War in Ukraine and weather-related disasters have disrupted climate action. Here are 6 ways the private sector can mobilize sustainable transformation.
- War in Ukraine and a slew of weather-related disasters have slowed government progress towards climate action.
- Facing economic and other pressures, government and business leaders need to hold firm to decarbonization commitments.
The war in Ukraine, which upended global energy markets, as well as an unrelenting spate of extreme weather events, such as ruinous flooding in Pakistan and record droughts in the Horn of Africa and Europe, loom large over COP27 in Egypt, where world leaders have called for urgent climate action.
The Ukraine conflict in particular has significantly disrupted decarbonization plans and brought into focus concerns around resilience and sovereignty when it comes to ongoing energy transition efforts.
The Deloitte Center for Sustainable Progress' report, Transform to React: Climate Policy in the New World Order aims to embolden government and business leaders alike to hold onto their decarbonization ambitions within this complex geopolitical and economic landscape. The report analyzes the economic impacts of geopolitical upheaval and offers proactive next steps for organizations to continue accelerating progress, even in light of global conflict.
The European Union has already taken several climate-related actions through new strategy and policy proposals, but government action alone won't be enough. The private sector has a pivotal role to play in driving the transition — and there are several key actions organizations can take to propel and enable the transformation.
1. Green the value chain
The economic sanctions and other government hardlines waged during the Russia/Ukraine war are illuminating companies' structural vulnerabilities—bringing about the need to restructure value chains as a result. By working to reduce greenhouse gas emissions as an integral part of the restructuring process—from design to production and marketing to distribution—executives can more easily unlock major synergies, such as the launch of transformative products or meeting new environmental, social, and governance (ESG) metrics requirements from stakeholders.
2. Diversify energy and raw material sources
Diversification measures should go beyond reducing reliance on fossil fuels and look to other strategic raw materials and goods. This means not only shifting to cleaner energy and feedstock sources, but also establishing expanded and reliable supply lines in new markets, which can reduce current vulnerabilities and help minimize the impact of potential future disruptions (geopolitical or otherwise).
3. Innovate in line with the energy transition to build resilience
Innovation is at the heart of maintaining competitive edge as it replaces costly and inefficient processes with more effective ones. The pursuit of long-term efficiencies (such as economies of scale thanks to trends like the mass production of solar panel components) has helped in driving down prices of key renewable energy technologies and bolstered the recent acceleration of the energy transition.
Industry-driven initiatives have the ability, and industry leaders have the responsibility, to catalyze and accelerate progress in renewables, electrification, renewable and low-carbon hydrogen and hydrogen derivatives, as well as in the circular economy.
4. Modernize in alignment with sustainability goals
Industries should modernize to operate and thrive in a net-zero economy. The modernization process, through initiatives such as restructuring the value chain to increase resilience, can take years, but it presents a window of opportunity to align investment decisions with long-term sustainability goals. Including ESG aspects in investments of financial market players could also make a significant contribution here.
5. Leverage public-private collaboration
Organizations looking to quickly roll out transformative technologies and processes need an environment that sets them up for success—ranging from the availability of these technologies to the availability of sufficient capital and skilled labor.
Companies can proactively shape this environment and limit their macro and microeconomic vulnerabilities by pursuing more public-private partnership work. Such relationships can leverage incentives to accelerate the transition to a low-carbon future, creating employment and local economic benefits, while also reducing operational, permitting, and macroeconomic risks for the companies and investors.
6. Set the right direction for investments
Skyrocketing electricity, gas, and oil prices have led to high inflation rates in nearly all goods when their production requires (whether directly or indirectly) significant amounts of energy. This leaves some sections of the economy—such as automotive, transport, and chemicals—facing significantly higher costs, while others, like oil and gas companies, are generating windfall profits compared to the relatively stable markets of the pre-crisis periods.
While this incentivizes expanding production capacity in fossil fuels, industry leaders must take a long-term view that such investments could result in large-scale stranded assets or lock-in effects that would obstruct the path to a low-carbon economy. These additional profits should be invested in transformative technologies and systems to generate additional benefits for growth, jobs, and social welfare.
Companies have many options when it comes to how they can take action in this moment. One thing is clear—climate action cannot wait, and companies should not either.
Bernhard Lorentz is the global consulting sustainability & climate strategy leader at Deloitte and the founding chair of the Deloitte Center for Sustainable Progress.
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