Cut carbon, cut costs

Sixty-three per cent of the companies which do have a carbon emissions reduction plan aim to achieve their goal by 2030 (figure 2). A small minority of companies (6%) have achieved their target already. About 11% are giving themselves almost two decades, till 2040, to meet their target, and a few (3%) have set a time frame of 2050 or later. Seventeen per cent of firms have not yet set a specific time frame for their carbon reduction efforts.

Across industries, the time plans are quite similar. But companies in transport and logistics are aiming to achieve their goal later than average (45% by 2030, 29% by 2040), reflecting the fact that the technological innovations needed to reduce carbon emissions will probably take longer in this industry than in others. In financial services there seems to be greater heterogeneity, as 9% have achieved their goal already, but 43% aim to fulfil their plan by 2030 and almost one in three (29%) do not have a specific time frame for their carbon reduction goals. Again, in tourism and travel (29%) as well as in construction (30%) the proportion of firms without an explicit schedule is higher than in other industries, indicating that they face challenges establishing a realistic time frame for their climate plans.

Reputation matters, and so do costs

Companies tend to rethink their behaviour to meet the expectations of stakeholders. This seems to be the case also with climate action. But opportunities linked to more climate-friendly behaviour also play a role. Businesses are motivated by four main factors to act on climate change. About half the CFOs surveyed say that improving the reputation of their company and gaining trust from their customers and clients motivates them (see figure 3). But many (38%) also have a quite different motivation: the opportunity to save costs by taking action on climate change. Cutting energy use and business travel can reduce costs as well as carbon emissions. The need to comply with current and/or upcoming regulation is the third motivating factor, encouraging 35% of businesses to act on the climate, showing awareness of the increasing regulation. Finally, the fourth major motivation, mentioned by 33% of CFOs, is to be able to adapt to the requests of their clients and customers, who have become increasingly aware of sustainability issues and are therefore demanding more climate-friendly products and services, for example electric vehicles.

Since companies in different industries are facing varying expectations of different stakeholders, the main motivations also vary noticeably between industries. In business and professional services, for example, improving the company’s reputation (62%) drives climate action more than in other industries while companies in tourism and travel are motivated most by the cost-saving possibilities (66%). For transport and logistics firms the need to comply with regulation is the main reason (58%) for becoming more sustainable.

Climate action starts in-house

As with governments and public institutions, there are numerous actions which businesses can take to reduce carbon emissions. There is no “one-size-fits-all” strategy; companies in different industries face different challenges.

Three broad areas of action on climate change that have been taken or are already planned stand out in the results (see figure 4). The majority of CFOs are reducing or planning to reduce in-house emissions through incremental change. This probably offers the most cost-saving opportunities, explaining its popularity. In addition, more than 40% of participants in the survey aim to develop new climate-friendly products and services to meet their carbon reduction goals and hence capitalise on growth opportunities due to the high demand for these products. This implies that the supply of climate-friendly products and services is likely to increase considerably in the future, offering consumers more scope to demonstrate their desire to act on climate change. Finally, 38% of companies are working on reducing carbon emissions in their supply chain, or are planning to do so.

At the industry level, reducing in-house emissions is the first choice across the board, but with varying degrees of emphasis (see figure 4). In the automotive industry 72% of CFOs mention this as a priority, whereas only 48% of companies in tourism and travel report that they are reducing in-house emissions. Development of new climate-friendly products and services is the most relevant action for companies in forestry, paper and packaging (59%) as well as industrial products and services (55%). Reducing carbon emissions in the supply chain is mentioned most by forestry, paper and packaging companies as well as by those in the energy industry. On the other hand, in financial services and tourism and travel, reducing emissions in the supply chain is seen as less relevant as their supply chains tend to be less extensive than in goods-producing industries.

High time for a wider view of the greener future

European businesses are feeling pressure from many sides to become more climate-friendly, and this pressure is likely to continue to increase. But at present their report card is mixed. Although 56% of businesses have a clear plan to cut their climate emissions, 37% do not. In addition, 14% of companies with a plan are aiming to reduce their emissions very slowly, not achieving their goal until 2040 or later.

It is apparent that many companies need to formulate a carbon reduction plan that makes measurement of how much they are achieving easier³ and motivates them towards further action. An incentive for them should be that acting on climate change often offers direct cost saving possibilities and is thus valuable also from a financial point of view. This is especially the case given that the price of carbon emissions, in emissions trading systems or through carbon taxes, might increase considerably in the future; acting sooner is very probably the cheaper alternative. Moreover, climate action can prevent possible reputational damage, which might turn out to be expensive. As the regulations concerning climate issues proliferate and become more stringent, it is crucial for companies to both keep up to date and foresee what is coming. They would be wise to act sooner and more broadly, rather than too late.