Why businesses can't ignore the social impacts of their net-zero transition

As companies take steps to implement and accelerate decarbonisation, it is becoming increasingly apparent that no transformation can be truly sustainable unless it accounts for the social impact of the change it brings.

Decarbonisation will mean disruption – to companies, industries and communities – and any progress on climate change mitigation must come hand-in-hand with social progress.

Businesses have a duty to consider the potential socioeconomic effects of their decarbonisation strategies, such as job displacement, the use of local infrastructure, or higher costs being passed on to consumers.

Christine McGrathUnfortunately, for all their good intentions, most companies still struggle to evaluate and alleviate the impact of such fundamental change on the communities they rely upon. In our survey of 450 business leaders, 65% agree that addressing social impact is both their responsibility and good for business, but only a few are following through with related actions.

Less than half (40%) have properly assessed the potential impact of job displacement, and even fewer (29%) have considered the sustainability of local infrastructure.

Overall, companies have made little progress in helping local communities manage the social change prompted by the energy transition.

This is nothing new: history offers many cases of transformative developments that came at the expense of local communities. For example, the American highway boom of the 1950s and 1960s was hailed for expanding access to urban centres, with little thought for the diverse neighbourhoods that were divided or destroyed by the network of roadways.

Then, as they are now, social issues are often put on the back burner for future progress.

Spreading the benefits

Zebrina HanlySocial impact shouldn't be an afterthought in your business strategy, and for Mondelēz International, the two are intrinsically linked. Through its Cocoa Life Programme[1] the multinational food company is helping to promote financial stability in 60 Ghanaian cocoa-growing communities. Creating a sustainable business model doesn't stop with the environment, it also needs to sustain the livelihoods of farmers.

One initiative that's empowering these communities is the Payment for Environmental Services scheme[2], which offers financial incentives to farmers who engage with forest-friendly practices, such as replanting trees. Farmers are encouraged to grow food crops alongside the seedlings until the canopy closes, giving them a chance to increase their household income while the forest recovers.

"It's a circular approach with economic livelihoods tied to environmental strategy, fuelled by the people in the community who receive payment for it," says Christine Montenegro McGrath, SVP and chief impact & sustainability officer at Mondelēz. "Circularity is a way forward. To us it is the true definition of sustainability – you create something that's not just a one-off solution but something that can continue."

In addition to agriculture, the decarbonisation of transport is another sector where social impact requires careful thought. The UK's Royal Mail, for example, invested in a tailored training programme for its staff when the company prepared to roll out a new fleet of electric delivery vehicles, ensuring they would have the skills needed to be part of the change[3].

"We employ one in 175 people in the UK," says Zebrina Hanly, head of environment and climate change at Royal Mail. "We have a large operational workforce that we are training and transitioning through green skills that they will need for a new fleet. We are [in the] early days with that, but we are committed."

Royal Mail has now deployed more electric delivery vehicles than any other parcel service in the UK. The company has already surpassed its initial target of 3,000 vehicles[4] and is expecting to have around 5,500 in operation by spring 2023[5].

Making it happen

Socially responsible sustainability initiatives are gaining traction: 45% of respondents say that helping local communities manage the social impacts of net zero is a top investment priority over the next two years. But companies can't meet these challenges alone. Going forward, they'll need to work closely with governments, NGOs and the public to ensure their strategies help, rather than harm, the communities they serve.

Investors also have an important role to play in aiding initiatives that have social considerations at heart. The mark of a truly sustainable project is one that has KPIs measuring both environmental and social impact, and this is the green flag financial backers should be looking for.

ING has backed several such schemes, including a €600-million sustainability bond with FedEx that's set the standard for ESG financing in transportation and logistics. Its framework aligns the company's sustainability initiatives with 'social bond principles', embodied by initiatives such as a supply-chain diversity programme supporting female- and minority-owned businesses.

Another recent success is a $750-million sustainability-linked financing deal with Compass Datacenters in the US. It's the most extensive sustainability deal of its kind in the sector and includes a requirement for more than 50% female representation on Compass's construction workforce.

Examples such as these show how we can drive a fair transition: by empowering the private sector to find solutions that are both environmentally and socially sustainable for all. The journey to net zero will not be straightforward, but business leaders have a responsibility to make sure the future they build makes space for people, as much as it protects the planet they live on.