_edited.png)
Evolving our business models to alleviate climate change
Much has changed in the climate change sphere in the six years since environmental consultancy firm Avvena was set up – and although so many of the news headlines are focussed on various disasters, CEO Chloe Nury prefers to look at the positives.
“At that time, the understanding of climate change was very scant. It was still the beginning of the industry and there was very little understanding of our role at Avvena as carbon consultants and what we could bring to businesses.
“Much of our work was to educate people about the new metrics and indicators we were talking about, such as carbon dioxide emissions and greenhouse gas emissions… We had to explain to people why they were so important and why businesses would need these metrics,” she explained to FinanceMalta.
Rising awareness has brought with it various challenges, affecting stakeholders in different ways, from the banks that gave loans, to the companies facing increasing regulation, to investors’ confusion over how to use their money to reflect their own green intentions.
One of the key issues was information: how to measure a company’s emissions: Ms Nury explained that was all a matter of understanding that reporting on emissions was just another business language, another version of financial accounting.
The problem, she explained, is that there were so many solutions: “It is like have accounts presented in different currencies without being told which was which. This is what is happening in our world.”
Of course, with time, the need for standardisation become compelling and the European Commission introduced the Sustainable Finance Reporting Directive and the Corporate Sustainability Reporting Directive to streamline the issue.
There are still gaps: the market for services is not yet regulated – for example – and while financial accountants are certified, carbon accountants are not – yet!
With so much at stake for the companies involved, both Ms Nury and Avvena’s Head of Climate Change and Sustainable Finance Gabriella Borda hope that certification will be introduced, before rogue elements tarnish the rest.
Pressure mounted not only from investors but also from banks which were obliged to balance their green asset ratio and needed to take stock of what they were financing – which they can now do thanks to GHG/CO2E metrics.
Sorting out the way in which emissions would be quantified and reported was only one part of the process: the other was improving companies’ operations, and the past six years have seen widespread re-engineered of economies, with notable reductions in problems related to waste, pollution, traffic etc.
Part of that breakthrough came from companies which began to realise that this evolution was not a cost but an inevitable investment which would reap benefits, Ms Nury explained.
“It is like going to the dentist. It is a cost but at some point, the benefits outweigh the costs. For GHG emissions, it is the same. It might be an investment when you start with it but when it is well done and integrated into a global business strategy, the benefits will outweigh the effort you put into it,” she said.
The issue then became helping lagging businesses to change their business models – but this requires considerable human capital.
“We do not have the human capital at the moment to deal with what is coming. However, there is still time for businesses to prepare and train people – as long as they realise that they need to take action now to integrate these metrics into their business model, just as they tackle their financial ones,” Ms Nury explained.
Another issue is that not all companies fall directly under the regulatory requirements, but public pressure – and global interconnectivity – means that even smaller companies should take notice.
“Take SMEs: they do not fall under the compulsory framework or regulation, but they might be part of the value chain of bigger companies that do have to report. So they are indirectly obliged to take into account their impact and to report on it,” Ms Nury said.
“At the moment, it may be just a gentle push but this will accelerate and pressure will come from all channels: from stakeholders, clients, investors etc. At some point, you will have to handle it and if you are not prepared, you will lose out …”
One problem is to contain expectations and season the desire for change with a dose of pragmatism. Ms Borda explained that some of the targets – such as ‘net zero’ – are very ambitious and hard to achieve with current technologies.
“We should focus on specific categories, rather than on an overall ‘net zero’ score which means a company has eliminated all its emissions or is compensating by investing in carbon-capture technology, for example. Companies can aim to be net zero in one category – like electricity consumption and, at this point in time, we should appreciate each and every action, irrespective of the outcome, as long as they are transparent and clear about what milestones they set and whether they reached them or not.
“This will be more effective than trying to attain something which depends on developments that will happen in the future. Hopefully, the day will come when we are net zero across the value chain – but at this point in time we should be careful about how we use this statement and what it means,” she said.
“Anything is better than nothing at this point in time!”
The need for a collective effort is, indeed, what Ms Nury recommends: “The approach much be systemic. Of course we need targets, but we also need a strong, collective intelligence – with high standards, going as far as we can. Whether you are listed or an SME, you need to ask what you can do. I think we have to go with this mindscape if we want to make a real impact and a sustainable one.”
Just as the regulators and the European Supervisory Authorities had a role, so do governments and Ms Borda stressed that policy-makers had to be on board if economies where to be aligned in the right direction.
“Policies need to complement private sector initiatives, as it is not only about increasing gross domestic product – in other words, the size of the economy – but also about how we are affecting other indicators such as social wellbeing, CO2 emissions, health and work life balance, impact on the environment etc. We are not currently using all the toolkits available when it comes to policy,” she lamented.
Where will we be in six years’ time? Ms Nury is optimistic: “Let us hope that with regulation, we are going to invent a new economy. This is the key to make business models evolve: to reinvent the sustainable economy through a more holistic approach where everyone works hand in hand to minimise the impact of emissions. I am hoping that we will join forces to address this before it becomes too late and we miss the chance to change our future.”