Choose climate leadership to win big
Climate leadership could be the ultimate competitive advantage
Climate leaders win talent, grow faster, and ultimately deliver more value back to shareholders. They do this by focusing on five key competitive advantage areas.
Access top talent
A global survey by IBM found that 71% of employees and employment seekers think that environmentally sustainable companies are more attractive employers, and over two-thirds of respondents were more likely to choose jobs with environmentally and socially responsible organisations. In the UK, a separate survey found this figure to be 65%. Amazingly, nearly half of those surveyed globally would accept a lower salary to work for such organizations.
Between 2017 and 2020 in the US, sales of plant-based meat substitutes grew 16 percentage points faster than sales of animal meat. Globally from 2016 to 2019, electric vehicle sales grew by 26% annually, while conventional car sales dropped by 2% a year. A 28 percentage point difference. Consistently across sectors, climate positive products are outgrowing their traditional counterparts. If new growth is the objective, climate positive products must be in focus.
Source: World Economic Forum
Climate leaders have lower risk profiles. This means investors and creditors can offer a lower cost of debt for these businesses. Across key sectors, such as food, power, FMCG and aviation, sustainability leaders achieve a cost of capital that is on average ~100 basis points less than sector laggards: Italy-based Enel’s latest €3.5 billion ($4.0 billion) sustainability-linked bond is subject to a 25 basis-point step-up if the company does not meet its emissions-reduction and renewables capacity targets; Within FMCG, Danone’s €2 billion ($2.3 billion) sustainability-linked bond applies an interest rate discount or premium which is linked to ESG performance and score.
Investment into climate positive solutions can mitigate climate change risks and open up access to new, often unforeseen opportunities. Today’s bets on climate positive solutions are likely to form the heart of tomorrow’s core business. For example, 70% of Unilever’s turnover is now attributed to its sustainable living brands.
Drive shareholder value
In 2018, Bank of America Merrill Lynch found that firms with a better ESG record than their peers produced higher three-year returns, were more likely to become high-quality stocks, were less likely to have large price declines, and were less likely to go bankrupt. It has been found that climate leaders achieve a 3 percentage point increase in total shareholder return compared to their peers. Energy sector climate leaders including Enel, Iberdrola, Neste, NextEra Energy and Ørsted generated annual total shareholder returns of the order of 30% from 2017 to 2020, which is a level similar to that of tech firms like Amazon, Apple, Facebook and Google.
Competitive advantages are there for those who strike out in front and take a leading position on climate impact. Where will you lead others? What will you pioneer? We help businesses work through these questions and act on opportunities. If you’d like to know how we do it, get in touch.