When we talk about the net zero transition we are referring to the decarbonization of our entire global economy. The need to transition in this way is undeniable, but the commitment needed by institutions, governments, companies and society as a whole is quite challenging.
The current global scenario is outlined in the United Nations’ net zero coalition, which establishes the compromise of countries worldwide to achieve carbon neutrality by mid-century, this is 2050. However, the economic and social transformation required for a successful transition is still a topic for debate.
The challenges that we face as a global community are increasingly complex and the time for taking well managed actions is limited, but it is a matter of understanding and forseeing that which we have to work towards.
Below we have analyzed some of the main challenges in the way of achieving a successful net zero transition.
What we are up against
- The economic transformation needed will be universal and substantial, in fact, global capital during the first years of the transition could rise in the short term before they fall back again. About 7,6% of global GDP is expected to be spent for a successful transition between 2021 until 2050.
- However, the transition is also characterized by its uneven distribution across sectors, regions, communities and individuals. In this regard, some industries are more exposed, as well as developing countries or fossil fuel rich nations have a higher transition exposure. This means that they will have to spend more on physical assets as a share of their GDP than other countries.
- Another significant challenge is that of a short term disorder in the energy market, which will inevitably affect the economy as a whole. The decrease in high emission activities needs to be carefully managed in parallel to the increase of low emission ones, as risks of mismanagement include rising energy prices or supply volatility. Furthermore, a disordered transition is a delayed transition.
- The increase in prices could affect consumer spending as they might face higher costs and a need to adjust their spending patterns in order to contribute to the reduction of emissions. Low-income households are particularly at risk in this context.
- The transition also poses a risk for asset stranding, this is, retiring or underutilizing already existing physical assets before the end of their useful life. In this regard, a significant share of global capital stock depends indirectly on these assets, which are worth trillions of dollars. A disorderly stranding of large proportions of capital stock could hinder value creation.
Opportunities
As many challenges as we face as a global community and economy, the risks are, for the most part, a short term situation that if adequately managed could create brand new opportunities across sectors and geographies, including new markets for low emission products and services. Businesses and countries can find new windows of opportunities in the decarbonization process or replacing high emission products for low emission ones; additionally, aid will increasingly be available to prompt decarbonization.
The bottomline is that, however many obstacles we find, we will have to face them collectively and, as for today, with a growing sense of urgency. In this regard, collaboration and cooperation across all different economic and social actors will be indispensable for an orderly transition and to help avoid bigger disruptions than the already mentioned.
We believe organizations of all shapes and forms have a role to play in the transition, from businesses to civil institutions and international bodies, the goal is set for everyone to work towards and build trust through transparency and compromise. Is these qualities that can push individuals’ commitment with the transition and the support of the organizations affecting their decisions.
Engaging through transparency
In DoGood we believe that you can’t manage what you don’t measure, and we are convinced of the need to understand and manage efforts to achieve a sustainable transition inside an organization for the correct and efficient functioning of the business. We alone cannot achieve the substantial changes necessary, but we work on the basis of collaboration, transparency and accuracy in order to bring light to sustainable actions.
In this regard, it is essential to our work to promote good corporate governance, meaning that the processes of disclosure and transparency are followed so as to provide regulators and shareholders as well as the general public with precise and accurate information about the financial, operational and other aspects of the company, including a more accurate definition of the ESG performance.
We have developed a corporate government tool that helps establish ESG impact objectives for employees in regards to the sustainability strategy of the company. Through our technology we are able to activate and track employees’ impact, creating engagement that translates into improved ESG metrics, reputational value and an overall positive impact for the environment and society.
If you want to know more about how we work to create a positive social and environmental impact, click here.
