Innovation is a key ingredient for sustainable transition - but it's not what you think.

When technological innovation is not innovative enough

By Valerie Chiu at Blunomy, a strategic consulting firm based in Hong Kong

The word “innovation” often conjures up images of futuristic, sophisticated machines with cutting-edge technologies. The commonality between such high-sounding words as “hydrogen economy” and “carbon capture” is the impression that climate tech is something out of reach for an average individual, or even a company engaging in sustainable transition.

But focusing only on technological advancements ignores other important elements of the transition towards a low-carbon economy. Why? Because innovation within an organization can just be as impactful as breakthrough technologies. In essence, this means challenging and reinventing the ways a business operates, as well as being attuned to ever-changing market trends. And of course, that is more complex than it sounds.

Many corporates, including financial institutions, have announced their intention to achieve net-zero by 2050. More than 2,200 companies (with ~U$38 TRN, or a third, of market capitalization globally) have committed to setting science-based carbon reduction targets. At the same time, the market is hungry for transition – more customers are demanding low-carbon products, and investors are hunting for green investment opportunities. And on top of that greenwashing risks are growing whilst environmental regulations are becoming more stringent. In other words, we have both the carrot and stick for the transition.

The commitment to sustainable transition is there, but why is the overall economy not decarbonizing fast enough? At Blunomy, we see three systemic barriers to the sustainable transformation of our economy.

First, silos still exist between stakeholders (e.g., companies and investors), within organizations and their partners (e.g., along supply chains), and across disciplines (e.g., financial management vs. sustainability).

Second, the tools to measure success do not exist, meaning impact is not monetized and transition leaders are not rewarded.

Last but not least, current capital allocation is not optimized for transition. Early movers and emerging players should be recognized for their cross-sectoral potential for decarbonization. At the same time, it is imperative to go beyond a “pure green” approach as renewable power alone is insufficient for an economy-wide transition. Embracing broader “brown-to-green” investment & financing strategies – addressing the largest portion of carbon emissions – will be pivotal in channeling more capital into the transition.

There is no doubt that all-inclusive transition is a challenge for businesses. Considerations include addressing all scopes of emissions, decarbonizing the entire supply chain via collaboration with partners, and having a robust governance framework that covers all organisational levels (especially top management). However, this also provides a golden opportunity for first movers to lead in the decarbonized world whilst the laggards risk losing revenue and market share.

Innovation within an organisation can just be as impactful as breakthrough technologies in transforming our economy.

And when it comes to innovation, it is important to note that it does not necessarily mean creating something groundbreaking from scratch. In making sustainability integral to a business strategy, a company often finds numerous opportunities to decarbonize whilst honing its competitive edge. Climate actions that were not considered suddenly become meaningful from a business perspective. Therefore, a company that establishes global reverse supply chains to reuse packaging is no less innovative than a startup developing a novel carbon capture process.

Truly embedding sustainability within a company’s business model also brings additional benefits in mitigating transition risks. This is especially the case given the increasingly stringent regulatory environment, both in Hong Kong and around the world. In addition to the decarbonization targets laid out in the Climate Action Plan 2050, Hong Kong’s authorities announced that the Task Force on Climate-related Financial Disclosures-aligned (TCFD) reporting will be mandatory across “relevant sectors’’ by 2025. However, there are also opportunities for companies to go beyond mere compliance and leverage the TCFD framework to communicate their climate strategies and performances effectively, as well as benchmarking themselves against peers.

The Blunomy’s day-to-day job is to advise companies to take on business innovation. For example, we advised a global textile company in designing a new business model that involves decarbonization and the localization of its supply chain closer to its customer base. The company was looking to reduce waste whilst accelerating circularity in its supply chain. In the meantime, it also needs to align its practices with latest regulatory changes and changing customer preferences for carbon-free locally sourced products.

In this case, technology was neither the cause nor the solution to the problem – most textile recycling technologies already exist, but what remains is the insufficient infrastructure to access, collect and upcycle pre-used clothing. To overcome this systemic challenge, the company renovated its operating model by evaluating and re-defining its relationships with suppliers along the value chain. It engaged with each relevant stakeholder directly and provided pre-designed solutions for sustainable sourcing, allowing the company to reduce carbon emissions whilst having a social impact. The company was then able to respond to customer demands and offered renting options for reusable clothing. All in all, the company successfully pioneered a circular business model characterised by collaboration, which could be replicated throughout the entire textile industry.

That being said, sustainability is not just relevant to large, publicly listed companies; all enterprises, whatever the size, type of business, or sector it operates in, have an environmental footprint that needs to be addressed. If anything, innovating from within would be a quicker process for small and medium-sized enterprises, given their agile nature. Nevertheless, forward-looking companies who are more open to novel ways of operating will be poised for the fast-changing macro environment, including evolving market demands. And that is exactly the dynamism we need in the face of the most pressing challenge of our time – climate change.

To learn more about what we do, please visit www.theblunomy.com.

At Blunomy, we believe the best is yet to come and we make it happen by inventing new rules for a new economy.

There is a saying that it only takes one person to change a light bulb, but the light bulb has to want to change. Given that most decarbonization technologies are already available, the missing piece in this puzzle is the willingness to think and act differently. The source of innovation and thus the power to transform the economy comes from within – and that might just be the light we need to navigate the path forward.

We welcome your thoughts - please feel free to reach out to valerie.chiu@theblunomy.com if you wish to discuss the ideas mentioned in this article.