climate-kic: sparking an innovation step change
TRANSCRIPT
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Creating a roadmap for the diffusionof radical climate innovation in
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Sparking an innovation step change
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ContentsSparking an innovation step change
1. Executive Summary page 07
2. Methodology page 09
3. Turning A Threat Into An Opportunity page 10
4. The Critical Role Of Innovation page 20
5. Barriers To Diffusion Of Climate Innovation page 26
6. Looking To The Future: Recommendations For Business page 38
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ForewordBertrand Van Ee, CEO, Climate-KIC
dependent on companies having enough of an understanding
of climate risk and of the opportunities for climate change
to shape an actionable business case for purchasing new
equipment, learning new ways of doing things, or adapting
existing capital to new business models and processes.
And that is precisely the focus of this report. We have
undertaken research of C-level European business
leaders from Chief Executives, Chief Financial Officers,
Chief Technology Officers and Chief Operating Officers to
understand their readiness to deploy transformational
technologies to mitigate and adapt to climate change.
Our survey on the adaptive capacity of European business
was not targeted at the superbrands which we so often hear
from on the issue of climate action. We intentionally polled the
regular, large business-to-business companies from a variety
of industrial sectors, such as construction, manufacturing and
engineering.
We were encouraged to find that the majority of the leaders
we spoke to recognise the regulatory and physical risk that
climate change poses to their business and 59% even have a
strategy in place to respond to climate change. The erroneous
and outdated narrative that climate action is a cost is
disappearing from boardrooms. However, a surprising amount
are not looking to innovation to secure their place in a carbon
constrained economy. Seemingly, many European business
leaders have been lulled into the false illusion that their
operations can transition into the new economy incrementally.
The reality is that, however difficult it may seem, the huge
leaps we require must be powered by both radical innovation
and by people with the skills and capabilities to trigger this
innovation within business.
Bertrand van Ee
Chief Executive Officer, Climate-KIC
opportunities of the low carbon economy. A single silver bulletwill not be sufficient to bring about the systemic change
required. We need an armoury of silver bullets to transform
how we live, what we consume, and how we do business.
Thats where Climate-KIC comes in. We feed European
organisations with transformational ideas and skilled human
capital across four priority themes: urban areas, land use,
production systems and climate finance. We provide a
framework for great ideas to be scaled-up into commercially-
viable models, products and technologies. Climate-KIC has
spawned a range of cutting-edge innovations, from climate
change mitigation technologies, such as carbon negative
power technology Cogent Heat Energy Storage Systems
(CHESS), through to Aqysta, a hydro-powered irrigation pump
that can double crop yields in developing countries, withoutusing any fuel or electricity. Last year 40 of our start-ups
won funding of over 1 millio n, with one entrepreneur, tado,
winning 10 million.
Transformation cannot come from invention alone, it is also
dependent on the adoption of new, innovative products and
services across the economy.4This diffusion of innovation is
4 The three steps invention, innovation and diffusion identified in Schumpeter, J. A.,
1942. Capitalism, Socialism and Democracy.
COP21 is finally upon us. Leaders have taken their
places in Paris, ready to enact a crucial milestone in
pulling the emergency brake on the defining global
issue of our generation - climate change.
Science has defined the scale of the challenge ahead. In order
to set a pathway to safely keep global warming below the
necessary 2C target by the end of the century, modelling for
the COP21 Calculator1by Climate-KIC, Imperial College London
and the Financial Times shows 2030 cumulative emissions
must be cut from 3,745 gigatons of CO2 (GtCO2) to below 3,550
GtCO2, or the equivalent of cutting the combined emissions of
the USA and EU in their entirety by 2030. New tools such as
the COP21 Calculator have computed, on a per capita basis, theeffectiveness of nations COP21 pledges; giving a clear line of
sight for sharing carbon debt equitably across nations. Science
has set the pace for the COP negotiations.
The 2C trajectory is not out of reach, but it is clear that
achieving the required emissions reduction requires a
paradigm shift in the global economy. That shift promises to
be highly lucrative for business; already theres a $5.5 trillion
market for low carbon technologies and products. And thats
just the tip of the iceberg. If, in a victory for rationalisation,
negotiators agree an ambitious policy pathway that
reconfigures our economy in-line with 2C, it will unlock a
blue ocean of uncontested opportunities for business.
If an effective deal is not reached at this COP, greater
pressure will fall upon business to voluntarily protect the
socioeconomic landscape from the severe, pervasive, and
irreversible2impacts of a 2C world, which are priced at a
minimum of 15-20% of GDP3by the end of the century.
Whatever degree of success the negotiations achieve, policy
will not dictate the solution needed to capitalise on the
1 ig.ft.com/sites/climate-change-calculator
2 Synthesis Report the Intergovernmental Panel on Climate Change (IPCC) 2014
3 Professor Nicholas Stern, Grantham Institute for Climate Change, LSE
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Executive Summary01
Climate-KIC has undertaken research with European business
leaders to understand their views on:
The commercial opportunities and threats
companies perceive when considering implementation
of radical innovation
The extent that business is equipped to forecast and
quantify the impacts of climate change and to respond
to it by innovating their business model
What needs to happen in the future to enable business
to understand the role of radical innovation and to
scale it up in their organisations to effectively respondto climate change
Based on our research, we are optimistic about the high levels
of awareness that European businesses demonstrated both of
the need to avoid a 2C world and to manage the unavoidable
impacts of climate change.
In total, 63% of European business leaders surveyed by
Climate-KIC think climate change poses a regulatory and
physical risk to their business.
