Just 7% of Fortune 500 CEOs believe their companies should “mainly focus on making profits and not be distracted by social goals,” according to Fortune Magazine. It isn’t too long ago that this kind of talk would have been unimaginable.
Fifty years ago, economist Milton Friedman argued that the sole purpose of a business should be to maximize shareholder value. By focusing on wealth creation and rewarding their investors, business leaders believed the benefits would trickle down to create prosperity for all.
Times have changed. Today, most firms see the creation of “stakeholder value” as the key to success and have adopted environmental and social objectives alongside their financial ones. Brands realize that they are better able to drive profitable growth by focusing on the wide-ranging benefits they can bring to customers, employees, suppliers, communities, the environment and shareholders.
How has COVID impacted this trend?
The COVID-19 pandemic has accelerated this trend. It has heightened awareness of how data can be used to better monitor and control a wide range of environmental, health and well-being issues. These issues are discussed in Next Normal: Sustainability, an on-demand webinar featuring Microsoft, Pachama (a start-up using AI to drive carbon capture and protect global forests) and Orange Silicon Valley.
According to George Livingston, Principal at Orange Silicon Valley and Chair of the Sustainable Supply Chains Council, COVID-19 has had a significant impact on reducing carbon emissions: “We’ve seen a major decline in business air travel during the pandemic. Business travel was 60% to 70% of airlines’ sales revenues pre-COVID. Half of Fortune 500 CEOs say business travel will never return to pre-COVID levels. This could help companies to meet much more aggressive carbon reduction targets to address the climate change crisis,” Livingston argues.
Business leaders have seen that many meetings can be held just as effectively using videoconferencing. This has the added benefit of reducing travel and expense budgets and enabling employees to enjoy a better work-life balance. Remote working has also delivered ecological and economic benefits, which are likely to continue beyond the immediate crisis.
“According to the S&P, 47% of companies are planning to reduce their physical office footprint moving forward,” comments Livingston. “Working from home is more energy efficient than commuting to an office by car, so this will have positive sustainability impacts.” This can help firms to reduce their carbon emissions, as well as real estate leasing and business rate costs.
Scientists account for carbon emissions in three categories or “scopes.”
- Scope 1 emissions come from company-owned or -controlled sources such as offices, factories and their vehicle fleets
- Scope 2 emissions come from the generation of purchased electricity, heating and cooling consumed by the company
- Scope 3 emissions come from your upstream and downstream value chain, including suppliers and customers
According to Microsoft, a company’s scope 3 emissions are often far larger than its scope 1 and 2 emissions put together. They include activities like business travel, the distribution and use of products by consumers and their end-of-life treatment. Microsoft has an ambitious program to become carbon negative by 2030 that extends to third-party suppliers.
Elizabeth Willmott, Carbon Program Manager at Microsoft, says, “We rolled out a supplier code of conduct that requires our suppliers to not only report their greenhouse gas emissions, but also to reduce them. We’ve been using this moment to double-down on sustainability.”
Microsoft has created a “Transform to Net Zero” coalition to develop and deliver research, guidance and implementable roadmaps to enable all businesses to achieve net zero emissions.
“It’s in Microsoft’s DNA to be guided by the science and by the data of what’s going on in the world,” notes Willmott. “The International Energy Agency (IEA) says we’ll likely see a drop of greenhouse gas emissions this year, but that’s in the face of a really steep climb of greenhouse gas emissions in the past 50 years.”
Tackling climate change will require a multi-pronged approach, with efforts to avoid, reduce, reuse and offset carbon emissions.
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Avoiding and reducing carbon emissions
To avoid emitting carbon, companies can identify ways to increase operational and process efficiencies, switch fuel or power source and make technological shifts. For example, firms can optimize logistics networks to minimize the distances traveled. Orange has run a successful pilot with the start-up Foxtrot and a major brewer in Mexico to use AI-enabled routing to reduce the number of kilometers its drivers need to travel to make deliveries to bars, restaurants and retail outlets.
This technology enables firms to dynamically schedule the route that drivers take to reach multiple drop-off points, depending on real-time congestion levels and the promised delivery times. This enables the trucks to spend less time sitting in traffic and complete their rounds faster. Foxtrot’s studies show the technology is able to reduce driving distance by 16% and boost on-time deliveries to an average of 98%.
Many logistics firms are starting to buy electric vehicles. EVs produce no tailpipe emissions – important for better urban air quality – but they are still powered by electricity which, at least for now, comes primarily from burning fossil fuels in most countries. By 2022, just 30% of the world’s supply of electricity will come from renewable sources, according to the Center for Climate and Energy Solutions. It will take time to reach the goal of entire fleets of logistics trucks being powered by renewable energy alone, making every kilometer completely emission free. As a result, AI-enabled routing will enable firms to continue to make scope 2 emission savings.
