What next for net zero?
Pannone Corporate

In the final piece in our series commenting on Manchester’s aims to achieve net zero by 2038, we look to the future and offer our predictions as to some of the key environmental issues for businesses going forwards.

Manchester’s objectives – and the UK as a whole – are clear, as are the opportunities for businesses to cooperate and participate in achieving net zero. As we have highlighted in our previous blogs, businesses can no longer shy away from their environmental impact, and must integrate ‘green’ issues and how they consider them in their day-to-day operations.

But what does this mean in practice?

Whilst environmental impact is not a new concern for businesses, unlike in the past, in the next few years the promotion of environmental objectives will be placed onto at least an equal footing and importance as other daily business concerns.

Appreciation of environmental impact

As we have highlighted in previous blogs in this series, there are many ways in which businesses can help contribute to Manchester’s goals.

All of these measures however require businesses to evaluate their environmental footprint, and then to take measures to address specific issues arising. For example, we have previously touched upon cycle to work schemes and onsite EV charging. Whilst not necessarily applicable to every business, these are perhaps obvious areas for businesses to consider if they can reduce their carbon impact.

Likewise, our blog series has also commented on the potential to retrofit the built environment. There are a number of potentially ‘easy wins’ in this regard, in terms of upgrading insulation and heating systems, but there are cost consequences.

We recommend that businesses take the time now to consider all aspects of their operations, and assess where and how measures can be taken to contribute to the net zero aims. It would be advantageous for businesses to undertake this task now, before they are compelled to do so, in order to best position themselves going forwards in light of expected growth in this area.

Lengthier due diligence exercises

As environmental awareness increases, and local and national drives to achieve net zero pick up pace, we anticipate that this will be reflected in more protracted and complicated due diligence exercises.

We have touched upon some of the relevant concerns within this series, but the net result will require businesses to consider additional matters when considering purchases and acquisitions. For example, where new build commercial properties are constructed with the benefit of on-site energy generation, issues of licensing, regulatory requirements and health and safety will need be incorporated into enquiries. The consequence of considering such additional matters will be to increase the cost of, and time required to complete, legal due diligence.

Cultural change

It is accepted that net zero cannot be achieved overnight, and will require a concerted and consistent approach across all sectors. That being said, change needs to start somewhere and may for many businesses require a cultural change and significant revision to their current operating procedures.

Such changes can only flow from the top of an organisation, and the active promotion and furtherance of environmental aims cannot be seen or treated as a simple tick-box exercise. The achievement of net zero will require a new mindset and a genuine prioritisation of the objectives to be achieved.

Solid foundation for environmental claims

In contributing to the region’s net zero aims, businesses may want to promote their own environmental credentials – either by way of encouragement of others, or to promote the steps they are taking. However, organisations must remain mindful that any ‘green’ claims they publish about themselves must be accurate and not misleading. Recent years have seen an almost overnight increase in the number of ‘greenwashing’ claims, and the Competition and Markets Authority is actively investigating claims of sustainability.

In order to avoid falling foul of these novel causes of action and litigation, businesses need to be conscious of the way in which they publicise their net zero actions and, where necessary, have in the background clear data to demonstrate the validity of their claims – for example, in terms of their environmental sustainability or net zero achievements.

Increasing importance of ESG scores

Environmental, social and governance scores have existed for many years, although historically they have been used by financial institutions to benchmark their performance against competitors and assess likelihood of default by a business.

The last few years has seen a rapid increase in their prevalence, across all sectors, and we predict that they will only play an ever more central role over the coming years. Not only does the EU Corporate Sustainability Reporting Directive serve to mandate the inclusion of ESG scores within companies’ annual reporting processes, but this information will also likely play an increasingly seismic role in M&A deals, and is already being seen as a key influencer in investment decisions:. Investors will require clear and unambiguous confirmation that their investments have verifiable ‘green’ credentials.

Carbon accountability

Han-in-hand with the increase in ESG scores, we anticipate that the next few years will see an increasing awareness, and benchmarking, of carbon accountability. Manchester has already provided information as to how much carbon its net zero measures have saved, and we consider it is only a matter of time before similar information is volunteered by other sectors.

To date, these scores have mainly been used by aviation companies to provide information as to the carbon impact of individual flights, but we anticipate their spread into construction, hospitality and retail.

As worldwide efforts to achieve net zero increase, and consumers become more alive to their own environmental impact, carbon scores will likely become increasingly omnipresent and a key driver of consumer behaviour. It may be the case that carbon limits are in time placed on businesses, and potentially individuals, as further drivers of change. For example, similar initiatives have been introduced by some banks which have already started to offer card accounts with an in-built carbon tracker.

In time, it may be the case that retail goods, and other purchases, are provided with an individual ESG/ carbon accountability score in much the same way that energy efficiency ratings currently attach to white goods.  We therefore recommend again that business look now at where their main carbon spend is occurring, and what measures may be available to address and reduce this.

War on plastic

Although our series has not focussed on the war on plastic, Manchester’s actions towards net zero are taking place against the national background of this issue. The government has stated its desire to avoid all avoidable waste by 2042, and recent years have seen the prohibition on sales of certain items, such as single-use plastic cutlery, and the introduction of the plastic bag charge.

Businesses are not immune to these measures and have been equally affected by the Plastic Packaging Tax and extended producer responsibilities, both of which serve to impose waste management cost obligations on businesses for the packaging they generate and handle.  Whilst the purpose of these regulations is to encourage and incentivise durability, repairability and recycling, and move away from disposal as the default option at a product’s end of life, the additional costs generated are almost certainly going to be passed on throughout the supply chain.

As part of the suggested internal review and assessment identified at the start of this piece, businesses need to start considering now whether any of their produced items can be redesigned using environmentally friendly components, or re-packaged in a way that supports environmental targets.

What does the future hold?

Absent of a crystal ball, no one can predict with certainty what tomorrow may bring, but so far as the achievement of net zero and climate action are concerned, the route is clear: preservation of the environment is to be promoted.

We suggested at the outset that businesses may want to consider now (before they are obliged to do so) what their environmental footprint is and how they may be able to reduce this so as to contribute not only to their immediate community, but also the wider objectives stated by Manchester and central government.

Whilst this will almost certainly result in immediate costs being incurred, these perhaps pale into insignificance given the greater good to be achieved.

Photo: Sakorn Sukkasemsakorn

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