There is a firm belief among the vast majority of business
leaders that real financial opportunities exist if businesses are
able to implement effective ways to address climate change:
More than two-thirds (68%) believe that investing
to address their companys carbon footprint would help
to secure their place on supply chains and stay ahead
of regulation
8 in 10 (78%) believe there are opportunities to reduce
their bottom line costs by responding to climate change
(eg through energy efficiency)
Three-quarters (73%) believe that investments in
responding to climate change are a necessary bottom
line cost to increase the resilience of the macro economy
as a whole
Most European businesses are
aware of their exposure to material
risks from climate change, as well
as the upside business growthopportunities from climate-driven
demand. Many have implemented
strategies which aim to manage the
risks and opportunities. However, a
lack of focus on radical innovationindicates that they plan to approach
the issue within a Business-As-
Usual framework.
63% believe that reducing exposure to carbon emissions
can increase topline growth as carbon constraints grow
and demand for environmentally sound products and
services increases
Customer demand is another key driver forcing businesses
to quickly and effectively adapt to climate change. Nearly
two-thirds (63%) of business leaders agree that customers
are increasingly demanding corporates reduce their carbon
footprints, to respond to climate change.
However, they lack the know-how to frame risks andopportunities in a way that they can be actioned effectively
within planning horizons.
This is attributable to the focus on quarterly results at the
expense of long term value which is endemic in corporate
spheres. However, the myopic focus on maximising s hort term
shareholder value is not fit for purpose in a post-COP21 world,
where corporates must make transformational leaps to avert
climate change driven impacts upon the value chain.
The research shows there are fourfundamental barriers to diffusion of
innovation within business: Addiction to incrementalism
Corporate inertia due to lack of climate skills and
empowerment to act
Lack of regulatory certainty
Restrictions on the ability to collaborate
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TitleSubtitle
Sparking an innovation step change /08 09
Methodology02
The research was conducted by Edelman Berland, an
independent strategic research firm, in partnership with
Climate-KIC.
In the first phase, exploratory in-depth interviews with
business leaders, policy experts and NGOs were conducted.
These interviews included Paul Simpson, Chief Executive
Officer, CDP; Vincent Champain, Economist, Observatoire du
Long Terme; Ged Holmes, Commercial Director, Open Energi;
Paul Crewe, Head of Susta inability, Engineering, Energy &
Environment, Sainsburys; and Michael K Rasmu ssen, Chief
Marketing Officer, VELUX. The findings from this phase were
used to develop a hypothesis as well as to build a quantitative
C-suite questionnaire to test the trends.
In the second phase, 115 board level executives from
European businesses (32 from UK; 28 from France; 30 from
Germany; 25 from Italy) were surveyed. Board level executives
were defined as individuals who sit on their company board
and have one of the following roles, Chief Executive Officer;
Chief Financial Officer; Chief Operating Officer;
Chief Technology Officer/Chief Information Officer).
Company size breakdown(Number of employees)
This research was conducted between
September and October 2015.
50% 26%
24%
101-249 employees
250-499 emplyees
500+ employees
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A real threat that
can become anopportunity
03
The climate is changing, and will continue to change, in
ways that affect both day-to-day operations and the future
of businesses across Europe. An encouraging number of
European companies already acknowledge this significant
threat to business operations.
In total,63% of European business leaders surveyed by
Climate-KIC think climate change poses a regulatory and
physical risk to their business.
Heightened price and market volatility ranks as the number
one climate concern amongst business leaders, with 73% and
81% of respondents recognising risk over short and long
terms respectively.
These findings were echoed by the Carbon Disclosure Project,
a key contributor to this report, which in a recent audit found
that more than 90% of its members (large businesses that
voluntarily report their carbon emissions) now have a strategy
on climate change, and last year, 5,000 of these companies
disclosed some 10,000 low emissions projects.
Market volatility from high cost, carbon intensive assets has
been clearly evidenced by the impact of the falling oil price,
which has weakened entire currencies and economies. For
example, by August 2015, the oil crash had caused energy
companies to shelve $200bn of spending on new projects,
laying off an estimated 70,000 workers, particularly in high-
cost areas such as Canadas oil sands and the deepwater
fields of the Gulf of Mexico1.
Business leaders also say that climate change presents a real
and present supply chain risk in various forms, from limitedavailability of natural resources and raw materials necessary
for production, to damage to the infrastructure essential
for a functioning supply chain. Supply chain impacts also
ranked highly in the form of disrupted transport and logistics
routes, and justification for such concerns is becoming more
progressively available.
1 Financial Times, The New Oil Order, August 11th 2015:
www.ft.com/cms/s/2/ccd5c56a-36ce-11e5-b05b-b01debd57852.html#axzz3r1u4IXYJ
We have been asking business
about their understanding of
climate change as a business
risk since 2002 and awareness
is relatively high within European
companies, compared to the
rest of the world, due to general
public awareness and policy on
climate change.
Paul Simpson
CEO, CDP
Perceived impacts of climate changeto business in the short and long-term(next 10+ years)
i i li l i , l i i i
i l i li
i l i i
i i l ili
i i l i i l i
i i il ili l i , . . l
i i il i li i l i , . . , i l , .Limited availability of raw materials necessary
for production, e.g. energy, chemicals, etc.
Limited availability of natural resources
necessary for production, e.g. water and land
Damage to infrastructure essential
for a functioning supply chain
Heightened price and market volatility
Disrupted transport and logistics routes
Unpredictable impacts on workforce
due to climate refugees
An increase in climate-related hazards
(such as forest fires, flooding and
storms) affecting centres of operation0 10 20 30 40 50 60 70 80
Percentage of European businessesShort-term (3+ years)
Long-term (10+ years)
73%74%
70%
61%
73%81%
66%70%
62%64%
73%77%
77%
76%
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TitleSubtitle
Sparking an innovation step change
Most European business leaders now recognise that action to
mitigate climate risk not only builds longevity and resilience,
but also presents additional and significant new opportunities
for business growth.
