Does your board know how to make its net zero contribution?
28 January 2021: Delivering the UK's net zero ambition should be a priority for every board member – executive and non-executive director alike. Chapter Zero and ICAEW have come together to explain what net zero really means for businesses and their boards.
While net zero is the target for 2050, there are various interim targets to keep the UK on track, and the 6th carbon budget is the one that provides the targets for the mid-2030s.
“The 6th carbon budget is a critical part of the jigsaw,” says Chris Stark, CEO of the Committee on Climate Change, set up in 2008 by the Climate Change Act to advise government and society on how to meet net zero targets.
Speaking at The role of business in delivering the UK's Net Zero ambition, Stark points out the urgency for boards to act now given that the average age of a capital asset is 15-20 years. “Something you buy today is still likely to be in use in 2040,” he points out. “That outlook has a huge impact on the work we are doing today.”
He reminds us that a light vehicle has an economic life of 14 years, a fossil fuel boiler installed in a building has 15 years, a gas power station has 25 years and an aircraft 30 years – these assets, sold today, will be around for a long time. “At what point do we start selling carbon-intensive assets?” asks Stark, emphasising the need to shift away from acquiring and financing assets as we have known them, towards zero-carbon assets.
“By 2030 we have to reach the point where new sales of capital assets are zero carbon,” he says. If we do not achieve this goal, assets will become stranded in the future – this is not a strategy any board is inclined to adopt. “2030 is the key date if we care about 2050,” says Stark.
He concedes that an extra £50bn/year investment is needed to deliver net zero, but net zero itself will deliver a fuel saving across the economy, thereby offsetting significant investment. But it is not all about numbers and investment - there is also the need to shift behaviour.
What should boards do?
Stark says they need to nurture their own awareness of what net zero means, and they need to understand the contribution they can make to net zero. “This is a story of government leadership,” he says, “but next there will be unprecedented change and boards will have to keep pace with that.”
Ruth Cairnie, Chair at Babcock International Group and a Non-Executive Director on various boards, agrees that net zero leadership has to come from companies’ boards, but that companies are coming at these issues from many different perspectives. “A lot of this is about confidence,” she says. “There has to be confidence that change is going to be for the long term when investing.”
Iain Wright, Director of Business and Industrial Strategy at ICAEW, comments that there is cause for optimism. “We are coming at this from a position of strength,” he says. “The UK has already decoupled economic growth from environmental damage.”
He concurs that the “tone from the top is essential”, but points out that 99.9% of UK companies are SMEs with less than 50 employees and will need support. That support may vary across different sectors but, he highlights, boards need help in understanding what they need to do now to capture the opportunities of the net zero transition. He emphasises that optimism and concludes: “A sustainable economy is something to be celebrated.”
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