Green Transition Will Impact 72 Percent of Companies
The climate emergency is apparent for all to see, and the reduction of greenhouse gas emissions in order to decrease the global average temperature is a necessity that can no longer be postponed. In this context, a central role in curbing emissions is also played by businesses, which, precisely because of this, face an ecological transition risk that may consist of operational losses or, for financial operators, lower returns on investments.
A study by the REPAiR Lab (Responsible, Patience and Reliable Finance Lab) - SDA Bocconi and CRIF's laboratory on responsible and sustainable finance - shows that more than 72 percent of companies will have an average or higher impact in the industry chain due to the ecological transition path. In particular, the most impacted companies will be those in the chemical and cement sectors. From there, the study identifies key steps that companies must follow to steer their decarbonization process and minimize the risks of the green transition.
Specifically, to estimate the impacts of the transition to a low-carbon economy, more than 5 million Italian companies were analyzed on the basis of the green transition risk indicator developed by CRIF, which expresses the probability for a company to experience significant impacts with a 2050 horizon and considers value of production, EBITDA Margin and investments.
At the size level, companies that will be most impacted tend to be larger than average. In addition, focusing the analysis on energy consumption, a relationship emerges between "energy-hungry" sectors, with higher methane gas consumption, and transition risk in the long run.
"The process of decarbonization of the economy will involve profound structural changes. Certain sectors will be called upon to increase or reduce their market share, while others will be involved in M&A processes or will potentially have to leave the market, think of companies operating in sectors related to activities related to the extraction and distribution of fossil fuels or companies producing goods and services that use fuels as a primary input within their production process," explains Michele Calcaterra, chief operating officer of REPAiR Lab, who coordinated the research work with Alessandra Caragnano and Cecilia Marchesi.
"A recent CRIF analysis showed that SMEs and corporate companies that invest strategically in sustainability can reduce their consumption by 10-30% per year, without decreasing the level of service and quality of business operations. By being more energy efficient, companies can improve their financial situation but also reduce greenhouse gas emissions. It is also critical that green transition initiatives extend from the individual company to the entire supply chain. Suffice it to say that up to 90 percent of a company's environmental impact is determined precisely by its production processes," explains Marco Macellari, Director - Head of Risk Management, Management Consulting at CRIF.
In this scenario, according to REPAiR Lab's study, companies must focus in an integrated way on four fundamental aspects: strategy, risk management, access to capital, and finally, a very relevant aspect, measurement metrics.
Regarding strategy, it is a priority that companies integrate decarbonization and sustainability goals in ways that are consistent with the business plan. Decarbonization strategies require resource allocations that must be seen as necessary investments in strengthening competitiveness, reputation and resilience. Moreover, the transition process, "must be seen as a kind of driver not only for energy companies, but also for manufacturing and service companies," Repair Lab researchers add. In this scenario, corporate finance plays a primary role as a driver of the transition: by addressing transition risks (reputational and regulatory), financial operators can influence companies and the community toward more sustainable choices, and simultaneously, by developing synergies among different clients, they can facilitate the transition of 'brown' to 'green' companies.
On the second point, risk management, it is crucial that climate change aspects are integrated into a company's risk management strategies: at a time when investor attention to sustainability is gradually increasing, embarking on and communicating a clear path toward decarbonization for companies becomes a positive and enabling factor on the credit access front.
The third point follows, that of access to finance and new capital: only the most sustainability-virtuous companies become more attractive and resilient in the eyes of markets and investors. To manage the transition, "substantial sources of capital, including bonds or equity, will be needed that can support companies in managing environmental risks," REPAiR Lab researchers point out.
An absolutely important aspect on which a joint team of SDA Bocconi researchers and CRIF professionals coordinated by Maurizio Poli (SDA Bocconi) and Mariagiovanna Zavallone, senior manager at CRIF, worked is metrics. On this aspect, it will be a priority for companies to comply with European and international measurement standards so that the evaluation of their activities and their communication is as homogeneous and open as possible.
"This first REPAiR Lab research project that we developed together with SDA Bocconi delves into a topic such as the ecological transition that is of increasingly pressing relevance for companies as well as for financial players, who are called upon to assist them on this path. On the other hand, the resources of the PNRR, which provides a key mission for this area, represent a unique opportunity that absolutely cannot be missed," comments Marco Colombo, Managing Director Finance Italy of CRIF. In this context, CRIF has been investing significantly for years on projects and solutions in the ESG sphere and today is able to provide financial players and companies with a unique mix of information, analytics, digital platforms and advisory, so that all the actors involved are able to measure their level of sustainability and get effective operational tools to make the desired qualitative leap to start a green transition."
In this regard, "portfolio anaytics and risk management activities are increasingly dependent on an integrated approach of fundamental ratings, i.e., based on balanced and sustainable parameters, i.e., linked to the measurement of impacts on the environment and social context," concludes Michele Calcaterra. "The so-called integrated rating, is the goal to be achieved and in which REPAiR is investing."