More than two-thirds (68%) of business leaders believe that
investments in addressing their companys carbon footprint
is a means to secure their place on supply chains and stay
ahead of regulation.Italy is the country where the largest
number of businesses believe this (84%), followed by the UK at
72%, and Germany and France at 60% and 57% respectively.
There is a firm belief among the vast majority of business
leaders that real financial opportunities exist if businesses are
able to implement effective ways to address climate change:
Customer demand is another key driver forcing businesses to
quickly and effectively adapt to climate change. Nearly two-
thirds (63%) of business leaders agree that customers are
increasingly demanding that corporates reduce their carbon
footprints, to respond to climate change.
Here again there is a steadily growing financial reward for
businesses that are able to adapt their models, especially
consumer brands. Recent research from Nielsen found that
two-thirds of consumers are willing to pay more for products
and services that come from companies committed to positive
social and environmental impact, up from 55% in 2014 and
50% in 2013.
In line with this, some businesses have already pivoted
their operations to turn the threat of climate change into an
opportunity and they are reaping the rewards.
This awareness of the material risk of climate change
has driven a relatively high degree of strategic thinking in
boardrooms. 59% of respondents said they have a strategy in
place to protect the business against the impacts of climate
change. However, insight from our research raised questions
about how effective those strategies were, especially
regarding the extent to which the adoption of innovation was
being factored into them.
8 in 10 believe there are
opportunities to reduce their
bottom line costs by responding to climate
change (eg through energy efficiency)
Three-quarters believe that
investments in responding to
climate change are a necessary bottom line
cost to increase the resilience of the macro
economy as a whole
63% believe reducing exposure
to carbon emissions can
increase topline growth as carbon constraints
grow and demand for environmentally sound
products and services increases
78%
73%
63%
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The VELUX Group was forced to adapt our business
model and product development due to the oil
embargo in the 70s. When the cost of oil went
up, energy consumption went down; so many
developers began designing buildings with fewer
and smaller windows.
We realised that a volatile oil price would jeopardise
our category, but we also recognised a major
opportunity.
Our challenge to our product development teamwas to enable architects to respond to the energy
shortage, without degrading the indoor climate, but
by improving it. We pivoted our business from just
selling building components to selling a utility; the
access to liveable environments.
Michael K Rasmussen
Chief Marketing Officer, the VELUX Group
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With the support of collaboration
partnerships, Naked Energy has
taken its technology through a
development and demonstration
accelerator programme and it isnow working with big business on a
full commercial roll-out.
CASE STUDY
Christophe WilliamsFounder and Managing Director, Naked Energy
Naked Energy and Jabil
Half of the worlds energy is used for heating and cooling
buildings. Naked Energy has developed Virtu a building
mounted hybrid solar collector that captures up to 85% of the
suns energy, producing both heat and power.
The pioneering combination of photovoltaic cells in an
evacuated tube collector results in higher electrical and
thermal yields. The generation of heat and power from the
same roof area leads to much more effective use of space,
greater financial returns and more CO2 displaced.
The company has received both financial and incubation
support from Climate-KIC since becoming an affiliate partner
in 2012. The collaboration with Climate-KIC provided a
platform for Naked Energy to accelerate its technology, invest
in its IP and demonstrate the Virtu system to the market.
Naked Energy recently signed an agreement with Jabil Circuit,
one of the worlds largest contract manufacturers, to support
the commercial launch of Virtu in 2016. Jabil has substantial
capabilities in distributed energy technologies and having
conducted a thorough review of the product is excited at the
prospects for Virtu in the global solar market.
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Diageos Roseisle distillery
Diageos Roseisle distillery in Scotland is one of the most
environmentally sustainable Scotch whisky distilleries in
the UK.
The majority of the by-products from the whisky distilling
process are recycled on site in its 17m bioenergy facility,
helping the distillery to generate over 50% of its own energy
and reduce potential CO2 emissions by approximately 13,000
tonnes (equivalent to 10,000 family cars) through direct
savings on fuel use for steam raising.
It is the first new major distillery to be built in Scotland for
30 years and is the first malt whisky distillery to generate
significant renewable energy from its co-products, making its
environmental impact significantly lower than a distillery of an
equivalent size.
With proven technology for implementation at other sites,
Roseisle is part of a 600m investment by Diageo into
Scotch whisky in Scotland, including an ambitious investment
programme in bioenergy and carbon reduction. Other
distilleries that also have renewable technology capabilities
include the 6m biomass plant at Glenlossie distillery and the
65m bioenergy plant at Cameronbridge distillery. Overall,
Diageo has been able to grow its business while reducing the
environmental impacts associated with its own operations, as
well as its risk exposure to energy insecurity and rising costs.
Innovation has enabled Diageo to
grow its business while reducing the
environmental impacts associated
with its own operations, as well asits risk exposure to energy insecurity
and rising costs.
CASE STUDY
Diageo
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Mayor of London
The Mayor of London actively encourages innovation to
help tackle climate change and environmental issues. His
Low Carbon Entrepreneur programme sponsored by Citi
Foundation, offers a prize fund of 20,000 to help budding
student entrepreneurs develop their solutions and bring their
ideas to the market. The programme also offers training
on entrepreneurship and employability skills, as well as
internships at Citi.
