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Reimagining business

Emily Cromwell, Responsible Business Lead, Consumer at Deloitte, explains why envisioning probable futures is key to successful business
Katie Hill - Editor-in-Chief, My Green Pod
Reimagining business

This article first appeared in our Love issue of My Green Pod Magazine, distributed with The Guardian on 09 April 2021. Click here to subscribe to our digital edition and get each issue delivered straight to your inbox

As consumers we have all the power: today’s shopping, travel, transport and hospitality companies are underpinned by a philosophy that convenience is king and the customer is always right.

Unfortunately, the result is that consumer businesses are responsible for 25% of global emissions.

If operating models, supply chains and consumer expectations don’t change soon, we’ll all have to experience the social, economic and political consequences of a less stable climate.

Business as a force for change

Deloitte joined together with the Met Office to explore four plausible future scenarios, and to imagine business as a force of change leading customers on a journey to net zero.

At many levels, the issue with modern consumerism is simply the volume of consumption; as a society we are churning through goods at pace, discarding products not because they have ceased to function but because they ceased to reflect the latest trends.

This linear model of consumerism – take, make and waste – is by definition unsustainable; according to the Global Footprint Network, we live in a way that requires the resources of 1.6 Earths.

Consumers and businesses recognise the need for change. As consumers we need to reduce overall consumption and buy sustainably produced products; we are increasingly demanding that businesses create products that don’t cost the Earth.

Consumer businesses are naturally tied to the wants of consumers, but other drivers also play a major role in shaping their operating models.

With a flurry of global net zero targets, businesses operating in almost every major market will have to ensure their operations are compatible with ambitious climate targets set by local regulators.

Investors, also tied by national (and their own) net zero targets, are also putting pressure on businesses to reduce their environmental impact.

This has led many companies to reimagine their offering and drive towards evermore responsible business. Consumer goods brands are increasingly implementing carbon labelling for their products, helping customers to better understand the emissions footprint of the goods they purchase.

We’re seeing businesses really grasping the issue and leading the charge as we build up to COP26.

Meaningful action

Behavioural change at the scale required can’t be achieved by governments, consumers and businesses acting in isolation. The problem of climate change is multi-faceted, and to address it we need to accept that we all have a part to play.

Governments have committed to ambitious decarbonisation targets; businesses need to respond to consumer demand and match this ambition now, with bold climate targets matched by meaningful action in the short term.

Tackling climate change requires business to look beyond short-term investor goals and ask itself whether its model rewards investors at the price of damaging the world for everyone.

Even through the lens of shareholders, businesses should think about whether their operations are viable in the medium to long term. Can their operating model still function just five or 10 years into the future?

Deloitte research shows that, while 91% of business leaders say that climate change has already affected their business and 84% are very concerned on a personal level, just 23% of the same sample thought business should lead the change.

While business alone cannot address all the challenges ahead, business does have a leading role to play in addressing both the mandate for, and the opportunity in, transformation.

Impacts on supply chains

Impact on profits from incidents associated with climate change are by no means new.

Due to globalisation, events in one part of the world can have significant knock-on effects for supply chains.

This was demonstrated back in 2011 when floods in Thailand hit production for two major car manufacturers; since then globalisation has only further integrated supply chains.

During the Covid-19 pandemic, there has been solace from global supply chains holding up to the challenges created by a rapid and seismic change to operating environments.

Climate change presents a very real set of challenges that are more pervasive and long term; supply chains may have proved resilient during the pandemic, but business should by no means take them for granted.

Business in a changing world

Scenario analysis is an extremely powerful tool that not all businesses are using. It forces business leaders to think about how their companies could function in a changing world and usually serves to underscore the importance of immediate, sustained and effective action on climate change.

However, some of the scientific jargon involved in scenario analysis can present the exercise as more complicated than it is; the report Deloitte produced in collaboration with the Met Office seeks to demystify the exercise.

The report builds out four different scenarios to show what the future may look like for consumer businesses in 2050, and includes a checklist to guide companies at the start of their journey. The report has received positive feedback from business leaders, many of whom used it as a tool to prepare their operating models for a changing world.

Climate-related disclosures

The report is also useful for building out disclosures. In particular, businesses have recognised its utility in responding to the recommendations of the Task Force for Climate-related Financial Disclosure (TCFD).

TCFD is a body set up by the Financial Stability Board to improve and increase reporting of climate-related financial information. It is a hugely important step in the way companies talk about sustainability and respond to climate change.

Crucially, TCFD is extremely relevant to the UK as the government has recently mandated that most of the economy report in line with TCFD by 2025.

As scenario analysis is a component of TCFD-aligned reporting, the climate scenarios report from Deloitte is particularly useful to companies as they seek to improve or implement appropriate disclosures.

Rational preparation

No one knows exactly what the world will look like in 30 years, but we are able to take a view on a series of probable paths based on our current direction of travel.

The lack of a crystal ball shouldn’t daunt companies; envisioning probable futures drives business to prepare rationally for what the future could look like.

Communication is key

Many companies are succeeding as corporate citizens by going to great lengths to prepare for a changing climate and putting the brakes on their own emissions, but failing to communicate their work.

If companies disclose what they are doing then its puts pressure on their competitors. Currently, consumers are ahead of businesses when it comes to their focus on sustainability;
to gain the respect of their customers, businesses must communicate their efforts.

In so doing, they bring accountability and transparency, paving the way for collective action.

Time to innovate

The central tenets of consumer business – that the customer is always right and that convenience is king – will need to be reimagined in an era shaped by climate change.

Systemic shifts have to be prioritised over consumer behaviour change; the sector has to lead customers towards a net zero future in the next decade.

Innovation will be critical in shaping the sector for a low‑carbon future; this will present both risks and opportunities for the proactive, but only risks for the reactive.

Beyond this, we know that stakeholders from across the spectrum want corporate purpose to be evidenced in practice; addressing climate change is a highly effective way to do this.

There is much to be done, but action today – informed by a changing climate – can help to prevent supply chains collapsing and consumers taking their custom elsewhere.

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