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Mitigating financial risk in the transition to net zero: challenges and opportunities for CFOs

Mitigating financial risk in the transition to net zero: challenges and opportunities for CFOs

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The team at Open Energy Market, a leading energy procurement specialist and provider of net zero strategies, has conducted extensive research on the changing landscape of chief financial officer responsibilities, including the integration of sustainability into financial decision-making processes. Chris Maclean, CEO, Open Energy Market, explains how companies can mitigate financial risk in the transition to net zero.

Research conducted by Open Energy Market surveying 150 chief financial officers (CFOs) has revealed an increased awareness of the importance of sustainability projects and the benefits they bring. In fact, the study found that an overwhelming 85% of CFOs believe that achieving net zero emissions is crucial for business growth. Many businesses are beginning to recognise that by aligning financial decisions with sustainable practices, they can futureproof their operations, enhance their reputation and capitalise on emerging market opportunities.

However, despite this recognition, the implementation of sustainability projects has seen a decline of 8% from last year, indicating a gap between enthusiasm and action. Now is the time to explore the challenges businesses face in realising sustainability goals and tackle how they can bridge this gap.

Understanding businesses’ major roadblocks to implementing sustainable projects

While the interest in sustainability is evident, there is a clear disparity between the enthusiasm for sustainability and the actual implementation of projects. CFOs have identified several key barriers that hinder sustainability investments, including increased overhead costs (27%), managing financial risks (24%) and the complexity of renewable technology (21%). Delving deeper into these barriers to sustainability project implementation, we can truly get to the root of the problem and discover effective solutions.

Weighing the risk of initial investments

A significant barrier for businesses trying to implement sustainability initiatives is the management of financial risks associated with the transition to net zero. Implementing sustainable projects often requires significant upfront investments, whether it’s installing renewable energy infrastructure, adopting energy efficient technologies, or transitioning to more sustainable supply chains.

Potential changes in government regulations, the evolving market conditions and fluctuations in the cost of renewable technologies mean there is a notable amount of uncertainty or confidence in making informed decisions surrounding these initial investments. This uncertainty becomes a deterrent for many businesses, as the financial risk involved is perceived as too great.

Keeping pace with sustainability and energy market movements

Effectively mitigating these financial risks requires a comprehensive understanding of the financial landscape and the ability to accurately forecast potential outcomes. Unfortunately, the research shows that many businesses (18.6%) state they lack the necessary tools, insights and resources in-house to navigate this intricate landscape effectively.

The rapidly evolving nature of the renewable energy sector further compounds this challenge, as staying up-to-date with the latest advancements and identifying the most suitable technologies for specific business needs can be daunting.

Businesses often have limited access to accurate data on the financial and operational implications of sustainability projects. Without comprehensive insights, developing robust business cases, evaluating potential returns and securing buy-in from stakeholders becomes challenging. The absence of a clear roadmap and the inability to quantify the benefits of sustainability projects can hinder decision-making and impede progress.

Activating pathways to net zero

To address this issue, accurate insights, robust modelling and a deep enough understanding of market volatility are essential.

Businesses need to move away from inaccurate conjecture and static spreadsheet modelling and adopt holistic, dynamic and bespoke financial modelling to build strong business cases for sustainability investment and develop actionable carbon neutral strategies.

Holistic and dynamic financial modelling goes beyond financial projections and incorporates environmental and social considerations across an ever-changing market landscape. By considering the broader impact of sustainability initiatives, such as real-time energy use, operational and cost efficiencies, reputational risks, regulatory scrutiny, relationships with sustainability-conscious customers and suppliers and board and shareholder interests, businesses can assess the all-encompassing value and potential returns of their investments. By incorporating real-time data and market insights into their strategies, businesses can make more informed decisions and adapt their approach as needed.

This ensures that sustainability investments remain relevant and resilient amidst market fluctuations, regulatory changes and emerging technologies. It enables businesses to build strong business cases that showcase not only the financial benefits but also the environmental and societal benefits of sustainability projects.

By uniting net zero strategies with organisational data and insights, businesses can build confidence in effective renewable investment and expedite the drive towards achieving net zero emissions. They can identify and prioritise the most impactful sustainability initiatives, allocate resources effectively and monitor progress towards their carbon neutral goals. This proactive, data-led approach accelerates business leaders’ ’speed to yes’ and the efficiency and effectiveness of sustainability investments.

Introducing innovative platforms

Net zero platforms such as True, powered by Open Energy Market, which uses expertise and data-led insights, play a transformative role in providing real-time visibility into the effectiveness of an organisation’s energy mix. These platforms enable businesses to analyse and optimise their total energy usage, leveraging data-driven insights and dynamic financial modelling. By adopting such platforms, teams can develop robust sustainability business cases, mitigate risks and accurately propose and report on the financial viability of renewable projects.

The role of energy procurement specialists

Beyond data-led net zero platforms, one of the most effective approaches enabling businesses’ move towards accurate insights, robust modelling and a deep enough understanding of market volatility is by engaging energy procurement specialists.

Energy procurement specialists possess in-depth knowledge of the constantly evolving energy market, especially in the realm of renewable energy. By complementing data-led modelling with market knowledge, such specialists can offer businesses valuable insights into the financial implications of sustainability investments.

Additionally, energy procurement specialists provide access to a wide network of partners and advisors who can offer tailored guidance and support for implementing renewable investments to help businesses build confidence in their sustainability projects.

Aligning procurement and sustainability

The growing recognition of sustainable energy practices within businesses indicates a readiness to drive net zero forward. Alongside this, businesses are beginning to realise the wider benefits of sustainability initiatives, such as enhanced consumer and shareholder relationships, decreased risk of scrutiny and cost savings.

A lack of financial-grade renewable energy insights is one of the greatest blockers preventing business from converting positive intention into action. However, by harnessing real-time, dynamic modelling, specialist expertise and innovative platforms in organisational sustainability strategies, businesses can confidently make more informed decisions to overcome these challenges hindering their net zero ambitions and accelerate the transition to a more sustainable future.

For more information about energy procurement and net zero technologies, visit https://www.truezero.tech/

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