The Tipping Point

COP26 is finally getting underway in Glasgow following a year-long postponement resulting from the Covid-19 pandemic. The stakes could not be higher. The US’s climate envoy, John Kerry, has described the conference as the world’s “last best chance” to avoid irreparable damage to the climate, while British Prime Minister, Boris Johnson, is expected to use his opening address to tell world leaders “it’s one minute to midnight and we need to act now”. Fittingly, the goals for discussion are ambitious and include – to select just a few highlights – further net zero announcements to keep global warming within a 1.5°C limit, a commitment from the developed world to mobilise $100 billion of ‘climate finance’ each year, and the acceleration of the phasing-out of coal.

Yet, despite a growing consensus that our environment is approaching a tipping point, there are signs that there are several headwinds impeding concerted global action. Most obviously, the absence of the leaders of some of the world’s largest and most polluting nations does not bode well. Two weeks ago, it was announced that Russia’s President Putin would not attend, while the leaders of Brazil, China and Turkey will also miss the conference. These are ominous signs for onlookers who had hoped for the sort of breakthrough achieved in Paris in 2015.

However, even if COP26 does not result in ambitious and defining commitments from the world’s political leaders, the business community will have little choice but to continue to accelerate its ESG and sustainability initiatives.

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Most obviously, regulatory pressures are already increasing, with both the SEC and the EU Commission making moves to radically overhaul climate and sustainability reporting. We expect both of these initiatives, and more, to begin to become mandatory in 2023. As a result, firms will need to disclose ESG data with enhanced granularity, creating an immediate data-gathering challenge and the requirement for a long-term framework to drive and track meaningful change.

At the same time, public interest in ESG issues continues to rise. We expect this to play an ever-greater role in consumer decision-making, but it is also having a seismic impact on the asset management community. Already, 33% of total US assets under management are held in ESG funds. While the trend suggests that this number will continue to grow in the years ahead, there is also a qualitative shift taking place. The exact definition of ‘ESG-aligned’ has largely been left up to fund managers – and the industry has recently come under fire for ‘greenwashing’. Regulators are now cracking down on this; the EU Commission, the Board of the International Organization of Securities Commissions (IOSCO), the SEC and the FCA have all taken recent steps to push for higher standards in the ESG investment community.

With investors, customers and regulators all moving in the same direction, ignoring ESG and sustainability challenges may be the biggest risk facing business leaders. Our recent global survey of 400 senior executives responsible for ESG and sustainability demonstrates that few firms are unaware of the implications of this changing landscape. Among the senior executives we interviewed, 57% predicted double-digit spending increases in these areas in 2022 – a particularly striking figure in an operating context that is not short of uncertainties and challenges. Another key finding in our survey is that CEOs are the most involved decision-makers for sustainability strategy and are assuming overall responsibility for ESG.

The challenge facing many businesses lies in turning their aspirations into reality. Even amassing the data to meet the new disclosure requirements is a daunting task, and that’s before firms address the difficulties of both limiting the impact their businesses make on the environment and mitigating the damage already done. To overcome these problems, businesses are turning to digital technology – and in doing so, are in many cases entering an unfamiliar and rapidly evolving world.

In this post, two Research Directors from our expert team share a few thoughts on what corporate leaders should be looking out for at COP26 and beyond. You can also access our blogs and research for more in-depth analysis on the intersection between ESG, sustainability and technology.

Build Back Greener Is a Better Objective Than Build Back Better

Build Back Greener Is A Better Objective Than Build Back Better

Kim Knickle
Research Director, ESG & Sustainability

In the run-up to the COP26 summit, the UK government announced a new net zero strategy, with policies and proposals for decarbonizing all sectors of the UK economy to meet the government’s net zero target by 2050. The announcement was accompanied by a 368-page Net Zero Strategy: Build Back Greener policy paper, with some of the critical details necessary to guide the roadmap. Already, 50 countries have developed net zero policy frameworks with varying degrees of specificity. If COP26 does result in new commitments from the world’s leaders, we can expect a further surge in policy development.

One of the interesting things about the UK government’s report is that it emphasizes the need to “seize green economic opportunities, and leverage further private investment into net zero”. The connection between economic growth and ‘going green’ – for example, by reducing emissions – is an important one, which is often lost in the debate. The transition may be expensive, but we should place a value on the opportunities created along the way.

