2020 has been a year for pausing and thinking about our existence on this planet.
Besides, the business case for sustainability has only gotten stronger. There is a sense that we need to act now and change the world to build back better.
Throughout history, systemic changes haven’t evolved linearly but rather exploded into our lives exponentially.
In this article, I’ll do a quick summary of 2020 and then present four sustainable business trends that could finally explode in 2021.
2020 Sustainability Summary
On the one hand, 2020 COVID19 lockdowns impacted our way of living and working. As a consequence of less activity, air pollution decreased in cities and global emissions went down 7% (Global Carbon Budget 2020).
Unfortunately, without systemic changes these reductions are temporary. With a timid economic recovery emissions are as expected coming back (e.g. Surge in emissions due to China’s steel ramp-up).
On top of that, the low price of oil and uncertainty about the future reduced the attractiveness for investing in energy efficiency or renewable energy or the demand for electric vehicles. Besides, the pandemic has postponed the momentum towards COP26 or climate change movements like Greta Thunberg’s Friday’s for future.
On the other hand, sustainability and climate change have never been so much in focus.
In 2020, more than 9,600 companies disclosed their environmental impacts through the non-profit CDP platform. It represents a growth of 14% from last year and sets a record on the number of CDP environmental disclosures. Besides, the global responsible investing driven assets hit $40.5 trillion, double than just four years ago.
Climate change grew importance in the minds of customers and was the focus in the political arena. As an example, heavy GHG emitters countries as China pledged for net-zero emissions by 2060, and the Paris Agreement became one of the issues driving voters to vote in the US presidential election.
Sustainable business trend 1 – Eco-designed Products
This terrible health crisis, the role that climate change played in catastrophes as the Australian bushfires and the loss of biodiversity are making us consumers increasingly interested in environmental, social and economic issues.
An example of this raising interest was 2020 David Attenborough’s film A life on our planet. The documentary, describing the loss of biodiversity during Attenbourgh’s lifespan, got thousands of viewers brought to tears by the footage, prompting an outpouring of emotion on social media.
This is not about saving our planet, it’s about saving ourselves. The truth is, with our without us, the natural world will rebuild.David Attenborough
Consumers understand that they can play a role to solve these issues and are decided to act changing their consuming habits.
A study by NYU Stern, shows that despite sustainability-marketed products are just 16% of the consumer packaged goods (CPG) market, they delivered 54% growth (2015-2019). Moreover, consumers are willing to pay a significant price premium of 39.5% vs conventional products.
Younger generations, educated and urban are more likely to buy sustainability-marketed products.
This shift in consumer values and ideals is matching with a new wave of sustainability products that match the quality and performance of conventional goods. This major sustainability business trend offers an opportunity to first movers and poses a risk to those companies not moving fast enough.
There are four areas to watch food, textiles, lifestyle and eco-labels.
Consumers want to buy healthy, bio, locally sourced foods with less environmental impact. Food production is responsible for 26% of greenhouse gases and has a significant impact on land use and freshwater consumption.
It is clear that the biggest positive impact an individual can have on climate change is by eating a sustainable diet with less meat and dairy, less food waste and more vegetables, nuts and legumes. (Community Impact Challenge)
Therefore, the consumption of plant-based meat and dairy substitutes has kept rising during the pandemic. According to Nielsen, sales of meat alternatives were up 140 per cent in the US vs a year earlier.
As an example, the sustainable leader Unilever expects to increase its plant-based meat and dairy alternatives sales to €1bn in five to seven years.
Textiles and Sustainable Fashion
Research from BCG shows that 38% of consumers report actively switching from their preferred brand to another because it credibly stands for positive environmental and social practices.
Brands are responding by using sustainable materials in the products, building transparency through their supply chains and building circular fashion systems by designing, producing, selling and collecting products that enable the reuse and recycling of post-consumer textiles. As an example, Adidas Grün (“green”) is a range of footwear that minimizes the environmental impact by the use of recycled fabrics and natural materials from certified sources, such as cotton, hemp, bamboo and cork.
Our determination to reduce our impact in the world will boost a transition towards electric vehicles, remote working, sustainable packaging and, dematerialization of the economy. This latter means demanding product as a service such as sharing economy, digitalization (e.g. paperless office) or cloud solutions in ICT.
An important trend falls into educating and informing consumers about products’ sustainability claims. In this sense, there are Eco-labels which inform consumers about products’ health, environment or social benefits. There are eco-labels certified by third parties such as Forest Stewardship Council, Fairtrade or Energy Star. Other brands have developed their labels as Unilever’s carbon label to be present in 70k of their products.
The reality is that many consumers remain confused and skeptical about companies’ eco-products benefits.
According to a poll from Nielsen, two-thirds of the respondents trusted consumer opinions posted online. Therefore, brands will increasingly dedicate efforts on promoting blogs, social media and communities with consumer-generated content to increase the acceptance of their products.
“We believe that the leading global companies of 2020 will be those that provide goods and services and reach new customers in ways that address the world’s major challenges – including poverty, climate change, resource depletion, globalization, and demographic shifts.”WBCSD, From Challenge to Opportunity: The role of business in tomorrow’s society, 2006.
