climate-kic: sparking an innovation step change

7/23/2019 Climate-KIC: Sparking an Innovation Step Change

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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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Sparking an innovation step change /04 05

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and outdated narrative that climate action is a cost is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


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%

/12 13

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


8/20


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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TitleSubtitle

/16 17Sparking an innovation step change

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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/18 19Sparking an innovation step change

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


11/20


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


12/20


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


13/20

TitleSubtitle


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


14/20


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


15/20


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%


17/20


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


18/20

TitleSubtitle


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


19/20


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


20/20


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

climate-kic: sparking an innovation step change

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