, and no market or sector is unaffected,” concludes Cristianne Close, Global Market Leader at the World Economic Forum.
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