Past winners include Climate-KIC start-up Bump Mark (2015)
with their new expiry label which changes form when the
food inside the package goes bad. This new labelling aims to
reduce food waste by telling more about the state of packaged
food than a standard expiry date. BioBean (2012) turns coffee
grounds from the capitals coffee shops into biofuels. Their
new factory will this year divert 25k tonnes of waste from
landfill, saving over 139,500 tonnes of CO2.
Exploiting Londons secondary heat resource forms part of our
strategy to decarbonise Londons heat supply. In partnership
with Islington Council and Transport for London we are
developing a demonstration project that aims to capture
waste heat from London Underground tunnels and integrate
it into Islington Councils Bunhill Heat and Power Network to
warm local homes and cut their energy bills.
Londons green economy is
booming and I want to make sure
that our brightest young mindsare firmly engaged with its huge
potential. I am convinced that
somewhere out there is the next
big idea that will not only help us
reduce our carbon emissions butalso encourage huge investment
and growth in the capital.
CASE STUDY
Boris JohnsonMayor of London
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The critical role
of innovation
04
Scaling up low carbon innovation has a benefit to us
as a business and for the Government in meeting EU
climate change targets.
At Sainsburys, we focus our investment on cutting
down energy and water consumption, and reducing
waste. This makes commercial sense while
addressing our sustainably commitments.
Paul Crewe
Head of Sustainability, Engineering Energy & Environment
Sainsburys
Incremental innovation isnt enough. It needs to be
more drastic and more systemic to create climate
impact and socioeconomic benefits at a large and
self-sustaining scale.
Those businesses pushing innovation to the top
of their corporate agenda are already reaping the
benefits, but despite awareness of this by the
wider market, the majority of businesses are not
converting their awareness of climate risk and
opportunity into concrete action. It is essential that
we overcome the barriers holding business back.
Daniel Zimmer
Director of Innovation, Climate-KIC
Worryingly, not enough businesses believe they are in a
position to do this at present.
Despite high awareness of the risks posed by climate change
and of the opportunities available for those who take action
to manage this risk, too few businesses feel they are in a
position to apply innovative solutions.
Fundamental barriers remain to the diffusion of cutting
edge innovation into businesses, and until these barriers are
addressed, the effectiveness of attempts by companies to
flexibly and successfully respond to climate change willbe limited.
If business can develop and implement large-scale, timely
innovation it will prove to be a key contributor to efforts to
close the existing gap between the current climate pledges
and the emission commitments required for limiting warming
to safe levels.
Perhaps more importantly for business leaders, those
organisations that are able to identify and scale up new
innovation to decarbonise their operations will be the first to
capitalise on the financial opportunity to effectively address
climate change.
It is clear that incremental innovation, which is usually focused
on squeezing value from existing assets, will be insufficient
in addressing climate change or capitalising on the financial
opportunity; there needs to be a step change towards more
ambitious innovation.
It is widely acknowledged that the ability to innovate, be it
through changes to business models or the development of
new products, plays a critical role in how effectively the global
economy is able to address climate change.
Advances in digitisation, materials, science and biotechnology,
along with new business models, all have the potential to
transform markets and dramatically cut resource consumption
and carbon emissions.
Climate-KIC and the Financial Times COP21 Calculator clearly
illustrates the need for businesses and governments alike to
take sharp action to ramp up innovation and to sustain their
efforts over the decades to come.
This is backed up by economists from The New Climate
Economy, who contend that innovation is a fundamental
engine of long-term productivity and growth, and is critical for
delivering low-carbon growth in particular.
Only 3 in 10 European
businesses surveyed see a
large amount of scope to respond to climate
change using innovative technologies and
ways of working in the coming years.
In Italy, 40% of businesses see a large a mount
of scope for technology to revolutionise their
business dramatically to respond to climatechange using innovative technologies and
ways of working in coming years, followed
by the UK at 38%, 20%in Germany and 18%in
France.
Even fewer believe there
is a large amount of scope
to evolve their business model to reduce
resource consumption and carbon emissions.
29%
14%
The globally accepted threshold for avoiding
dangerous climate change impacts is 2C. The
COP21 Calculator clearly highlights that we can
meet our 2C target while maintaining good
lifestyles and a prosperous economy but to
be successful the world needs to act now and
transform the technologies, knowledge base and
fuels we use.
Dr Jeremy Woods
Calculator Programme Lead for Climate-KIC UK
Imperial College London
Overview
Ability to innovate plays a critical role in how
business can respond to climate change
Innovation must be transformational, not
incremental, to close the gap between countrys
climate pledges and the emission commitments
required for limiting warming to safe levels
Not enough businesses understand the importance
of transformational innovation in responding to
climate change
A step change is needed
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Open Energi and United Utilities
United Utilities, the United Kingdoms largest listed water
company, was the first water firm in the country to sign-up for
Dynamic Demand, a unique form of Demand Response. Open
Energis innovative technology has allowed United Utilities to
cut UK carbon emissions and generate additional revenues.
Open Energis system acts like a virtual power station,
allowing National Grid to even out temporary peaks and
troughs in demand instead of turning power stations up and
down. A smart box installed at United Utilities sites allows its
process equipment to talk to the grid in real-time. Motorsand pumps can be turned on and off in seconds in response to
variations in power frequency.
In 2014 United Utilities trialled the initiative at three sites - its
wastewater treatment plants at Bolton and Birkenhead and a
water pumping station at Hoghton near Blackburn.
The results were so successful that it is now rolling out the
programme across the whole North West region. To date,
Dynamic Demand has been installed at 10 of United Utilities
larger wastewater treatment plants with more sites in the
pipeline. New waste and fresh water processes that could
work with the technology are also being evaluated.
