King's College London

Tackling the world’s grand challenges requires meaningful connections between local governments, communities, businesses, and universities.

To address this, we partnered with The Productivity Institute to host a morning workshop last month, designed to explore actionable solutions for sustainable transitions.

Our workshop, ‘Accelerating to Net Zero: Engaging Communities & Business’, saw two panels launch into a collaborative dialogue around the question: ‘How can we better engage businesses and communities to ensure that the transition to Net Zero is both productive and inclusive?’

We asked Professor Jonatan Pinkse and Professor Laura J. Spence, who were panellists at the workshop, to share three key insights each from their presentations.

Below, Professor Pinkse discusses how businesses can adopt a more strategic approach to achieving Net Zero, whilst Professor Spence steps back and views how broader organisations and governing bodies can support smaller businesses to transition.

Business model innovation for net zero: What are the options?

By Professor Jonatan Pinkse, Research Director at the Centre for Sustainable Business

Business activity is a major source of global greenhouse gas (GHG) emissions. But how can businesses deliver on the net-zero agenda when their bottom line is at stake?

In my presentation, I outlined a framework of the options businesses have when transitioning to net zero. The framework suggests that they can choose between innovating, offloading, and offsetting.

1) Innovation and optimisation within business

Firstly, businesses can choose to innovate to reduce emissions by transforming production processes as well as products and services they offer to the market. Many still have opportunities to optimise their use of energy and resources and reduce emissions by making incremental changes.

Simple steps include switching to green electricity, working with suppliers to source low-carbon inputs, and adding green offers to their portfolio. For hard-to-abate industries like steel, cement and chemicals, innovating for net zero involves a more radical transformation. Here, cheap low-carbon alternatives are not yet available, so they need to make considerable investments in hydrogen or electrification.

2) Offloading activities: methods and challenges

Secondly, businesses can decide to offload activities that produce most emissions. If firms take a reactive stance, they could just offshore their production activities to countries with less stringent climate regulation. However, such carbon shifting will not lead to a reduction in global emissions and should be criticised for being a rather self-centred approach. Alternatively, firms can sell their carbon-intensive activities. Such divesting will only be effective if it leads to a decommissioning of these activities.

3) Carbon emissions and ways to offset them

Thirdly, businesses can decide to create negative emissions through offsetting. For heavy industry, this option involves investing in carbon capture, usage and storage (CCUS). Other industries instead buy carbon credits in the voluntary carbon market, typically from forestry and renewable energy projects. The main challenge is that the voluntary carbon market has struggled in proving that their projects effectively reduce emissions in addition to what would have occurred anyway.

The purpose of pursuit

Notwithstanding the specific focus of a strategy for net zero, it depends on the purpose behind pursuing these options whether we can expect a business transition to net zero to materialise. Too often, net-zero strategies aim to buffer a firm’s business model from pressure from government and society.

A change in thinking is needed where the options are directed at radically transforming the business model. This requires firms to move away from a mindset where the business case for sustainability is central towards acknowledging that managing tensions between multiple desirable goals such as net zero, productivity, employment, and social equity is inevitable.

Engaging small and medium sized enterprises in net zero? Three lessons from the social side

By Professor Laura J. Spence, Professor of Business Ethics and Sustainability, and Member of the Centre for Sustainable Business

As a business ethicist, I have always taken a social and moral lens on businesses.

Having specialized on SMEs (small-to-medium-sized enterprises) and now working purposefully on the social and environmental challenges and opportunities for SMEs, I see several ways in which we might bring our learning from small business ethics and social responsibility studies to the critically important challenges around environmental sustainability, carbon reduction and the goal of net zero.

1. Focus on small and medium sized enterprises directly

We need to get beyond recognising that SMEs are important but then doing nothing to change our practices. This includes relying on large corporate customers and supply chains to police small firms and magnify social and environmental goals on behalf of policy makers.

It is not really that surprising that large corporations reframe everything in terms of their own goals and risk mitigation, paying little attention to SME perspectives or strengths, and rarely looking beyond their first-tier suppliers in practice.

Focusing on large firms means focusing on less than 1% of businesses. While they might be individually important, in carbon terms SMEs are responsible for nearly half of non-household carbon equivalent emissions – that is 160million tonnes of greenhouse gas emissions . Without meaningfully engaging directly with SMEs, we cannot move forward in the transition to net zero.

2. Focus on normal firms, not just the champions

When faced with something new, it isn’t unusual to look for existing best practice examples for inspiration. Indeed, policy makers quite often focus on presenting ‘champions’ of social responsibility. This might be helpful for some, but these are unusual cases and outliers with very particular, rather than generalisable, experiences.

Worse than that, as an observer you quickly spot that it is often the same businesses/ businesspeople used as inspirational case example, only emphasising that this is a very small pool. On the environmental case, this translates to focusing on normal firms, not the unusual businesses in the green economy. While this is a rapidly growing sector, it is still less than 5% of the UK economy— it is the mass of firms that need direct understanding and support rather than the green innovators and eco firms.

3. The business case is a red herring

Like individuals, SMEs have a complex set of motivations, capacity, resources, and structural conditions to work around. Yet the assumption is often made that all that is needed is to persuade businesses that there is a business case for pro-social behaviour, and they will unproblematically change their behaviour accordingly.

Notwithstanding the shortsightedness around other constraints on businesses—such as having the necessary information and capability to enact change—it is long established that profit maximisation (consistent with the business case) is not the leading goal for SMEs. Leaving aside that this might also be true for multinational corporations, for SMEs certainly, there is more advantage in looking to goals such as cost reduction, the longevity of the business, reputation and legacy of the firm, including for the future and succession.

So, a combination of long term and short-term goals is needed. Plus, we know that there is not always a straightforward business case for pro-environmental advancements, so the authenticity of the claim is undermined.

Respect the individualistic nature of SMEs

Engaging businesses, and SMEs in particular, requires their distinctive nature to be taken seriously and realistically, and, importantly, respect shown for their specialist approaches, circumstances, and commitments. In addition to looking to businesses to innovate in the pursuit of carbon emission reductions, we also need to see more innovation in policy types and mixes that meet SME needs.

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This article was brought to you by the Centre for Sustainable Business (CSB). Read more about the CSB’s work here.