Scottish businesses count down to Net Zero and the low carbon transition
Read time : 4 mins Added: 07/11/2022
Joy Newton, Associate Director of Sustainability and ESG Finance, and Tara Schmidt, Head of Climate & Sustainability Strategy, Sustainability & ESG Finance, Bank of Scotland, look at how the landscape is changing as businesses prepare for Net Zero.
The countdown is on: Scotland declared a climate emergency in 2019, and now it plans to bring greenhouse gas emissions to Net Zero by 2045, five years earlier than the rest of the UK.
Current cost-of-living pressures are reducing consumer spending power and squeezing business margins. The energy crisis, supply chain disruption and falling value of the pound mean input costs are increasing. However, companies are still rising to the Net Zero challenge. They have a vital role to play, and are investing, innovating and collaborating. We’ve already seen a huge amount of UK-wide activity, built – in many ways – on a foundation laid by the Scottish government. Indeed, at COP26 in Glasgow, more than 140 Heads of State came together to promote sustainable development and an inclusive rural transformation.
“Scotland was the birthplace of the Industrial Revolution, so it’s only fitting that it leads the green revolution”, says Just Transition Minister Richard Lochhead. Responding to the final report of the UK government’s Just Transition Commission, the Scottish government set out its own path to Net Zero.
The report explained that all Scotland’s energy needs by 2045 could be met by renewable sources, with North Sea pipelines carrying green hydrogen. Emerging technologies such as artificial intelligence have helped make Scotland’s farming and manufacturing industries more sustainable - investment in public transport, electric vehicles and better insulated homes are also on the rise.
Local government – where the levers for a Just Transition are quicker to access – will continue to play a crucial role in the sustainability conversation. While Scotland is involved in some UK climate policies such as the UK Emissions Trading Scheme, it is the local authorities and administrations which will make key decisions. They are best placed to act effectively, because they know their housing stock, transport systems and strategic economic partnerships best. That’s why achieving Net Zero is an endeavour best focused at a local level.
Building resilience
Looking out to 2045, unchecked climate change will mean a future of extreme weather events, droughts and floods, disrupting infrastructure and supply chains. Sustainable companies will be more resilient which will in turn strengthen their buyer-group relationships.
As mentioned already, businesses are facing increasing investor pressure to take action on climate risk: right now, more than 60 investor institutions are urging the world’s biggest companies to respond to the global water crisis through the Valuing Water Finance Initiative and improve their water management practices, for example.
We are also seeing much more collaboration on climate action within different sectors, and between industry and academia. Fashion companies are partnering with water charities, food producers with packaging organisations focused on the circular economy, and water companies are using artificial intelligence and advanced digital solutions to reduce leakage.
Our industrial heartland is greening itself across the whole value chain and creating new jobs in emerging technologies like hydrogen, carbon capture and storage, while many in the aviation industry have joined up to the World Economic Forum’s Clean Skies for Tomorrow initiative. What’s more, hydrogen and electric airline start-ups are now a feature of the aviation landscape.
Businesses step up
Since COP26, businesses have sharpened up their climate position. As part of this, they are having to think a lot more carefully about reporting on carbon emissions and their impact. More than 1,300 UK-registered companies – post April 2021 – have been bound by the Task Force on Climate-Related Financial Disclosures (TCFD) rules.
The Glasgow Financial Alliance for Net Zero (GFANZ) has published enhanced guidance on how investors can measure key metrics for investment, lending and underwriting portfolios in terms of temperature alignment. Meanwhile, government emissions calculators now exist to help businesses work out how much carbon they are producing.
To achieve accurate reporting, companies need quality data on metrics that can be hard to measure. Data is power: analytics will enable businesses to see where they are generating the most emissions, including from third parties in their supply chains, and map out the goals they want to aim for. They can then use this information to make better decisions and drive accountability within their business practices.
Embracing opportunities
Aside from the obvious challenges of data-gathering, disclosure, and regulatory compliance, Net Zero also presents huge opportunities for businesses, and that’s why we’re delivering sustainable finance to support them. These opportunities could take the form of new revenue streams – for instance, a company might generate its own renewable energy on-site and then sell any surplus back to the grid. A great example of this is ice-cream maker Mackie’s of Scotland which installed wind turbines and solar panels, cutting energy use and carbon emissions by up to 80% and creating a new income stream from the surplus power it produced.
As well as improving business continuity and cost reduction (perhaps after an initial outlay), becoming a more sustainable organisation should bring competitive advantages. This is why we are offering Sustainability-Linked Loans at a discount to help companies finance their green transformation.
The landscape is evolving quickly, and scrutiny isn’t just coming from the top-down disclosure frameworks. Customers are equally reviewing the sustainability credentials of the businesses they buy from. Increasingly, though, we’ve seen companies respond positively to this demand, setting themselves more ambitious targets than ever before as they try to incorporate ESG throughout their business models. It is admirable that many firms are prioritising this given the present backdrop of rising inflation, fuel prices, and ongoing recovery from the pandemic.
Energy security is likely to be an important theme for the future, and Scotland has ambitious targets in place to bring more renewables into the energy mix. As these newer energy sources become more mainstream, they could help businesses improve efficiency and reduce their costs. As they grapple with the problems the current crisis brings, businesses will need support to maintain momentum on climate action.
How we support businesses on climate action
At Bank of Scotland we work with businesses on a broad range of sustainability and Net Zero initiatives to make sure we’re living up to our promise of being by the side of business - supporting more inclusive and sustainable communities. We do this by helping them invest in more sustainable business practices and technologies. Future-proofing a business is a challenging investment to navigate but our ESG & Sustainable Finance team are well placed to help you finance the transition.
Separate from our Sustainability-Linked Loans, our Clean Growth Financing Initiative offers discounted lending for green purposes, such as investing in low carbon vehicles, improving water efficiency or reducing waste.
We’re committed to £15bn of sustainable financing for corporate and institutional clients by 2024. We’ve already lent £1bn worth of new funding for electric vehicles and we're also responsible for one in 10 electric vehicles registered on the UK's roads. We’re also exploring different technologies to identify which to support for the greatest impact as we lean into an energy transition, which will benefit the whole of the UK.
Times are tough right now, and many companies will be seeking opportunities for cost savings. We’re guiding those companies to identify efficiencies where they can, optimising the assets they already have and being agile in seeking out affordable, sustainable solutions.
Scotland is leading the way as innovative and forward-thinking UK companies forge a path on climate action, with large corporates through to SMEs already making great strides. But companies need capital to fund the transition, and we’re here to help make it happen.
You can access discounted lending for green purposes through the Bank of Scotland’s Clean Growth Financing Initiative.
All lending is subject to status.