Over the next five years the company expects to have a total
of 50MW of flexible capacity to offer up to National Grid the
equivalent of a conventional power station reducing carbon
emissions by 100,000 tonnes per year. The income this willgenerate is around 5m, which will be reinvested into site
assets to reduce operating costs.
Water treatment is a really energy
intensive process power is one
of our biggest operating costs
so were looking both inside and
outside our business to see how we
can work smarter. That means using
less power and being willing to beflexible in the way we use
that power.
CASE STUDY
Andy PennickEnergy Manager, United Utilities
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Sainsburys
Sainsburys 20x20 plan sets out 20 commitments, each linked
to one of our core values and the way we operate in the
environment. Under the Respect for our Environment Value
we have an ambitious target to reduce our absolute carbon
emissions by 30% compared t o 2005/06.
Our established Graphite programme has made significant
investments in excess of 185 million over the past five
years, including into energy reduction and renewable energy
generation across our estate. Investments have included
170,000 solar panels, 98 biomass boilers and 27 GroundSource Heat Pumps, all of which deliver both good commercial
returns and carbon reduction.
We have also installed LED lighting in a significant number of
our stores, which has so far achieved an immediate energy
reduction of 59%. Lighting is around 20% of a stores electrical
load, and taking into consideration that Sainsburys consumes
just under 1% of all the energy consumed in the UK, you can
see how this is a huge benefit to both Sainsburys and the
stretched UK electricity grid.
We also rely upon engagement of our 160,000 brilliant
colleagues through our award-winning Greenest Grocer
behaviour change programme, which has reduced our energy
demand by 1.5 per cent through simple actions like closing
fridge doors and not over-filling freezers.
Our operational carbon emissions are today lower than the
amount of floor space we had in 2005/06, despite our 51 per
cent sales space growth. Our ability to grow whilst reducing
carbon emissions has been achieved through innovations
like our Cannock Store, which is powered from an AnaerobicDigestion plant situated 1.5km from the store, via a private
wire, meaning our waste powers t he completely self-sufficient
and off grid store.
Technological innovation and collaboration are two vital
ingredients in our recipe to drive significant improvements
year on year in both energy savings and carbon reduction.
Technological innovation and
collaboration are two vital
ingredients in our recipe to drive
significant improvements year onyear in both energy savings and
carbon reduction.
CASE STUDY
Sainsburys
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to climate change, it is vital that many more businesses are
empowered to innovate and adopt innovation to meet the
demands of the low carbon economy.
At present, there are four key barriers that prevent businesses
from responding to climate change:
not connected with the transformational levels of innovation
required for them to prosper in the low carbon economy.
Worryingly, 1 in 10 (11%) businesses dedicate none of their
R&D budget to supporting innovations designed to respond to
climate change.
Barriers to diffusion
of climate innovation
05
Lack of regulatory certainty
31% of respondents say the lack of
greenhouse gas regulation (EU or in-country)
is the largest barrier to their company takingaction to respond to climate change.
Addiction to incrementalism
Despite the majority agreement on the
significance of climate change, just 38% ofR&D teams have sufficient knowledge of
climate risk.
Restrictions on the ability to collaborate
Two-thirds (65%) of businesses believe
competition regulations limit industrys
ability to collaborate in order to respond to
climate change.
Corporate inertia due to existing structures
and a lack of empowerment to act
Nearly one in four (24%) business leaders say
current corporate structures and systems
are the biggest barriers to action for
instance, bonuses awarded for year-on-year
growth dont encourage long-term thinking.
38%
24%
31
%65
%
Climate-KICs research shows there are four fundamental
barriers to progress:
1. Addiction to incrementalism
2. Corporate inertia due to lack of climate skills and
empowerment to act, as well as a lack of ability to
forecast and quantify commercial opportunities from
adopting radical innovation
3. Lack of regulatory certainty
4. Restrictions on the ability to collaborate
The majority of European companies already acknowledge
that climate change is a threat to their business across both
the short and long term. There is also strong recognition
from business leaders of the opportunities available to
increase top-line growth as carbon constraints and demand
for environmentally sound products and services increase. In
order for European companies to be in a position to respond
1. Addiction to incrementalismDespite widespread agreement on both the risks to business
bottom line from climate change and the potential for growth
from climate-driven demand, this message has not effectively
reached the departments concerned with adapting the business
to meet evolving challenges.
Irrespective of climate change, over a third (35%) of
respondents concluded their market was unchanging, so they
do not need to incorporate innovation.
Business schools have myriad examples of cost crises, changing
labour markets and new technology turning an established
business model on its head; for example, the emergence of digital
cameras challenging Kodaks leadership of the film photography
market, or more recent internet driven business revolutions, such
as AirBnBs recent explosion onto the rental property market.
The service-based economy continues to shift from a society
built around ownership to one built on access to assets and
services. Excitingly, new technologies hold untapped potential
to reduce resource consumption; protecting the environment
and the economy.
Against this background, the statement by more than a third
of European business leaders that their marketplace is static
implies that many have either forgotten how to innovate, or aredelaying thinking around innovation until they have received the
right market signals.
The high levels of concern amongst the sample about the
material risks of climate change (e.g. scarce raw materials,
price volatility and the rise of climate refugees) have
encouraged many business leaders to incorporate low carbon
strategies into their planning cycle, but seemingly they are
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3. Lack of board level action andknowledge within companies
European businesses are already aware that climate change
is impacting their business operations, whether through
limited availability of raw materials and natural resources,
or disrupted transport and logistics routes. Accordingly, the
majority of businesses want to act in line with the science that
calls for a decarbonised pathway.
