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As societal concern over climate change grows and with the devastating bushfires continuing, Australia’s CEOs are keenly aware that their organisations must meet stakeholder expectations. But their response so far has focused primarily on the risks of climate change initiatives, rather than the opportunities for new products and services.
Few people disagree that there is a growing global push towards a lower carbon, cleaner economy. Australia is not immune to this, and neither are its businesses.
Climate change has become a business issue for several reasons, including:
Increased consumer awareness around environmental considerations
Increased community activism
Increased focus from investors and analysts on companies’ environmental, social and governance reporting.
In 2016, 93% of local CEOs (85% global) agreed that it’s increasingly important to run a business in a way that accounts for wider stakeholder expectations. Since then, concerns have escalated every year that growth is threatened by climate change and environmental damage. It didn’t feature in the top ten concerns for 2019, but now 65% of Australia’s CEOs see this as a threat.
Locally 89% (78% globally) feel their stakeholders (e.g. customers, employees, shareholders, investors, regulators) have reasonable expectations regarding their approaches to climate change. CEOs are starting to recognise the need to address society's concerns.
A critical piece of Australia’s energy puzzle is the pathway to a low carbon economy. PwC’s recent Low Carbon Economy Index 2019 highlights the urgency of this: Australia has a decarbonisation rate of 1.8%, lagging in 13th place on the global Index, behind Germany (top performer with a rate of 6.5%), and behind regional powers China (3.9%) and Japan (3%).
There’s a direct link between Australia’s energy system and our economic prosperity. Continued inaction or misguided choices in relation to energy will have serious impacts, including increased grid failures, less-reliable supply, volatile prices and significant environmental consequences.
The debate around this is often partisan and mired in polarising claims. As a result, there’s confusion about the true impact of different policy decisions. But most forecasts now suggest that our economy is heading towards a largely renewable energy future.
The immediate challenge for Australia is whether we are doing enough now to take us towards that future while balancing our emissions, our energy system and our economy.
PwC Australia’s recent Future of Energy report equips policymakers and the investment community with facts and perspectives to help move beyond the polarised debate. It outlines a policy approach that considers the different elements on the energy ‘trilemma’: affordability, reliability and sustainability - and supports optimal investment decisions. The net result would be a better energy future for Australia.
As coal-fired power stations retire over the next 20 years, Australia can transition to an energy mix dominated by intermittent renewables with reliability provided by a mix of dispatchable power stations. This is a ‘no regrets’ policy direction for Australia. It would result in the country being supplied by 80% renewable energy by 2040 and with lower emissions from power generation (68% lower than 2005). It would also add more than $13b to GDP and enable an additional $6b in consumption by Australians. It is also possible to accelerate this transition and for it to be even more positive for Australia’s economy.
Just two years ago, more than half of local CEOs (55%, global 44%) said their organisation was helping combat environmental issues such as climate change to build trust with customers.
Reputation is playing a part in elevating concerns from local and global CEOs about climate change. 10 years ago, 17% of local CEOs strongly agreed that their response to climate change initiatives provided a reputational advantage among key stakeholders, including employees. This year one in four CEOs strongly agree.
And CEOs are starting to prepare their organisations too. More than half of local CEOs (54%, global 64%) say they have assessed the potential transition risks (e.g. carbon regulation and technology shifts) to a greener economy and a similar proportion (58%, Global 56%) say they have assessed the potential physical risks (e.g. infrastructure damage) of future climate events.
However, CEOs around the world have contrasting views on whether or not climate change initiatives present opportunities for new products or services.
Many CEOs from the world’s largest economies strongly agree that climate change initiatives will lead to significant new product and service opportunities for their organisations. There is a growing consensus on this among CEOs in China, India, US, Brazil, Italy, Japan and Germany.
However, Australia, alongside the UK and Canada, is going backward. In 2010, 20% of local CEOs strongly agreed there were new product and service opportunities but this has since reduced to 17%.
The Future of Energy report points to the economic benefits for Australia of moving to a highly renewable energy system over the next 20 years, presenting additional market space for Australian businesses to play with new products and services.
There is an opportunity for business, government and community to come together to develop clear environmental reporting and measurement guidelines that enable like-for-like comparisons. (Currently there is no consistent framework, locally or globally.)
There have been some tentative steps towards collaboration between governments and businesses. Five years ago, 7% of local CEOs agreed collaboration among governments and businesses was effectively mitigating climate change risks, now 12% agree. But these are small steps compared to our global counterparts where 36% agree. Clearly, there is more work to be done.
Of the 80% of local CEOs concerned about over-regulation as a top threat to growth, 38% cite environment and climate as an area of regulation they are most concerned about. Only industry-specific concerns (67%), data privacy and cybersecurity (55%) and labour (47%) rank higher.
CEO concern about regulation could be linked to uncertainty due to unclear reporting, measuring and framework guidelines.
build trust with stakeholders by increasing transparency around current and future approaches to climate change and by collaborating openly with other organisations, industry and government to mitigate climate change risks
develop an energy and emissions strategy that explores opportunities to both reduce costs and improve environmental outcomes
assess and build strategies around transition risks (e.g. carbon regulation and technology shifts) to a greener economy
develop an action plan built around the potential physical risks (e.g. infrastructure damage) of future climate events
roadmap the business opportunities linked to climate change initiatives.