Perhaps the most obvious area of opportunity is in the development and application of technological innovation. Indeed, the report repeatedly highlights the important role of technology in achieving net zero, such as through technology for carbon capture, electric vehicles and renewable or cleaner energy sources. Look more closely and you’ll find a few other references to how digital will make a difference – such as spearheading the UK’s energy digitalization strategy, driving efficiency into supply chain decisions, creating a digital platform for connecting investors and net zero businesses, and establishing a digital testing environment to support the development of solutions for ESG data and disclosures. Alongside this is an acknowledgement that the workers enabling the transition (in housing retrofit, solar, nuclear and vehicle electrification, for instance) are more likely to require digital and data skills than ever before.

Each country and regulatory regime will find its own way of driving progress towards the targets that may emerge from COP26, but the fact that net zero represents both opportunities and challenges should not be lost on either political or business leaders. Put simply, ‘build back greener’ is a better objective than ‘build back better’.

Buildings in the Spotlight: Cities, Regions & Built Environment Day

Buildings In The Spotlight: Cities, Regions & Built Environment Day

Susan Clarke
Research Director, Smart Buildings

COP26 will be the first ever Conference of Parties with a dedicated day of discussions on the built environment. The day will bring welcome visibility to the importance of buildings in the decarbonization of the economy – buildings account for 40% of global greenhouse gas emissions and 50% of extracted materials.

The Cities, Regions & Built Environment Day aims to secure agreement on two key goals. Firstly, that by 2030 the built environment will halve its emissions; and secondly, that by 2050 all buildings will be net zero. The 2030 target represents a step up from the existing flood of long-term pledges.

Addressing emissions in the built environment is complicated. The industry is highly fragmented, with a long value chain spanning architects, investors, developers, and tenants, often with misaligned priorities. It will also require huge investment; the Office for Budget Responsibility estimates that the UK will have to spend £400 billion to make its existing buildings net zero.

Despite these challenges, the good news is that both landlords and occupiers are showing appetite for change. According to our 2021 survey, one-fifth of corporate real estate executives rate decarbonization as their top strategic objective for the next three years. In addition, 30% of landlords told us that they are planning to offer green leases by 2024.

Thus, even if COP26 does not result in industry-changing outcomes, it will be a welcome opportunity for stakeholders across the real estate sector to help shape the pathway to a greener future.

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David Metcalfe
CEO

David is the CEO of Verdantix and co-founded the firm in 2008. Based on his 20 years of experience in technology strategy and research roles he provides guidance on digital strategies to C-level executives at technology providers, partners at private equity firms and function heads at large corporations. His current focus is on helping clients understand their market opportunity tied to ESG investment trends and their impact on corporate sustainability strategies. During his 12 years running Verdantix – including 4 leading the New York office – he has helped dozens of clients grow their businesses through fund raising, acquisitions and international growth. David was previously SVP Research at Forrester and Head of Analysis & Forecasting at BT. He holds a PhD from Cambridge University and also worked as a Research Associate at the Harvard Business School.

Rodolphe d'Arjuzon
Global Head of Research and Finance Director

Rodolphe co-founded Verdantix in 2008 and directs the firm’s research strategy across all practice areas. Rodolphe has over twenty years of experience in technology research and strategy consulting. He previously worked for Barclays Bank and L.E.K. Consulting. Rodolphe holds a PhD in Physics from Cambridge University.

Kim Knickle
Research Director, ESG & Sustainability

Kim leads the Verdantix ESG & Sustainability practice, addressing business challenges and priorities in ESG and sustainability through technology. Her current research agenda focuses on ESG, sustainability and climate change services market forecast, and digital strategies to improve sustainability risk management. Her research expertise also includes manufacturing and retail industry subject matter expert, thought leadership, storytelling, emerging technology research and analysis (cloud, artificial intelligence, augmented and virtual reality, computer vision, IoT), sales enablement, competitive and SWOT analysis, market research, research operations.

Susan Clarke
Research Director, Smart Buildings

Susan leads the Verdantix Smart Buildings practice. Her current research agenda focuses on software solutions for real estate management including integrated workplace management systems and IoT platforms for buildings. Her research expertise also includes a broad range of energy management technologies and energy services. Susan has eight years of experience in technology research. She holds a MSc from the University of London in Sustainable Development.

Malavika Tohani
Research Director, Operational Excellence

Malavika leads the Verdantix Operational Excellence practice. Her current research agenda focuses on digital technologies for Operational Excellence including digital twins and software solutions for industrial risk and asset management. Malavika has over 15 years’ experience in research and strategy consulting. Malavika previously worked at Frost & Sullivan, managing and delivering advisory projects for clients involving expansion, acquisition, benchmarking and product development strategies. Malavika holds a MSc in Economics from Madras School of Economics.

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