Less than a third of Irish organisations have made a Net Zero commitment.
The European Union’s Green Deal has the potential to transform the European economy and business but less than half of Irish firms are familiar with it, warns PwC.
The European Union Green Deal, adopted in December 2019, will affect nearly every aspect of business, including taxes, manufacturing, procurement, supply-chain management, finance and human resources, as well as corporate reporting.
“The lack of familiarity with the Green Deal in our survey reflects that a majority of companies aren’t fully prepared and coordinated across their business to adapt most effectively to the coming changes”
Companies will need comprehensive, long-term, transformational efforts to respond, including identifying and capturing reliable data to support reporting.
Investing in low carbon
But according to a new survey from PwC, fewer than half, 40%, of organisations are familiar with the EU Green Deal and only about half, 49%, consider their organisation prepared for the expansive new requirements.
The Green Deal is aimed at promoting investment in low-carbon technologies, increasing energy efficiency and the shift to zero-emissions energy sources, along with reducing consumption of natural resources and better protecting natural habitats.
“The lack of familiarity with the Green Deal in our survey reflects that a majority of companies aren’t fully prepared and coordinated across their business to adapt most effectively to the coming changes,” said David McGee, PwC Ireland’s ESG team leader.
“Most companies taking action on sustainability initiatives are doing so in a piecemeal fashion. The challenge for the executives we surveyed is understanding and addressing all of the Green Deal dimensions across their entire organisation. In Ireland, based on our experience with clients, we see the same lack of knowledge and preparedness for the EU Green Deal.”
Perhaps the most complex aspect of the Green Deal is the number of new taxes and related measures it contemplates, expected to number more than 1,000, designed to fund the cost of the ambitious agenda and incentivise climate action.
McGee said it is critical that businesses look ahead to estimate the impact this might have on their business model and strategy.
Earmarking investment
Not surprisingly, larger companies with specialist tax and finance teams and well-resourced R&D and sustainability departments feel better informed and prepared for the coming challenges. However, even executives with larger companies say they are still in the early stages of understanding the Green Deal.
The provision with the greatest impact on business is expected to be the proposed Carbon Border Adjustment Mechanism (CBAM), which will apply to certain carbon-intensive imports. CBAM is designed to deter carbon leakage – the shifting of carbon-intensive production outside Europe. According to the survey, about half of respondents (51%) intend to shift key locations in their supply chain in the near term, and the vast majority (79%) stated the shift would be into, or within, the EU.
While the survey finds that a majority of companies are taking action to become more sustainable – for example, two-thirds have already earmarked capital to invest in becoming more sustainable over the next three to five years, however, there is more work to do. Investments are being undertaken on an ad-hoc basis, rather than as part of an integrated plan.
Priorities among companies surveyed include consuming more clean energy (78%), reducing energy consumption (60%), reducing waste and plastic use (59%) and cutting carbon emissions (59%).
PwC’s Irish 2022 CEO survey revealed that just 31% of Irish organisations have made a net zero commitment (Global: 22%) and just 34% had made a carbon neutral commitment (Global: 26%).
The manufacturing, distribution and procurement companies in the survey tend to generate the highest emissions and the good news is that a significant number are making sustainability improvements to buildings, equipment and manufacturing processes. This includes 70% of companies that are using clean energy “at scale” to power operations.
In addition, almost half of respondents said their company was actively working to reduce their carbon footprint and one-third said they were compensating for their carbon emissions with sustainability initiatives.
A weaker area is transport, where only 28% of respondents said their businesses were using clean fuel sources “at scale.”
Colm O’Callaghan, tax partner, PwC Ireland concluded: “Our survey shows that companies need to build capacity and expertise to fully understand and adapt their operations to the wide-ranging requirements of the Green Deal. With the Green Deal, tax will no longer be a cost centre or support function, but will become more integral to the entire value-chain of the organisation and an important value-driver.”
