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CEOs and CFOs need to step up on net zero

Transforming commitments into action for a sustainable future

Companies play a vital role in the transition to net zero, and one of the barriers in moving from net zero commitments to action has been the limited visibility of strong leadership and ownership of net zero commitments by CEOs and CFOs – indispensable to move the dial on progress.

"Bold leadership from CEOs and CFOs is vital if companies wish to seize the opportunities associated with an early transition towards net zero, and mitigate the very existential risks looming for those that don’t act fast enough."

- Priti Hoffmann

A significant 70% of companies expect climate change to heavily impact their strategy and operations1. Yet we see that long-term climate transition planning is only superficially embedded in business strategies, if at all. This sits at odds with the recognition of climate change as a core business issue. 92% of global CxOs surveyed by Deloitte1 agree that their company can continue to grow while reducing greenhouse gas emissions and transitioning to net zero. And yet progress against net zero targets is patchy. Only 37% of the world’s top 2000 firms have set full net zero targets across all three scopes of emissions (with 65% setting scopes 1 and 2 targets), and only 16% are on track to reach net zero in their operations by 20502.

This will need to change (and drastically so), if we are to stand any chance of limiting the impacts of climate change, and if companies desire to seize the opportunities associated with an early transition towards net zero, and mitigate the very existential risks looming for those that don’t act fast enough. This, combined with the significant transformation required to get to net zero, and the reputational, legal, operational, and strategic implications3 of not meeting the target, makes CEO ownership of net zero targets important. 

While the CFO's role has traditionally not encompassed sustainability matters, with incoming sustainability regulatory requirements this is rapidly changing, with sustainability reporting accountability increasingly falling upon the CFO. This should extend to net zero targets. CFOs are perfectly placed to understand the viability of various business models under different climate scenarios. With a remit to manage risks and opportunities, as well as manage capital allocation, the CFO should play a unique role in determining which decarbonization activities to finance, and therefore when and how to decarbonize, to minimize physical, transitional risks and create value through the transformation. 

Acting on net zero is not without challenges of course, and where and how to get started can often feel daunting. 

We typically ask CEOs and CFOs to start with some of the following questions at the outset of their net zero transition planning process: 

• What is our net zero ambition? How committed is our executive committee and our board to achieving these targets?
• What decarbonization levers will we need to employ?
• Which parts of the business/product portfolios and in which geographies do we decarbonize first?
• What will our future product portfolio look like?
• Which markets are going to be more/less attractive in the future?
• What customer base are we aiming for in the future?
• Which suppliers will we continue to do long-term business with in anticipation of a future decarbonized world?
• What does a just transition look like for our company?

• What is our future operational model going to look like? How do we need to start transforming today?
• What governance arrangements will need to be in place to operationalize the transition?
• What skills/talent will we need to mobilise?

• What will be the future cost of capital based on physical and transition risks?
• What financing instruments (eg grants and incentives, green bonds/loans, internal carbon pricing) can we leverage, and in which geographies?
• What capital investment programme will need to be in place in the short, medium and longer-term and how will decisions related to M&As, growth etc influence this as well as our overall goal?
• Will our current investor base support the transition?

We worked with a large global services company that had a net zero target, but the executive committee was unaware of the implications of the target, and how it would be met. With increasing questions from customers and broader stakeholders, the company required a business case for action for the CEO, to help provide comfort on the viability of the target before it could be publicly communicated, and wanted to highlight the risks and opportunities associated with the target. We helped put together a roadmap to net zero, with interim targets, not just at global level, but at country level, along with an estimation of the costs of each decarbonization lever as well as the costs of not acting upon net zero. An analysis of nature-related and just-transition related impacts was also conducted on each of the levers. Operational, strategic, and reputational implications and costs were modeled using various scenarios including a PESTLE (Political, economic, social, technological, environmental and legal) analysis, along with extensive senior stakeholder engagement across geographies, to raise awareness, seek buy-in, and agree on actions, culminating in an executive committee as well as a board workshop to gain buy-in and ratification for the net zero transition plan and roadmap. The CFO, CSO and CEO were extensively involved in signing off on the target and the implementation plan.  

It will take courageous leadership to address head-on the various challenges in implementing net zero: from decarbonizing supply chains, complexity of data collection, the extent of transformation not just to the business, but to the established ways of working and thinking, the need for a better policy landscape and ecosystem thinking, to a backlash against climate commitments in certain geographies, and negative economic outlooks, it can be tempting to hit pause on net zero action or hunker down on communication around progress. However now is the time for bold leadership and for demonstrating action and progress on the net zero transition. Those CEOs and CFOs that together seize the opportunities related to being an early mover will build competitive advantage.And as climate change brings unprecedented physical and transitional risks3, those that don’t, risk being at the helm of companies that in time may cease to exist.

 

1 Deloitte CxO survey 2024: https://www.deloitte.com/content/dam/assets-shared/docs/about/2024/deloitte-2024-cxo-sustainability-report.pdf, 2000+ C-suite executives interviewed over 27 countries

2 https://www.accenture.com/content/dam/accenture/final/accenture-com/document-3/Accenture-Destination-Net-Zero-Final-Report.pdf

3 https://www.deloitte.com/nl/en/issues/climate/key-elements-of-a-net-zero-roadmap.html

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