How can we unleash climate action for profitable business growth?

The economic uncertainties, energy price swings and geopolitical tensions of the past two years have been nothing short of head-spinning. So much so that the need for climate and broader sustainability action is coming under scrutiny and some projects and policies – offshore wind projects, automakers' electric vehicle efforts and climate targets – are being re-evaluated.

It’s critical, however, that companies view climate action and decarbonization strategies not as a hindrance to profitability but as an opportunity. McKinsey research shows that integrating strong environmental, social, and governance (ESG) principles into growth strategies leads to outperformance in terms of growth, profitability and shareholder returns. Done right, a greater focus on ESG can become a catalyst for innovation, greater efficiency, lower costs and business growth. It’s an opportunity to tap into new markets, attract conscientious consumers and strengthen long-term resilience.

Schneider Electric exemplifies this shift. By embedding ESG considerations into everything we do and setting ambitious sustainability commitments, we’ve delivered a positive long-term impact for the communities in which we operate, while also achieving record revenues. And, we extend this approach beyond our own operations by working with customers, partners and others to lower their emissions too.

As we navigate this uncertain terrain, several areas present opportunities for climate action and an improved bottom line.

The new Corporate Sustainability Reporting Directive (CSRD) in the EU revolutionizes sustainability reporting, requiring EU companies and non-EU entities with significant EU turnovers to report against comprehensive ESG standards. The directive aims to standardize reporting practices, providing clarity and transparency for investors and stakeholders. And, it elevates the importance of non-financial reporting to the same level as financial reporting.

The CSRD can be a catalyst to spur the development of innovative programmes, such as Energize, a collaboration between global pharmaceutical companies to engage hundreds of suppliers in the decarbonization of the pharmaceutical value chain. The programme leverages the pharmaceutical industry’s scale to drive system-level change.

Overall, the CSRD is a significant step towards greater transparency and sustainability action within the EU, which must be further consolidated through a constant dialogue between the corporate sector and policymakers. Businesses must embrace comprehensive reporting, demonstrate real progress and actively contribute to environmental stewardship and corporate sustainability. The directive's deployment will underscore the significance of energy efficiency as a key lever for businesses to reduce their carbon emissions.

Prioritizing business stability is crucial in the pursuit of sustainability. To meet 2050 targets, we must deploy efficient and clean technologies 3-5 times faster than current plans. Supply-side measures – how energy is generated – are a key part of the equation and the rapid expansion of renewables in recent years is a welcome development.

But, the demand side, how energy is consumed, is at least as important and there are plenty of technologies at our disposal today to get us to far greater efficiency. Take the findings of research we conducted with design firm WSP. This showed that installing digital building and power management solutions in existing office buildings could reduce their operational carbon emissions by up to 42% with a payback period of less than three years. What’s more, replacing fossil fuel-powered heating technologies with electric-powered alternatives and installing a microgrid with local renewable energy sources, can achieve an additional 28% reduction in operational carbon emissions.

Cost and emissions reductions aside, greater energy efficiency helps insulate organizations from energy price spikes of the kind we’ve seen in Europe and elsewhere. As such, committing to greater energy efficiency is not 'just' an environmental responsibility, but a strategic business and financial imperative.

The combination of electrification and digitalization – or what we call Electricity 4.0 – has also ushered in the era of the prosumer: companies or households that are 'consumers' and 'producers' at the same time, producing the energy they consume through renewable sources such as on-site solar or wind.

For businesses, the benefits are clear. On-site electricity generation and storage provides a shield against price fluctuations and grid instability, and can reduce energy bills – particularly when paired with digital software to optimize operations and usage.

While the upfront investment costs can be a deterrent, microgrids-as-a-service models can reduce initial expenditures and provide a pathway to ongoing savings. Microgrids empower businesses to control electricity sources, enhancing resilience during peak times with volatile wholesale prices. This flexibility enables informed and strategic financial decision-making.

This transition is not just a step, but a leap towards aligning energy production with business strategy.

Becoming a prosumer is a transformative mindset for businesses, embracing the opportunity to reduce their carbon footprint and control their energy destiny. Embracing this role signifies sustainability, resilience and financial prudence amidst the challenges of an evolving energy landscape. The future belongs to those who wisely use and smartly produce energy.

For hard-to-abate sectors, such as chemicals, steel and cement, microgrids and energy efficiency don’t go far enough: other innovative solutions are needed. This is where electrification comes in - replacing technologies that use fossil fuels with those that run on electricity.

Electrification goes beyond emission reduction: it’s an opportunity for industries to embrace cutting-edge technologies and transition from fossil fuels. This reduces environmental impact and upgrades equipment technology, ensuring continuous operational performance and maximum efficiency.

Innovating and electrifying processes is a call to revolutionize industries, deploy existing solutions at scale and push the boundaries of innovation. This approach brings us closer to a net zero future, unlocking economic growth, job creation and a sustainable, technologically advanced world.

Amid all the uncertainties, it can be hard to know what to focus on. But, climate change is ultimately the biggest challenge facing humanity today and stepping up environmental action simply isn’t an option. What we need is a shift in perspective. We need to see challenges as opportunities for innovation and growth, for profitability and for creating the brighter, sustainable future we all want for business, for society and for the planet.