More than half of companies are not transitioning fast enough, leaving them in danger of missing the Paris Agreement target of net-zero carbon emissions by 2050, new research from Standard Chartered has revealed.
Zeronomics, a study into the financing of a net-zero world, surveyed the senior leadership of 250 large companies and 100 investment specialists between September and October 2020 and found that:
- 55% of business leaders believe their companies are not transitioning fast enough to reach net zero by 2050.
- A lack of finance is seen as the biggest barrier to progress - 85% of companies need medium or high levels of investment to transition to net zero.
- Carbon-intensive industries and companies based in emerging markets are struggling most with the transition.
- Just 47% of companies fully support the aims of the Paris Agreement.
What are the barriers?
Many companies are looking to delay significant action to after 2030, with the 2020s looking set to be a lost decade. More than a third of business leaders (34%) said their companies will make the most progress between 2030 and 2040, while 37% said they will take most action between 2040 and 2050.
Most companies are delaying transition because they do not feel they are currently equipped to meet the target. Some 59% said they need extensive organisational change before tackling net zero.
Accessing transition finance is not the only hurdle companies face. Some 64% of business leaders believe their company’s progress is being hampered by an absence of affordable alternative technology to help them transition, while three in five believe that a lack of support from investors is a significant obstacle.
Meanwhile, COVID-19 is forcing many businesses to focus on immediate survival: 52% of senior executives say their organisation is postponing its net-zero transition in order to maximise revenues in the short to medium term.
How to fix it
The research also reveals what business leaders believe is needed in order to speed up transition. Most point to standardised net-zero measurement frameworks (81%), underlining the fact that what we have currently - a matrix of different definitions, measurement and reporting requirements - is a major challenge for senior executives.
A further 81% said that cost savings from sustainable practices or increased operational efficiency, making it more attractive financially to move to net zero, would speed up transition.
Meanwhile, 79% of business leaders said that an increased demand for net-zero products and services and increasing pressure from customers to move to net zero would help the world hit the target by 2050.
The top accelerators of a net-zero transition were listed as follows:
- Standardised global net-zero transition measurement, disclosure and rating frameworks: 81%
- Increased operational efficiency/cost savings from sustainable practices: 81%
- Increased demand for net-zero operations, products and services from net-zero trading partners: 79%
- Increased shareholder activism/investor scrutiny and pressure: 78%
- An effective global carbon tax: 77%
"Our survey reveals that most companies intend to transition to net zero by 2050 but have yet to take the action needed to get there," commented Bill Winters, group chief executive of Standard Chartered. "A majority cite funding as an obstacle and carbon-intensive industries and emerging-market companies struggle the most. A successful net-zero transition must be just, leaving no nation, region or community behind and, despite the hurdles, action needs to be swift. We must act now, and we must act together: companies, consumers, governments, regulators and the finance industry must collaborate to develop sustainable solutions, technologies and infrastructure.”
Sustainable trade finance push
The research comes after Standard Chartered announced that it is launching sustainable trade finance solutions across Asia, Africa and the Middle East, Europe and the Americas. The bank’s Sustainable Trade Finance Proposition is designed to help companies implement more sustainable practices across their ecosystems and build more resilient supply chains.
The Sustainable Trade Finance Proposition builds the Loan Market Association’s Green and Sustainability-linked Loan Principles into Standard Chartered’s trade financing framework, encouraging clients to improve disclosure, reporting and definition of use, while meeting their environmental, social and governance goals. The initial focus will be on supply chain finance, invoice financing, receivables services, bonds and guarantees and letters of credit, and the product set will be expanded in due course. The bank says that these products will help global supply chain activities - estimated at US$19 trillion by the World Trade Organisation - become more sustainable.
The new Sustainable Trade Finance Proposition allows the Bank to support the following:
- Sustainable goods: Working with customers and partners to finance underlying goods that meet agreed sustainability standards.
- Sustainable suppliers: Supporting trade for suppliers who meet acceptable thresholds against ESG ratings or metrics such as gender equality, responsible sourcing criteria and water use.
- Sustainable end-use: Focusing on trade financing in sustainable industries including renewable energy, energy efficiency, the blue economy, sustainable infrastructure, water management and clean transportation.
- Transition industries: Helping industries transition and reduce their carbon footprint by offering trade financing that recognises efforts to help reduce emissions.
“Trade finance has an enormous opportunity to help make global supply chain activities more sustainable by offering companies the products and solutions they need to achieve their sustainability agendas," commented Simon Cooper, CEO, Corporate, Commercial & Institutional Banking and CEO of Europe & the Americas at Standard Chartered. "Our new Sustainable Trade Finance Proposition will help companies build more resilient supply chains, as we work to make global trade more sustainable and inclusive.”
Some examples of the Bank’s sustainable trade finance solutions that have driven positive impact include:
- A sustainability-linked supply chain finance solution for an international sportswear manufacturer, linked to their ESG/sustainability performance to incentivise more sustainable practices across the supply chain.
- An import invoice finance facility for an electric vehicle manufacturer.
- Bonds/guarantees and trade finance solutions for renewable energy companies.
- Enabling the import of personal protective equipment via import invoice financing under our COVID-19 US$1bn financing commitment, launched in March 2020. The bank also offers trade finance at cost to companies that meet the criteria for that programme.
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