With this in mind, it is critical for companies to have an
individual on their board with sufficient power and expertise
to lead and implement strategies that enable their business to
effectively respond to climate change.
However, only half of business leaders surveyed (52%) think it
is important at present for their company to have a dedicated
individual sitting on the board who can perform this role.
Strong leadership on climate change that feeds through the
organisation is a common theme binding together those
businesses that have already turned the threat of climate
change into an opportunity. CEO-led action often sees climate
change embedded in the very culture of an organisation, with
significant improvements in business performance as a result.
More businesses need to be aware of the importance of having
an individual on their board who is empowered to ensure realaction is taken to respond to climate change. It is not enough
to just have awareness and discussions at the board level, nor
is it enough to have an isolated CSR team. Real action needs
to be taken. Board responsibilities now incorporate executive
ownership of health and safety, and progressive boards should
be taking a similar approach with climate risk.
Overall, a lack of knowledge and skills within an organisation
represents a key barrier to greater dispersion of innovation. Not
nearly enough businesses feel any of their departments have
the sufficient expertise and knowledge to assess and respond
to the risk climate change poses. Climate savvy individuals may
be developed and nurtured internally, but strategic recruitment,
education and in-sourcing of skills is also a key requirement for
business. Climate-KICs core focus on business education todevelop more skills and conscious behaviour as well as to align
current internal capabilities to greater effect stems directly
from this need.
teams have the skills and knowledge to respond to the risk of
climate change just 10% for finance and 7% for marketing
is even more concerning, but goes a long way in explaining
inconsistencies in business leaders awareness of climate risk
and action actually taken to adopt radical innovation.
Education sits at the core of this issue. If climate change was
regarded as a new piece of regulatory compliance, companies
would seek to hire employees with specific skillsets to stayon the front foot. However, when it comes to the potentially
catastrophic socioeconomic impacts of climate change,
corporates seem to be paralysed by the scale of the issue.
With Human Resources departments most under resourced
in terms of climate change expertise, the issue is likely to
become self-perpetuating, leaving business woefully under
prepared for a changing operating environment.
The inertia is not helped by internal corporate structures.
Nearly one in four (24%) business leaders say current
corporate structures and systems are the largest barrier to
action for instance, bonuses awarded for year-
on-year growth do not encourage long-term thinking.
2. Corporate inertia due to lackof climate skills and empowermentto act
Climate change is a strategic priority on many business
agendas, but the response on the ground is not consistent
with this awareness.
The prevalence of climate change on the risk registers ofbusiness leaders, compared to the low levels of investment
from the R&D department, represents a broken feedback loop
in European business, as well as a lack of skills to apply R&D
to the challenge.
Critically, less than 4 in 10 business leaders believe that
their R&D department has sufficient expertise to respond to
climate change. While R&D functions normally do not have
the strategic mandate and skills to make adoption of climate
innovation a more fundamental part of the corporate strategy,
they are still considered most likely to identify and develop
the innovations necessary for business to effectively address
climate change.
Given how important finance and marketing are to the corporate
strategy formation process, the fact that so few of these
Percentage of European business leaders who believe each department hassufficient expertise and knowledge to respond to the risk of climate change
Companies that are adapting to climate change most
successfully have a sustainability or climate change
function which is integrated across the business. The
old world is CSR people locked away in siloes thinking
about how they present sustainability, nowadays,
smart businesses are integrating sustainability
across their operations.
Daniel Zimmer
Director of Innovation, Climate-KIC
50
30
10
40
20
0Research and
Development
P ro du ct io n M an uf ac tu ri ng L og is ti cs P ro cu re me nt A cc ou nt in g
and finance
Marketing Human Resources
and personnel
36%
28%
18% 17% 16%
10%
7% 6%
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4. Lack of regulatory certainty
The research showed that, when it comes to responding to
the material risk of climate change, Government has the most
influence a companys decision to act.
However, the current lack of EU regulation hasnt given
companies the certainty they need to innovate and adapt their
business models to effectively address climate change.
In the context of the COP21 negotiations, it is of the upmost
importance that regulation works for business, as government
has the most influence on corporates decision to act
especially since businesses need to stay ahead of regulation
to constantly create value. This is precisely why EU-level
organisations like the European Institute of Innovation and
Technology (EIT) are so essential in helping business to
navigate the regulatory environment and maximise their
ability to innovate.
0
10
20
30
40
Sharing best practicerelated to improving
efficiency and reducingemissions
Sharing costs andresources to improveefficiency and reduce
emissions
Sharing infrastructurewith competitors to
improve efficiency andreduce emissions
Sharing IP which wouldenable the sector asa whole to improve
efficiency and reduceemissions
Sharing IP which wouldgrow new addressable
markets for you and yourcompetitors in the low
carbon space
Sharing results of testsrelated to improving
efficiency and reducingemissions
The typs of collaboration European business leaders believe have the mostpotential for enabling their sector to respond to climate change and theactions they have taken
Types of collaboration
businesses have already
undertaken to improve the
resilience of their sector in
the face of climate change
The types of collaboration
businesses believe have
the most potential for
enabling their sector to
respond to climate change
Only 13% of European
businesses believe that EU
regulation introduced over the last 10 years
has made it easier for them to respond to
climate change effectively
Only 3 in 10 (30%) believe
that current EU regulation
on climate change encourages companies
to develop and scale up new innovative
technologies and ways of working in order to
respond to climate change
13%
30%
Corporates need more flexibility to focus on rolling
out resource efficiency technology projects smartly
and holistically, and that they can pay back over
a longer period. Governments must deliver that
certainty via policy decisions to address climate
change as a global economy.
