Innovation Watch: Spreading the cost of net-zero
Sustainability Leaders | A World 50 Group Community
Accelerating cross-functional sustainability excellence.
Who pays for sustainability? It appears to be a simple question, but you’ll receive a different answer depending on who you ask.
McKinsey estimates that, on average, $9.2tn will need to be spent on physical assets each year to achieve net-zero by 2050. That is just net-zero; add in the other environmental and social issues that companies have committed to making progress on and that figure will increase significantly.
The question of who pays is, of course, flawed and there are many examples of sustainability delivering shareholder value and profitability for business. But companies typically manage any costs that do arise in one of three ways: through a centrally managed sustainability budget; by tapping into different cross-functional budgets; or by pushing costs outside of the organisation and on to suppliers or consumers, for example.
A recent Sustainability Leaders Working Group session helped illustrate how these budgeting options might be considered. If a business with an agricultural-linked supply chain wants to improve environmental conditions in its farmers’ operations, who funds this? The central sustainability team, if it has a budget? Procurement? Or the farmers themselves?
Naturally, these options aren’t mutually exclusive and businesses may use each depending on the farmer’s circumstances and their relationship with the company. But by and large, the message that we hear from our community is that sustainability should form part of the business as a whole and not be treated as a separate strategy.
From a financing point of view, this means factoring sustainability into the budgeting decisions of numerous functions – from legal to design to communications. With the example of the farmer, it would mean procurement works closely with the farmer to understand the budgetary needs and determines a financing model that works for both parties.
Of course, this is easier said than done and scenarios will arise in which it’s unclear who should pay for a certain initiative. But spreading budgetary responsibility across the business is a key part of ensuring sustainability is embedded into the business. As one head of sustainability said during our discussion: “In the capex, there should be a process whereby sustainability impacts are factored in. Our job within sustainability is to support different functions in how they do this.”
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UK rail company tracks progress of battery-powered train trial
Trials are underway in the UK to replace the diesel engine in an intercity train with a battery that is expected to reduce emissions and fuel costs by up to 30%.
Hitachi Rail and TransPennine Express announced that the battery has been successfully retrofitted onto a five-carriage train for testing over the summer.
The battery was codeveloped by Sunderland-based Turntide Technologies and Hitachi Rail, which invested ￡15m in the project. The designers claim it can generate a peak of 700 kilowatts, store enough electricity to power 75 houses for a day and weighs no more than the diesel engines currently used on UK trains.
In addition to testing performance, the companies will also explore how trains can arrive at and depart from stations in “zero-emission mode” to improve air quality and reduce noise pollution for passengers.
If successful, the rollout of battery-powered trains could enable the decarbonisation of railways around the world and help companies keep on track to meet their carbon-reduction targets.
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