The manufacturing sector has a key role to play in addressing decarbonisation

Globally, 90% of business leaders view sustainability as important. While this is a similar sentiment in South Africa, 80% of local organisations surveyed by PwC South Africa have said that they have not yet made a net-zero commitment. Despite this, the sustainability agenda of business leaders has garnered a new level of attention and respect within the hierarchy of organisations in today’s business operating environment. This can be attributed to various reasons, some of which include the fact that today’s leaders are becoming increasingly conscious about the impact of their organisation on society and the climate risks associated with this, as well as increased stakeholder and market pressures, and the adherence to climate policy and regulation.

With a laser focus on these matters, PwC South Africa’s Manufacturing Operations Transformation team hosted an insightful roundtable leadership discussion at the 2023 Manufacturing Indaba in Johannesburg to assess how the manufacturing sector can collectively bolster its commitment to net zero to drive sustainability and business growth, and uplift communities. According to a World Economic Forum report, the manufacturing and production sector accounts for one-fifth of global carbon emissions and 54% of the world’s energy usage.

Vinesh Maharaj, PwC South Africa Manufacturing Operations Transformation Lead, said: “Sustainability is a broad and complex concept that can potentially be intimidating for manufacturers. While the sector is a key economic driver, both in South Africa and globally, activity from this sector does pose concerning risks to the environment that need to be collaboratively addressed.”

The leadership discussion was centred around delivering sustainable business outcomes through the deployment of sustainability programmes. Mahesh Pillay, PwC Africa Net Zero Lead, who led the discussion, unpacked how companies are doing this. Some are joining the United Nations’ Climate Champions Race to Zero campaign, which is a programme that encourages organisations to reach the goal of being net zero by 2050 and halving emissions by 2030. “Today, it is pertinent for leaders of manufacturing organisations to understand what net zero means in the context of their business, and to determine how to adhere to scope one, two and three emissions in order to reduce their carbon footprint,” Pillay said.

The panel discussed what a just and fair net zero transition looks like for the manufacturing sector, and focused on the following three key aspects:

1. How to achieve carbon reduction goals without compromising growth - The end goal of measuring and tracking carbon emissions is to shape business decisions that mitigate the effects of climate change. For business leaders, the resulting agenda for corporate action should be equally clear: leverage your data to focus efforts where they will have the greatest impact, establish a baseline of performance, prioritise efforts with suppliers, and craft meaningful performance incentives for them.
2. How to mobilise change in the sector and be seen as front runners, showing leadership in climate action considering both mitigation and adaptation - African businesses: Signal leadership in climate action by committing to net zero targets and joining the Race to Zero campaign. The campaign has over 11,000 members worldwide from all sectors. It offers clear guidelines, created by experts through global consultations, to help organisations transition to more climate-friendly practices. Being part of the campaign signals credibility and leadership in climate action for your organisation’s plans and commitments. International businesses: Explore partnerships in Africa to realise carbon benefits in their supply chain and contribute to sustainable development.
3. How to better understand the impact of decarbonisation on the supply chain to drive positive change that will shape a more sustainable and resilient, but also profitable future for the sector - Organisations should leverage existing opportunities (i.e. abundant renewable energy resources and exciting nature-based solutions) that are unique to our African continent to decarbonise their supply chains. This will help position them to offer low-carbon products and services, and unlock new revenue and investment streams from both local and international markets.

Opportunities present to African manufacturers 

“The manufacturing industry is far-reaching, and significantly influences the ways in which individuals live, eat, work and play,” Pillay said. “Reaching net zero is not solely an environmental imperative, but is also a massive value-creation opportunity to drive growth and optimise profitability alongside purpose.”

In order to unlock efficiencies, businesses need to understand the source and quantum of their emissions. For example, scope 3 emissions make up 65–95% of most companies’ carbon impact, with 80% of supply chain emissions coming from as few as one-fifth of its purchases. It is therefore imperative to:

• Establish your company’s scope 1, 2 and 3 emissions profile across the value chain;
• Determine your current and future carbon price exposure in light of emerging regulatory and disclosure requirements;
• Identify and quantify decarbonisation levers; and
• Develop appropriate decarbonisation and implementation plans.

The scale of investment to achieve net zero is a significant business opportunity. Investors have the opportunity to generate long-term returns by providing the capital to finance the transition to net zero. Businesses who act quickly and decisively to decarbonise their operations will also be able to benefit from longer-term cost savings across their supply chains.

The world is gradually decoupling economic growth from energy consumption, which presents commercial opportunities for manufacturing businesses. “The decline in global energy intensity by an average of 1.4% per year over the past 20 years signifies that the world is gradually decoupling economic growth from energy consumption,” Pillay said. “This is a positive sign as it means that economies can grow without proportionally increasing their energy consumption. This trend is largely attributed to advancements in energy efficiency, driven by policy initiatives and industry competition. Key to putting your sustainability strategy into motion is turning ambition into action to deliver both commercial and societal value.”

Panellist Julie Rosa, PwC South Africa Purpose Led Growth Director, said: “In order to move the manufacturing sector forward on its decarbonisation journey, organisations need to leverage the power of collective action. Every African business, regardless of size, has the potential to drive positive change, shaping a more sustainable and resilient future for our continent — and we can help you to get there.”

Based on the discussion, and globally available data, it is evident that the manufacturing sector has a key role to play in reducing carbon emissions which, in turn, will help with reaching local and global climate targets. Organisations within the sector will also reap more sustained benefits which are likely to impact their ability to thrive in our constantly evolving, fractured world.

_{*In September 2020 PwC announced a world wide commitment to reach net zero greenhouse gas emissions by 2030. Our net zero commitment is underpinned by a science-based target (SBT) in line with a 1.5 degree scenario to prevent the worst impacts of climate change, as set out in the Paris Agreement.}