Ged Holmes
Commercial Director, Open Energi
28%
33%
27%
22%
16%14%
17%
32%
20%
18% 17%
32%
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5. Restrictions on the ability tocollaborate
Given the global scale of the challenge ahead, the ability
of companies to collaborate with peers in their sector is
recognised as a fundamental way to unlock the large-scale,
timely innovation required for businesses to address climate
change. Cross- industry collaboration creates an ecosystem
for climate action, allowing industries to solve common issues.
Collaboration is an essential diffuser of innovation; enabling
businesses to share their knowledge, share costs, pioneer
new approaches and technologies, test and roll out solutions.
Those sectors which are able to work together to promote
industry-level innovation are seeing significant progress. For
example, when looking at the automotive industry, a range of
brands have recently publicly shared patents for hydrogen-
powered vehicle technology, in order to promote a mass
market for fuel cell cars.
A third (33%) of business leaders surveyed believe sharing
costs and resources to improve efficiency and reduce
emissions has the potential to enable them to respond
effectively to climate change, while just under a third (32%)
believe sharing the results of tests and best practice related
to improving efficiency and reducing emissions could enable
them to respond effectively to the challenge ahead.
Our experts noted that collaboration could enhance the
efficiency of their business operations without negatively
impacting the end product or customer experience.
However, currently too many businesses believe that EU
competition law prevents them from collaborating: Two-
thirds (65%) of those surveyed believe EU-level competition
law has limited industrys ability to collaborate and respond
to climate change.
Certainly, international competition regulations, going back
to the US Clayton Antitrust Act of 1914 and the 1957 Treaty
on the Functioning of the European Union, were established
to prevent corporations from creating cartels and monopolies
that would damage the economic interests of society.
However, competition is not a goal in itself - it is a means
to reach a fairer society. When that society is challenged so
directly by the threat of climate change, we would recommend
that the process is adapted to better enable collaboration.
Climate-KICs experience as a collaboration community for
competitive peers is that greater sharing of the information thatframes a low carbon economic playing field can actually raise
more competition, not limit it. At this point, in order to disperse
transformative innovation to meet climate goals, it is vital that
business is empowered to collaborate, to help them make a
step change in their approach to addressing climate change.
It is also important to note that it isnt just collaboration
between companies that will lead to significant developments
in terms of innovation. Academia and start-ups are usually
where the most progressive innovations originate, and the
more business can leverage this, the more effective they will
be in addressing climate change.
Again a small number of companies are already collaborating
in this manner. However, in the next 10 years the number willneed to increase significantly in order for business to capitalise
on the financial opportunity of managing climate risk and to
play a significant role in closing the emissions gap.
Only a third currently seek
input from universities on
the latest innovations when it comes to
responding to the risk of climate change and
its impact on the marketplace
Less than 2 in 10 seek
input from entrepreneurs/start-ups when it comes to responding to
the risk of climate change and its impact on
the marketplace
33%
18%
Business leaders demonstrated a surprisingly
strong willingness for collaboration as a solution for
incorporating innovation and responding to climate
change.
Executive education can create the conditions
of trust and co-operation, and indeed it is not
unusual to see programmes which bring together
competitors in a framework of co-opetition;
collaboration between business competitors in the
hope of mutually beneficial results.
Business education that is more integrated, more
interdisciplinary and more oriented towards thinking
about the bigger system-level picture is needed.
Ebrahim Mohamed
Director of Education, Climate-KIC
Most companies, especially in the commodities
space, cannot be seen to discuss or share ideas
amongst themselves on carbon pricing as they
could be called out for price fixing. Corporate law
has been designed to prevent monopolies, but it
can hold back sustainability. In my view, business
needs to first collaborate to create a sustainable
system then compete.
Paul Simpson
CEO, CDP
Our product development is based on an enormous
amount of ongoing market research that naturally,
we keep to ourselves. However, we openly share
best practice on how products should be applied to
perform as efficiently as possible, for example, we
are founding partners in the International Active
House Alliance, where manufacturers, architects,
designers, building companies and academics can
openly share best practice to reduce energy without
compromising indoor comfort.
Michael K Rasmussen
Chief Marketing Officer, the VELUX Group
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TitleSubtitle
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Safety Line
Safety Line is a five-year-old company specialising in Big Data
applied to aviation. With a team of highly experienced Aviation
experts, data scientists and IT specialists, Safety Line, together
with the INRIA (French Institute for Research in ComputerScience and Automation), created OptiClimb, a world innovation
to reduce fuel consumption and CO2 emissions.
By using black box data which is currently far from being
exploited, even though it is free and available - OptiClimb
learns from this data and optimises a planes climb profile to
reduce airliners fuel consumption.
It is the first time that such an approach has been proposed
and Transavia France, the launch airline, saved 10% of the fuel
used during each planes climb - around 100kg for each flight.
Today, because the fuel saving solution can be applied to each
aircraft and each airline, many other airlines around the world
including Lufthansa, Azul or United are interested in adopting
OptiClimb.
At a time when almost 3% of global CO2 emissions are produced
by air transport, protection of environmental quality is an
important issue for Safety Line. So, aside from the obvious cost
savings, the French start-up is giving major energy consumers
the opportunity to make the planet a little greener.
Aviation is a big contributor to CO2
emissions, but through innovationwe can find immediate solutions to
help reduce its carbon footprint.
