To decarbonize, we must must harness the power of demand. This is how
Padma Nayagam, Manager, Demand Signals, We Mean Business Coalition
As more and more companies set net-zero targets and work to cut their emissions, they face a common problem: how to source lower carbon goods and services across their supply chain. At the same time, businesses that supply to big companies struggle to scale up the solutions they need to reach their net zero ambitions.
There are several mechanisms that can help companies of all sizes overcome these challenges, which can be grouped under four pillars of policy, finance, technology/supply, and demand. The first three pillars are widely discussed and understood. It is clear how changes to government policy, new investments and technological innovations can all help accelerate emission reductions within companies. Demand, however, is talked about much less.
Demand signal initiatives are campaigns, alliances, and other actions that support companies and public procurement bodies to purchase low or zero emission products and services. Where there are not enough of these sustainable goods and services available, companies commit to purchasing more in the future in order to stimulate and shift the market. When several major companies publicly say they want to buy more of a zero emission product – this is the demand signal – it reassures suppliers, manufacturers and service providers that they can confidently invest in those products and the accompanying technology needed to meet that demand in the market. As more investment flows, the market scales-up, costs come down and net-zero products and solutions become increasingly commercial and cost effective compared to more polluting products.
These initiatives are gaining momentum.
Just this month, 17 companies set a target of purchasing 100% net-zero concrete by 2050 through the newly-launched ConcreteZero initiative. Around 25 companies have committed to purchasing 100% net-zero steel through the SteelZero initiative which last week launched its India chapter. Hundreds of companies are now signed up to renewable energy goals through RE100 and electric vehicles through EV100, examples of how aggregated demand can help drive the net-zero transition in the energy and transportation sectors.
While many successful initiatives already exist, there is potential to do much more. Demand signals could be mobilized across different sectors, regionally and globally, driving markets for existing and new net zero solutions.
To better support their adoption across sectors, We Mean Business Coalition, in partnership with Climate Group and Mission Possible Partnership, has released a new report Harnessing the Power of Demand(pdf). The report introduces demand initiatives and general recommendations on how to design a successful demand initiative to accelerate emissions reductions, if a gap exists.
Where might the opportunities lie?
Within any company, all proposed investments are competing for a limited pot of capital. Investments that come with high up-front capital costs tend to struggle in making the case and lose out to ideas that appear to be delivered more cheaply. This is the ‘chicken and egg’ dilemma of green procurement. Few businesses are willing to risk the major investments needed now, when the market is small, yet the market won’t grow until products and materials are produced at commercial scale and are price competitive. But, as an example, if instead of one, multiple companies can join forces and signal the demand commitments through early market seeding or demand campaigns, the initial capital costs are spread further and come down faster. It also instils confidence in other stakeholders like financial institutions and policy makers.
Governments are major purchasers of goods, materials and services, and have also started to signal their demand for decarbonized products. Green public procurement initiatives can set policies and standards which then shift markets and industries. By mandating the sustainability standards for new buildings, for example, national, local or city governments can create demand for net-zero products used in infrastructure and construction, such as steel and concrete.
Creating more demand and leveraging the power of aggregated demand will strengthen the voice for green procurement and help overcome the barriers that are holding back the demand and supply of net-zero solutions.
There will never be a one-size-fits-all solution, especially considering some of the demand initiatives needed are yet to take shape. But the scale of the action necessary to transition to net zero is huge and we must pull on every lever to drive action faster towards net zero by 2050. That includes harnessing the power of demand. To that end, I urge you to read our new report now.
- Download: Harnessing the Power of Demand: Design Principles for Demand Signals Initiatives (pdf, 1.3MB)