Take away – Consumers are more than ever decided to change their consuming habits to contribute to a better and more fair planet.
Sustainable business trend 2 – ESG Investment
Environmental, Social and Governance (ESG) investing will be gaining further momentum in 2021 as COVID19 and, its consequences accelerate the notion that companies should look beyond profits. Business goals should be aligned with the world’s pressing societal issues (stakeholder capitalism).
The value of global assets applying ESG factors to drive investment decisions has almost doubled over the last four years to $40.5 trillion in 2020 according to research from Opimas LLC.
As investors rush to incorporate ESG factors into their investment criteria, many struggle to compare ESG company ratings. The problem is the lack of standard ratings and the lack of confidence in the underlying data. (read my article about standing out in a zoo of company ratings)
As an example, JUST Capital rated Tesla in the bottom 10 per cent by and MSCI Inc. “A” grade.
One of the consequences is that non-financial reporting is going from voluntary to essential and in the near future to becoming mandatory. An example is The UK’s announcement to make TCFD-aligned disclosures mandatory or the European Commission Taxonomy.
“It is not the capital that is evil. It is the wrong use of capital that is evil.”Mahatma Gandhi
The other consequence is the move to a unified and simplified reporting framework for sustainability.
Five major sustainability reporting organizations (CDP, SASB, GRI, IIRC and CDSB) committed to unifying criteria for Corporate Sustainability Reporting (CSR). Then IIIR and SASB announced to merge. Finally, the world’s largest financial standards organization, the IFRS Foundation, has issued a Consultation Paper on Sustainability Reporting.
This harmonization will free companies’ resources and provide confidence to stakeholders (sustainability complexity)
Take Away – Growing momentum for Sustainable Finance is leading to harmonized and more simple business valuation methods.
Sustainable business trend 3 – Renewable energy getting ridiculously cheap
The world relies on power from fossil fuels because, in the past, they were “far cheaper” than other sources.
Nevertheless, Wind and Solar plants became 70% and 89% cheaper in the last ten years and, their capacity will exceed coal and gas in less than five years (IEA’s Renewables 2020). In fact, solar power has become the ‘cheapest electricity in history’ even below coal.
Why renewable energy is so cheap?
Renewable is cheaper than other energy due to three reasons:
1- Because the costs of fossil fuels and nuclear power depend on the fuel price and the plant’s operating costs.
2- Renewable plants have lower OPEX costs and don’t depend on the prices of fuel. (the fuel is free!)
3- Renewable technology costs follow a learning curve: solar and wind get cheaper as we increase capacity.
Even more, when rich countries deploy renewables, they lower the costs for everyone and make this technology accessible for the entire world.
Battery Energy Storage (BES), a pivotal technology to mitigate the variability of renewable technologies, follows the same learning curve. Therefore, prices for grid-scale batteries are going down quickly (up to 61% by 2030 (IRENA), avoiding, by the way, the construction of gas-fired peaker plants.
Fossil fuels are subsidized and do not pay for externalities such as pollution or GHG. This situation is a potential risk for many companies if more countries introduce carbon taxes and increase the price for those where taxes are already present. An example is the EU ETS price historical high of 31 Euros/CO2 ton reached after the EU set a more ambitious target to cut greenhouse gas emissions this decade. This price could even rise up to 65€/t by 2030 under the EU Commission’s most ambitious scenario.
This incredible green electricity price advantage vs fossil fuel power will accelerate the electrification of the production of heat, for example in manufacturing process, and transport.
Take away – Solar and Wind technologies getting cheaper vs raising fossil fuel costs, facilitating electrification and energy justice.
Sustainable business trend 4 – Net-zero emissions companies
Net-zero emissions companies have been in 2020 and will be one of the fastest-growing sustainable business trends. According to scientists achieving net-zero before 2050 is critical to keeping us safe from the catastrophic consequences of climate change.
The number of net-zero emissions commitments has doubled this year, as many prioritize climate action in their recovery from Covid-19 ( Data-Driven EnviroLab report).
Companies are in a race to zero emissions because climate science is widely accepted and because Net-zero reduces risks, costs and attracts ESG investors and talent.
An example of reducing costs is raising carbon taxes around the world. Reducing carbon emissions and in particular achieving net-zero emissions is an effective way to hedge against these raising charges and demonstrate sustainability leadership.
Nevertheless, there is a lack of standards about net-zero roadmaps that puts off many companies. In this respect in 2021, we expect further guidance about companies’ net-zero from the Science-Based Target initiative.
Get to learn more about net-zero companies and how to start the journey in my article.
Take away – Net-Zero emissions companies will continue to grow as more clarity is provided on standard scientific approaches.
To summarize, Eco-products, Sustainable investing, Renewable energy and, Net-zero emissions are key sustainable business trends for 2021.
They will create sufficient risks and opportunities to shake the way companies operate not in 2050 but in 2021.
Thank you for following my articles and sending me such great feedback this year.
We know we will get through this pandemic, and we’ll do it together looking at the future with hope.
During this holiday season, please, stay safe, stay healthy.