CASE STUDY
Pierre JouniauxCEO, Safety Line
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VELUX Group
The VELUX Group, a globally leading manufacturer of roof
windows, is committed to safeguard the planet and works
systematically to limit the negative impact on the environment
and the worlds resources. Addressing climate change is partof this commitment and by developing sustainable building
solutions the VELUX Group contributes to a more climate
friendly future.
In 2009, the VELUX Group made its commitment to reduce
the CO2 emissions by 50% before 2020 compared to the 2007
level of 107,000 tons CO2. To reach this goal, we are reviewing
all our internal processes across the entire supply chain. The
next step is to implement certified energy management in our
factories, located in 9 different countries all over the world. So
far, we have reached a 29% reduction from the 2007 baseline.
Furthermore, we have built 21 houses, in 12 countries with
different climatic conditions, to develop sustainable solutions
for future buildings and thereby shape the building design of
the future. Society is in need of energy efficient buildings that
provide a healthy indoor climate for people living, working and
playing inside them, while leaving a minimal impact on the
environment. The houses prove that this is achievable and that
2020 building targets can be reached with todays products.
Based on 21 experiments across
Europe, we have shown that it ispossible to meet the 2020 targets
with the technology available today.
CASE STUDY
Michael K RasmussenSenior Vice President, the VELUX Group
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Going forward from COP21, the direction of travel is towards
increased carbon constraints for doing business. Scientific
boundaries have been set for a revolution in addressing
climate change, which cannot be achieved without the
private sectors ability to internalise material risk, raise funds,
convene productive capacity and scale up solutions at speed.
Business has a choice, either to shape the needs and impacts
of a sustainable, low carbon future, or to be shaped by it.
Companies can either ride the wave of oncoming regulation
and the demand it creates for low carbon products and
services, or be forced along by it.
Based on our research, we are optimistic about the high levels
of awareness that European businesses demonstrated of the
need to avoid a 2C world and to manage the unavoidableimpacts of climate change. However, what appears to be
lacking is the know-how to frame risks and opportunities
in a way that businesses can action effectively within their
planning horizon.
Across the survey, many business leaders demonstrated
various traits which will help make their business operations
climate proof. Below are our key recommendations for
business leaders looking to cultivate and expand those traits
to make their entire organisations climate proof post-COP21.
Accurate evaluation of financialexposure to climate risk and
opportunity is vitalThe most significant market failure on climate change across allsectors - is the failure to accurately price environmental damages
and other externalities. If you are one of the 41% of businesses
without a strategy in place to protect against the impacts of
climate change, its likely that you have not assessed the risks and
opportunities of moving your business to a climate-proof footing.
When only 10% of accounting and finance teams have climate
change expertise, its not surprising that so many businesses
do not have an adequate strategy in place.
Transformational innovation must bechannelled into businessThe world is changing rapidly. Regardless of climat e
change, new virtual models and technological advances are
dramatically altering the shape of the global economy.
Innovation is a fundamental engine of productivity and
progress, and is critical for delivering low-carbon growth.
Businesses must actively place themselves on an innovation
journey; creating channels for transformational innovation to
flow into their models, making them more resilient and able to
seize first-mover advantage.
Transformational innovation rarely originates from big business;
it is usually stymied by the pressure to meet quarterly targets
by applying tried and tested processes. Ra dical innovation
usually resides within Universities and start-ups with a vision of
how the future can look. Climate-proof businesses will actively
steer new transformational thinking and innovation into theirorganisations, by augmenting their own R&D departments with
input from Universities and entrepreneurs.
Boards need a climate leaderempowered to take actionMost European business leaders accept that climate change is
significantly impacting their business operations (e.g. through
limited availability of raw materials and natural resources,
disrupted transport and logistics routes). With this in mind,
it is critical for companies to install an individual on the
board with sufficient knowledge and expertise to lead and
implement strategies that enable the business to effectively
respond to climate change.
Business education can drive organisational change by
equipping business leaders with the knowledge and skills to
shift their thinking towards the bigger system-level picture.
Education is at the heart of Climate-KICs activities and we
aim to inspire and empower the next generation of climate
leaders to address climate change across four priority themes:
urban areas, land use, production systems, and climate
finance. Organisations need to recognise where the skills gaps
lie in those areas and take action to fill them.
Teams must have the skills to respondto climate changeIn some cases, board leaders may be empowered to take
climate action, but are poorly equipped with the direct
resources needed to implement change. For example, just
38% of R&D departments have the necessary skills to respond
to climate change.
R&D is the core organisational function for identifying and
responding to the needs of the changing marketplace. If
businesses do not have a bedrock of skills in R&D, they
are likely to remain seriously unprepared to address the
opportunities and risks that are already on most of their radars.
Dont wait for a policy silver bullet collaborate upon existing platformsOur research points to a conflict in European business,
regarding the strong awareness of risk and opportunity fromclimate action, and uncertainty in transitioning from known
to unknown business models. When faced with a burning
issue, such as the impact of climate change on availability of
raw materials, the danger is that businesses attempt to drive
residual value from existing processes and models, rather
than take the risk of transitioning to the next stage.
Many business leaders will wait for financial risk mitigation
through tax incentives or financial support, or for legislation
such as carbon pricing and softer competition laws before
diffusing radical innovation through their organisations.
But there are already non-fiscal means available to enable
them to seize first-mover advantage. Climate-KICs work
in finding and qualifying new innovations, preparing these
innovations (and companies) for scale, and then instigating
industry and cross-industry collaborations, is a prime example
of the structures already in place to commercialise radical new
technologies for commercial and environmental gain.
Businesses need to adopt strategies with sufficient ambition
and urgency to make a true impact, while at the same time
operating within current political and economic realities.
06
Looking to the future:
recommendationsfor business