Stephen Prendiville, head of EY’s Sustainability business, on how businesses can take climate action and transform to drive a sustainable future.
Motion sickness is the result of our brains interpreting mixed signals. Fundamentally, the brain cannot reconcile the motion experienced by the inner ear, with what our eyes are processing. Thinking we must have ingested a toxin of some sort, the brain sets about to protect us, inducing nausea to get us to expel the toxin.
Mixed signals could be the dominant theme emerging from EY’s State of Sustainability Report 2022. Irish businesses are reporting low confidence in achieving 2030 goals (just one in five feeling confident), and on the other hand 84% feel like they are doing enough for sustainability.
“The opportunities presented by the transformation to a more sustainable society could be vast for Irish businesses and SMEs – but they must be pursued”
Then, of those pursuing sustainability, 40% are reporting an improvement in the bottom line performance, yet not one organisation identified profit as a potential driver of their sustainability efforts (and very low numbers reported customer loyalty, market share or competitive forces as potential drivers).
On the other hand, the majority of Irish businesses reported compliance as a key driver of their sustainability efforts to date, with over 40% stating that if they met government compliance requirements they would be “doing enough”, and yet many do not have systems in place to record data accurately or comprehensively for reporting purposes.
Actions speak louder than words
It is time to expel the toxin. We are not doing enough. Continued reporting from the Intergovernmental Panel on Climate Change (IPCC) confirms the gravity of our collective situation. And with 2022 introducing new headwinds to progress in the form of global instability, inflation, the energy crisis and war in the Ukraine, we have no room to be complacent.
“We are at a crossroads. We either start to climb the mountain, or we will wilt in its shadow”
Indeed it is almost certain that we will confirm very little if any progress on our carbon budgets in 2021 – leaving an even greater challenge ahead to meet the ambitions of our first carbon budget out to 2025 (which is significantly less onerous than the second budget for 2026 to 2030).
Here I draw a line. The language of budgets, reporting and compliance, is not serving Irish business well. It entrenches sustainability and climate action as a burden. We need a complete mindset shift.
The opportunities presented by the transformation to a more sustainable society could be vast for Irish businesses and SMEs – but they must be pursued. Multinationals, large PLCs, banks and investor groups, are all seeking out decarbonisation, climate action and sustainability solution opportunities. These entities are coming under increasing pressure to have greener supply chains, greener distributions channels, greener loan books and investment portfolios, and better environmental, social and governance performance in general. For the Irish businesses that can offer such solutions to these larger international entities, new financing, funding and investment opportunities await.
The EU Green Deal has over €500 billion of government funding that is aiming to unlock a further €500 billion in private investment in the EU. This is money that is seeking entrepreneurship and fresh thinking to tackle our significant climate and decarbonisation challenges – Ireland’s SME ecosystem should be stepping forward. The opportunities to innovate and incubate the technologies and process improvements that could support global decarbonisation and climate ambitions should be our next Celtic Tiger.
Supporting the giants and exporting innovation and technology to help address the challenges on the global stage is one thing, but Irish SMEs have another big opportunity in sustainability – serving local markets. In the main, to buy local products and services will also prove to be more environmentally sustainable. Irish businesses must not neglect this opportunity to meet the growing expectations of the Irish consumer. And while many Irish businesses have a focus overseas, the local domestic market may well prove to have new vibrancy, as imported alternatives start to lose the battle on carbon miles and applications of carbon border adjustment mechanisms may result in increased competitive positions for Irish SMEs at home and in Europe.
International evidence suggests that businesses which perform well on sustainability metrics tend to do better than their peers when it comes to attracting capital, winning new customers, recruiting and retaining top talent, and a range of other measures. Yet just 36% of respondents to EY’s SOS 2022 Report said their organisations had seriously considered the opportunities for value generation from sustainability or net zero strategies.
We need to be unshackled in our decarbonisation ambition. We need to start taking aggressive and positive actions right now. We need to transform to win!
How to make a long-term difference
So what can Irish SMEs do right now to really start making a long term value generative difference? Here are a few starting points:
- Review and implement energy efficiency opportunities. Think about current processes that could be altered, that would require less light and heat to be generated. What is important to consider, is that everything should be up for consideration. Can you use more natural light for a particular function? Can you close the storeroom door or automate entrance doors? Can you use less water? All of these small changes can have a material impact on your energy bills, saving you money and improving the bottom line – while also promoting a lower carbon footprint for your business. And this is before potentially more material investments in LED conversions, heat pumps and so forth. Do the easy things right away and then build the cases for the rest.
- Consider if your processes can be more circular or reduce waste. Does a particular waste product potentially have value to another business? Reviewing waste processes in businesses can often highlight new business partnering opportunities, turning waste products into new revenue streams. Even just asking the question about potential reuse and repair on existing processes can drive innovations that reduce material use and lower costs and carbon footprints.
- Make the first move and discuss potential carbon reduction, circularity and sustainability ambitions with your suppliers and customers. Your customers’ needs should be front of mind and your goal should be to bring them into and along with your sustainability ambition. Your suppliers too. The opportunities for business model innovation and new processes, circularity, waste reduction and more – they need someone to make the first move and open dialogue. Be brave.
Taking these pragmatic steps will help you to identify potential projects that you need to roadmap against your sustainability ambition. Often our clients struggle to move from strategy to action. Frankly, strategy can be completed without disrupting the business, but actions cannot. It is why we created EY Carbon to support our clients on this complex journey in a manner that holds value creation at the heart of the transformation process.
The State of Sustainability 2022 Report shows much work lies ahead for our sustainability and climate action journey. Irish business must start to attack the challenge with vigour and dedication, fully resourced and supported, if we are to have any chance of collectively hitting our moonshot ambitions.
And we must – the consequences of collective global inaction will be dire, and will destroy any chances for the next generation to live quality lives.
Ultimately, if we do not act the chances are that many Irish businesses won’t have customers in the future – they will be too busy trying to live for the basic necessities. We are at a crossroads. We either start to climb the mountain, or we will wilt in its shadow.