Decarbonising economies to combat the negative impacts of climate change is a complex journey. Many governments around the world have set a net zero target by 2050, with some setting their target to achieve net zero emissions even faster.

To transition to net zero, global economies will need to navigate away from how they currently operate industrially, towards a net zero model. Economies will have to challenge energy, process, material and mobility decisions across every industry.

For industries without a target, plan or pathway to net zero, there will be increasing opposition, not only on environmental grounds, but also on whether their economic or business model will be viable going forward.

How are governments and industries positioned to chart their course in transitioning to net zero emissions? How are they responding to the impact of changing social values and stakeholder expectations? How will finance and investment decisions respond to this transition?

These questions are explored in this thinking paper and include five case studies that consider the learnings from the industries most exposed to the transition to net zero emissions.

Net zero emissions commitments will determine finance and investment

It is increasingly clear that finance and investment will flow more readily to businesses and projects which align with a net zero 2050 commitment, or better. Changes in social values, and investor and stakeholder expectations, are key drivers of transition risks linked to the transformation towards a net zero emissions future.

Over the past decade, energy transition has emerged as a top business risk. Organisations have had to navigate rising energy prices, disruptive market and policy forces, along with the challenges of renewable energy uptake and a consumer-driven desire to lower carbon emissions.

Similarly, the resources industry has faced increasing activism and resistance to mining operations and expansion plans for decades. More recently, demands from the investors and customers of businesses to reduce emissions is being seen across the world.

It is in the interests of all governments and industries to see the resource industry decarbonise, as the infrastructure and equipment required to decarbonise the rest of our economies (wind turbines, solar panels, batteries, electric vehicles, etc) requires the raw materials that the resources industry produces.

In 2020, Blackrock, the world’s largest fund manager, announced a change to sustainable investing. With a total of A$7 trillion in assets, its investment risks presented by climate change are set to accelerate a significant reallocation of capital, which in turn will have a profound impact on the pricing of risk and the value of assets.

Some publicly listed organisations have already started voluntarily reporting their climate change risk management in line with global recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Their decision comes in preparation for regulatory changes that will likely require mandatory disclosure of climate-related financial risks.

We also need to consider non-financial disclosures relating to environmental and social materiality, for the audience of consumers, society and employees, as well as investors.

Energy and resources industries face accelerated risk to decarbonise

The energy and resources industries are heavy carbon emitters with the greatest exposure to the transition towards a net zero future.

Energy consumption is the biggest source of human-caused greenhouse gas emissions, responsible for 73 percent worldwide – but we still demand it to live our lives. This includes burning fossil fuels for electricity, heat and transportation.

As an individual, there are many ways to reduce the carbon footprint — reduce, reuse, and recycle, choose clean energy, conserve water and electricity. There’s a theory that if an individual committed to 20 percent of these practices, they may reduce their carbon footprint by 80 percent. It’s known as the Pareto Principle.

Pareto Principle

20 percent of the input (time, resources, effort) accounts for 80 percent of the output (results, rewards)

The same principle applies to businesses. Just 100 companies of the millions across the globe contribute to 71 percent of all greenhouse gas emissions. Heavy carbon emitters have the opportunity to impact climate change, not just its effects. Today, there’s the chance to mitigate against climate change that may occur in the future, and this has a bulk effect for other businesses, and other industries.

The pressure to decarbonise the energy and resource industries also comes from the end users of the energy and the resource, for example the demand for more sustainable buildings is helping create the pull for zero carbon steel and concrete. Not just zero carbon extraction of the resource from the earth, but a net zero industrial process to convert iron ore into steel (as an example).

At some point in the future the world will achieve 100 percent net zero emissions. The challenge is to map the fastest viable transition path. Once that path is set, we need to remember that every asset and person in the energy ecosystem is playing a vital role in the transition regardless of whether they are leveraging new or legacy technology.

While the path ahead will not be easy, the acceptance that we need to decarbonise as rapidly as possible is necessary to mitigate the transition risks associated with climate change. The transition and choices available will be different for each organisation.