As energy transition accelerates, firms will have an opportunity to be self-sufficient in renewable energy by installing solar arrays, wind turbines and energy storage systems in their facilities. If they were able to minimize their own usage needs, they could potentially sell some of the excess capacity back to the grid.
Smart buildings are another big area of opportunity. Networks of IoT sensors can be used to provide real-time data on temperature levels in individual rooms within a building and enable heating and cooling systems to be monitored and controlled via smartphones. AI could even be used to factor in predicted weather fluctuations for more precise and timely adjustments.
With this aim in mind, Orange has partnered with ABB France, a world leader in energy and automation solutions, to help firms reduce their electricity usage. Meanwhile, when it comes to technological shifts, many firms are exploring the use of 3D printing to minimize material waste, packaging and transport emissions. These shifts require effective data management and cybersecurity to build, model and optimize digital twins of products before they are created.
Re-use of carbon emissions
The second big area of savings is recycling and remanufacturing. A company can convert waste into reusable material (recycling), or it can reuse existing parts to produce new equivalent products (remanufacturing). Using recycled materials requires significantly less energy than using virgin materials. For instance, recycling aluminum requires up to 95% less energy than producing the primary metal from bauxite and thus avoids the corresponding emissions.
Unlike the traditional linear economic model based on a “take-make-consume-throw away” pattern, circular economy business models make more prudent use of energy. They are based on the principles of sharing, leasing, reusing, repairing, refurbishing and recycling, in an (almost) closed loop, where products and the materials they contain are highly valued.
For example, Orange is making it easier for consumers to have their mobile phones repaired and recycled and is encouraging consumers to wait longer before upgrading to a new device and embrace reconditioned phones. In turn the company is using reconditioned equipment in its core networks.
Offsetting or compensating for carbon emissions
Beyond this, firms can compensate for carbon emission through offsetting, including reforestation. During the Next Normal: Sustainability webinar, Diego Saez Gil, Co-founder and CEO at Pachama, provided some insights into the marketplace his firm has created to make carbon offsetting more transparent, science-based and verified by technology.
Pachama’s software uses LiDAR imaging, a technology based on laser measurements, to create 3D representations of forests. This is supplemented with a range of other satellite-enabled high-resolution imaging data. Artificial intelligence and machine learning algorithms are then used to make biomass and carbon reduction calculations.
From risk to resilience
According to Gil, “Post-COVID, climate change is going to be the issue that all corporations are going to be focusing on…because everything is interrelated. If COVID made one thing super clear, it’s the importance of resilience, how interconnected global systems are and how corporate action is so important in the face of this crisis.”
Corporations are seeing huge opportunities for risk mitigation, combined with addressing climate issues. “Risk and resilience are two faces of the same coin,” continues Gil. “More sustainable companies are going to be more resilient to any type of global shock. The next one after the pandemic is going to be the effects of climate change.”
With this in mind, businesses are redefining their sense of purpose with an equal focus on people, planet and profits. Triple line reporting is becoming the norm with the disclosure of more transparent and comparable Environmental and Social Governance (ESG) metrics.
“Investors are rewarding firms with strong sustainability and climate profiles – even during a bear market,” notes Livingston. “Investors are doubling down on sustainability during the crisis.”
Global sustainable investment now tops $30 trillion, up 68% since 2014 and tenfold since 2004. According to Morgan Stanley, 85% of investors express interest in sustainable investing strategies and 84% of millennials cite investing with a focus on ESG impact as a central goal.
How important is sustainability to Orange?
Worldwide, around 330 companies have established science-based targets for decarbonization, including Orange. Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement – to limit global warming to well below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C.
The Orange Engage 2025 program is on track to achieve net zero carbon emissions by 2040. The company also intends to reduce its CO2 emissions by 30% between 2015 and 2025, ensure that over 50% of the Group’s energy comes from renewables versus 18% today, and make sure all the Orange-branded products adhere to an eco-design approach.
Orange Business is celebrating the European Sustainable Development Week from 18 September to 8 October this year, both internally and externally. The aim is to raise awareness of the practical steps each one of us can take to reduce our carbon footprint – one of the most pressing social issues of our day.
To join in, watch our on-demand Next Normal: Sustainability webinar and learn about sustainability in a post-COVID-19 world. This infographic highlights some of the ways that the Orange Group is addressing Sustainable Development Goals.