A transition to a net zero emissions future can strand assets and operations and render business models obsolete, significantly impacting revenue and investment. Increasingly, future economic success and performance will have direct links to the response made to the risks and opportunities presented by climate change.

The transport industry’s role in reducing emissions

Closely following electricity and heating as carbon intensive services is transport. Transport equates to more than 17 percent of total greenhouse gas emissions, in Australia. This includes freight and logistics, mass passenger transit, and personal transport. Of this figure, cars, 4x4s, SUVs and small commercial vehicles, up to 3.5 tonnes, account for 10 percent of greenhouse gas emissions in Australia.

As decarbonisation has created both challenges and opportunities for the resources industry, it will similarly become a challenge and opportunity for the transport industry for both governments and private transport operators.

Decarbonisation of transport requires significant transformations and companies around the world are competing to develop electric vehicles, hydrogen-powered fleets, or exploring fossil fuel replacements, like biofuel or synthetic gas. It is not just how the transport system is powered that is important, but also how it is used.

Shifting from private vehicles to public transport, or moving to active modes like cycling and walking, have been shown to have a huge effect on carbon emissions. These sorts of behavioural changes are a feature of many carbon reductions programs worldwide.

COVID-19 has shown the size of the impact on carbon emissions when travel patterns change. The speed with which the impacts of COVID-19 were felt by the transport industry was significant, with aviation, road, rail and bus systems experiencing rapid declines in customer numbers. A study from Nature found that, in April 2020, when significant portions of the world went into lockdown, global emissions dropped by 17 percent.

Recovery has been varied across different transport modes. Many who could, shifted to cycling, walking and micro mobility options, while others shunned public transport, turning to their cars. Aurecon’s research unveiled that many people who previously commuted on mass transit or bus were considering driving instead, which has the potential to reverse the gains made to promote public transport over private vehicle travel.

Another side effect of COVID-19 is the potential impact when we alter where people work and when. There is evidence for this in groups that are exploring the impact of four-day work weeks, which found that one of the biggest impacts on emissions for the average worker is their commute to work.

Should these work patterns, alongside other demand management options, change permanently it will accelerate one of the potential decarbonisation pathways, assuming we see a return to public transport use.

While governments tackle ways to decarbonise fleets, whether through electrification of modes and new transport energy infrastructure, batteries and hydrogen, one other pathway to reshaping transit systems could be private sector financing of mass transit projects in greenfield programmes. This is based on the willingness of the private sector to fund new transport infrastructure for the benefit of the environment and global citizens.

In the aviation sector, the decarbonisation of air travel itself is technically challenging and has become a key focus of the industry. Of course, greenhouse gas emissions are also produced on the ground, through airport operations.

Ground operations are highly addressable and could be at the front of the queue for decarbonisation. What if an airport could become an energy ecosystem? Pivoting to a future where they could be sustainable but also make additional revenue.

Navigating transition risks: a pathway to decarbonisation

The successful transformation towards a net zero emissions economy requires a robust strategy, as well as engagement and trust from stakeholders and the community. Given the size of the challenge, energy, resource and transport industries transitioning to net zero emissions have a significant impact to make.

This paper considers five case studies where organisations around the world are reducing greenhouse gas emissions:

Charting a way forward

Transition risks can strand assets and operations. Navigating the risks unveils the strategic, operational and project opportunities available to businesses on a journey to a net zero emissions future.

A switch to net zero emissions is essential – to tackle climate change, so all governments businesses and individuals need to be looking for decarbonisation pathways.

Dedication, collaboration and commitment is required across all industries and economies. At some point in the future, the world will be 100 percent net zero emissions, this is the opportunity we should all plan for.

It’s not yet out of reach. It can be achieved using technologies and innovations available and within our grasp.

We are embarking on the largest all-industry task in history. It’s a challenge and an opportunity. The reforms and investments will be unprecedented in their scale and complexity. We are fortunate to already have the energy and resources to impact climate change and mitigate against its effects in the future as we propel towards carbon neutrality.

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About the Author

Paul Gleeson, Aurecon Board Sustainability Committee advisor and Managing Director, Energy, Resources & Water – Australia and New Zealand, helps organisations to be at the forefront of the transition to a low carbon future.